Why stewardship needs to look beyond individual companies

Responsible investment and stewardship is often associated with company engagement on environmental, social and governance (ESG) issues, such as encouraging improvements in areas like board effectiveness and sustainability practices.

But some risks that affect client portfolios are broader than any single company and can influence whole markets, economies and asset classes.

Climate change, biodiversity loss, workforce resilience, AI, geopolitical tensions and trade disruption are all examples of risks that can affect growth, stability and returns. For diversified investors, these risks cannot always be managed through stock selection alone because they may affect many holdings at the same time.

Systems-level stewardship focuses not only on individual holdings, but on the wider standards, incentives and market conditions that shape long-term investment outcomes. For advisers, this can provide useful context when assessing how managers approach risks that may be difficult to diversify away from.

A practical example is policy engagement, where investors seek to support clearer rules, better disclosure or stronger implementation across a market.

In 2025, investors raised concerns that the EU Methane Emissions Regulation could be reopened or delayed, potentially weakening regulatory certainty. Scottish Widows supported an investor statement, backed by the Institutional Investors Group on Climate Change (IIGCC), urging EU institutions to maintain and implement the regulation as adopted, including its timeline and core provisions.

This was followed by letters to eight oil and gas and utility companies, asking them to clarify their position on the regulation and explain how this aligned with their trade association activity. It shows how policy engagement and company dialogue can work together to support clearer standards and more consistent implementation across a market.

Systems-level stewardship focuses the wider standards, incentives and market conditions that shape long-term investment outcomes.”

Advisers may want to explore how investment managers consider systemic risks alongside more traditional stewardship activity. They can look for this information in asset managers’ and asset owners’ 2026 UK Stewardship Code submissions – the updated Code specifically asks signatories to disclose how they address systemic and market-wide risks, reflecting the growing importance of stewardship beyond individual company engagement.

Questions worth considering include:

• How does the manager identify the systemic risks most relevant to long-term investors?
• Does it participate in industry collaborations where collective action may be more effective than individual company engagement?
• How does it engage with evolving market standards and industry frameworks?
• Can it demonstrate how stewardship activity supports its broader investment objectives?
• How does it assess the effectiveness of its stewardship efforts over time?

These questions can help advisers understand whether stewardship is being treated as a standalone engagement activity or as part of a wider approach to managing long-term investment risks.

For more detail on systems-level stewardship, including case studies, see our Scottish Widows Responsible Investment and Stewardship – 2025 Activities & Outcomes Report, available on our website. The report has been written in adherence to the 2026 UK Stewardship Code and includes disclosure on how systemic and market-wide risks are addressed in practice.