What System-Level Investing Is—and Why It’s Different From Any Approach You’ve Used Before

William Burckart

Editor’s Note: This commentary is Part II of a three-part series of essays from this author on the future of institutional investment management.

Coined by TIIP in 2015, system-level investing is a fiduciary-informed, finance-rooted framework that aligns investment decisionmaking with the health of environmental, social and financial systems. It equips institutional investors with a total portfolio approach designed to deliberately shape the structural conditions upon which long-term performance depends.

What We’re Really Solving For

Let’s be clear:

Each of these approaches centers on enterprise value and potential. System-level investing adds a further layer of responsibility—and a different kind of opportunity.

If we fail to invest in the systems that sustain markets, we risk undermining the very foundation of long-term value creation. That’s why CIOs who have embraced system-level investing don’t see it as an overlay—they see it as a strategic upgrade, one that reframes how they think about risk, return and resilience.

The Climate Test Case

As we explore in 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change, the book I co-authored with Steve Lydenberg that first introduced the concept, climate change offers the clearest example of what these distinctions look like in practice. Traditional investors may view rising sea levels and more frequent or severe droughts as new market opportunities: more Arctic oil drilling, metal mining in Greenland, or scaling desalination innovations. It’s opportunism in the face of catastrophe.

Sustainable and impact investors might respond by cleaning up their portfolios—divesting from fossil fuels, investing in renewables and pressuring lagging companies to improve their emissions.

System-level investors go further. They construct portfolios aligned with a vision of a post-carbon world: solar, wave and wind farms; battery storage that doesn’t require rare metals or exploitative supply chains; regenerative agriculture; and sustainable forestry. But they do not stop at portfolio holdings. They also:

• Push for mandatory emissions disclosure so all investors can act on climate risk;
• Join investor coalitions to engage the world’s most systemically significant emitters;
• Help define new asset classes, like green bonds in 2007, and shape the standards that govern them;
• Support regulations and incentives—carbon pricing, tax credits, public procurement—to accelerate the transition; and
• Pressure trade associations to align their lobbying with climate goals.

System-level investing is about finding and activating leverage points across markets, policy and norms.

Signals of Progress

Case in point: A growing number of institutional investors are using statements of investment beliefs to clarify their commitment to system-level investing—setting both an internal compass and an external signal for how they define long-term value and risk.

One example is the Health Employees Superannuation Trust Australia, a superannuation fund with A$93 billion in assets under management as of June, serving workers in health care and community services. In its responsible investment policy, HESTA states:

“We recognize how important a growing, sustainable and inclusive economy is to delivering strong long-term returns for members. … System-level issues cannot be mitigated through diversification or divestment.”

HESTA explicitly links member outcomes to the health of broader economic and social systems, citing gender equality, decent work and public health as drivers of strong market fundamentals, and identifying systemic risks like climate change and biodiversity loss as long-term threats that require active management.

This logic—that a fund’s long-term performance depends on the health of the financial, environmental and social systems within which it operates—is echoed by other major asset owners. Jon Lukomnik and I highlighted in our 2024 report for the CFA Institute Research and Policy Center how the California State Teachers’ Retirement System, with $350 billion AUM as of April, takes a similarly strategic stance. Its policy states:

“Short-term gains at the expense of long-term gains are not in the best interest of the Fund. Sustainable returns over long periods are in the economic interest of the Fund. Conversely, unsustainable practices that hurt long-term profits are risks to the System.”

Accordingly, CalSTRS aims to act as “a catalyst in transforming the financial markets to focus on long-term value creation that fully integrates sustainability considerations,” leveraging its influence to promote responsible business practices and supportive public policy.

Other investors contribute by strengthening the infrastructure that underpins the financial system. The K.L. Felicitas Foundation, a family foundation with $10 million AUM as of 2025, exemplifies this approach: creating collaborative structures that build field-wide capacity and reinforce systemic resilience.

Rather than simply curating an impact-themed portfolio, Founders Lisa and Charly Kleissner have used their foundation and personal wealth to strengthen the infrastructure of the impact investing ecosystem. Their efforts span three interconnected strategies: supporting incubators that grow the pipeline of impact entrepreneurs; seeding intermediaries such as Sonen Capital and ImpactAssets to address market gaps; and launching Toniic, a global network of more than 500 high-net-worth individuals, family offices and foundations committed to 100% impact-aligned portfolios.

