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Stewardship is often framed through company-level engagement on environmental, social and governance (ESG) issues, such as board effectiveness, capital allocation, climate strategy or labour practices.
For pension investors, however, some of the most material risks are not confined to individual issuers. They are system-wide issues that can influence economic growth, inflation, market functioning and long-term asset returns.
Climate transition, biodiversity loss, workforce resilience, artificial intelligence, geopolitical fragmentation and trade disruption can all create correlated risks across sectors, regions and asset classes. For well-diversified pension portfolios, these risks cannot always be diversified away through security selection alone.
This is where systems-level stewardship comes in
Systems-level stewardship looks beyond individual holdings to the policy, regulatory, market and industry conditions that shape long-term investment outcomes. This can be a useful lens when assessing whether managers are addressing risks that could affect funding outcomes, member outcomes and the resilience of default investment strategies over time.
Systems-level stewardship in practice
One practical route is policy engagement, where investors seek to support clearer regulation, more consistent disclosure or stronger implementation across a market. This can be particularly relevant where systemic risks require coordinated standards rather than issuer-by-issuer action alone.
Case study: EU Methane Emissions Regulation
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. The example shows how policy engagement and company dialogue can reinforce each other: supporting regulatory certainty while also testing whether individual companies’ lobbying activity is consistent with stated climate commitments.
How to assess systems-level stewardship
You may want to consider how stewardship is integrated into manager research, default strategy oversight and wider governance discussions with pension scheme clients. The 2026 UK Stewardship Code gives this added relevance by asking signatories to explain how they address systemic and market-wide risks, not just company-specific engagement.
Areas to explore include:
- How does the manager identify systemic risks that are financially material to pension savers over different time horizons?
- How are those risks reflected in investment beliefs, manager selection, escalation frameworks and reporting?
- Does the manager participate in credible industry collaborations where collective action may improve market-wide outcomes?
- How does policy engagement sit alongside company engagement, voting and escalation?
- Can the manager evidence progress, outcomes and lessons learned rather than simply listing activity?
These questions can help differentiate between stewardship focused on individual activities, which while important, needs evidence that it is also deployed strategically to manage systemic and long-term risks across pension portfolios.
Want to learn more?
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.
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