Different Use Cases

As the concept of “systems” gains traction across the investment landscape, a growing array of adjacent frameworks has emerged—some offering valuable insights, others labeled imprecisely. While many contribute useful perspectives, conflating the various approaches can muddy distinctions and obscure what institutional investors need to act with rigor and accountability.

System-level investing is often misunderstood or mischaracterized as similar to other frameworks, despite it being fundamentally distinct from them: grounded in fiduciary duty, designed for institutional portfolios and focused on reshaping the structural conditions that drive long-term value. For example, “systems stewardship” is one technique within this broader approach—using shareholder engagement and proxy voting not merely to improve firm-level performance, but to safeguard the integrity and resilience of interconnected markets.

In contrast, models such as “systemic investing,” “investing for systems change” or “financial ecosystems for systemic transformation” typically emerge from philanthropic or impact investing traditions. These approaches focus on system-adjacent investments within a portfolio, often relying on blended, patient or concessionary capital. They emphasize relational, political or values-driven objectives, with efforts centered on shifting power dynamics, addressing root causes and fostering innovation within specific ecosystems—rather than reshaping the broader systems upon which all portfolios depend. By contrast, system-level investing seeks to exert cross-portfolio influence on those foundational systems directly.

While these models can be deeply transformative, they operate under different forms of accountability—anchored in community outcomes, moral alignment or intergenerational justice, rather than fiduciary duty. As a result, movement-building, narrative change and trust-based partnerships may take precedence over market-based mechanisms and risk-adjusted returns.

Yet these distinctions do not imply opposition. In fact, catalytic capital strategies that underpin these other models have long addressed system-level challenges across sectors. By deploying blended finance structures and convening a range of stakeholders, they often serve as early-stage testing grounds or field-building platforms that complement institutional investors’ efforts. Through surfacing solutions, demonstrating feasibility or mobilizing coalitions, they help pave the way for larger-scale capital aligned with long-term system-level goals.

As Harvey Koh, a senior adviser to the Catalytic Capital Consortium, has argued, catalytic capital models represent decades of foundational work—laying the groundwork for more structured, actionable strategies that aim to transform systems through philanthropy and impact investing.

Another notable contribution comes from the Shifting Systems Initiative at Rockefeller Philanthropy Advisors. Building on its 2020 “Impact Investing Handbook,” RPA recently released two tools—“The Systems Thinking for Impact Investing Primer” and “The Systems Thinking for Impact Investing Playbook,” both authored by Karim Harji. These resources go beyond abstract theory to offer practical guidance for integrating systems thinking into impact investing processes, helping organizations evolve their strategies while staying grounded in proven methodologies.

The Strategic Imperative

Our field can benefit from methodological pluralism, but not from conceptual confusion. For asset owners and their beneficiaries—and for the managers and consultants who support them—it is essential to clearly define what system-level investing is and what it is not so that the leaders ready for more are equipped to take action and facilitate implementation. Clarity ensures that strategies align with institutional mandates, tools meet fiduciary obligations and well-intentioned efforts do not veer off course, risking costly and strategic drift.

As TIIP, the CFA Institute and the Principles for Responsible Investment have emphasized, system-level investing is not a values-based overlay. It is a strategic imperative for investors who recognize that long-term value depends on the stability and health of the systems upon which all portfolios rely.

It doesn’t just manage exposure. It seeks to reshape exposure itself.

In Part III, I’ll show what this looks like in action. From public pensions to private foundations, we’ll explore how leading investors are operationalizing system-level investing and why it’s becoming a fiduciary imperative.

William Burckart is the CEO of The Investment Integration Project, adjunct professor of international and public affairs and the Brandmeyer Fellow for Impact and Sustainable Investing at the School of International and Public Affairs at Columbia University, and a fellow with the High Meadows Institute.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

Tags: Climate Risk, ESG, Impact Investing, Institutional Investing, Modern Portfolio Theory, sustainable investing, system-level investing