Bridging Theory and Practice: Wespath’s Jake Barnett on the Realities of System-Level Investing

Following high-profile discussions at the Principles for Responsible Investment (PRI) in Person conference in Amsterdam,

sustainable finance professionals are grappling with a growing conceptual divide over "system-level investing." While the framework has gained substantial momentum as a necessary evolution for institutional portfolios, practitioners are increasingly warning that the movement risks losing its practical grounding if it drifts too far into abstract economic theory.

Jake Barnett, head of sustainable investment strategies at Wespath, believes that elevating sustainable investment to a system-level focus remains a fundamentally positive development. As complex global challenges like the climate crisis continue to intensify, they present systemic risks that cannot be effectively diversified away. These macro-level crises ultimately impact the broader economic health and stability that long-term investors rely upon for sustainable value creation across their portfolios.

In an increasingly fractured and rapidly changing global landscape, addressing these systemic issues demands a sophisticated understanding of feedback loops, critical leverage points, and herd behavior across financial, economic, political, and social structures. Yet, discussions in Amsterdam also highlighted a rising undercurrent of concern regarding the prevailing narratives surrounding system-level investing. At the core of this anxiety is a growing perception that some advocates are approaching the discipline without a sufficiently practical or actionable lens.

Proponents of system-level investing sometimes argue that institutional investors should directly pressure corporations operating high-emitting or carbon-intensive businesses to dramatically shrink those activities, even if it requires sacrificing short-term corporate returns. The theoretical justification is that curtailing these negative externalities will safeguard the long-term health of the broader economy, thereby protecting the investor’s entire portfolio.

However, this approach immediately collides with practical and political realities within institutional governance. Asking an investor to accept near-term financial losses in a specific holding in exchange for a diffuse, long-term macroeconomic benefit—one that no single investor can independently guarantee or capture—makes the strategy a difficult sell for fiduciary asset owners.

Grounding System-Level Strategies in Institutional Reality

If the sustainable investment community is to successfully embrace and operationalize the concept of system-level investing, Barnett argues that it cannot be done purely in the abstract or in isolation. As an essential first step, sustainable investors must ensure that their definitions of system-level investing translate into concrete programming that directly aligns with the broader strategic and fiduciary goals of their parent institutions.

Drawing from his own experience as a practitioner, Barnett points to four foundational practices that can help investment teams sharpen their strategic thinking.

The first priority is to clarify the specific institutional approach. While "systems" can be defined across numerous dimensions—including economic, environmental, and financial structures—the most critical system for any investor to understand first is that of their own organization. Clarifying internal goals, risk tolerances, and governance structures is fundamental, as there is no universal template for success.

The second practice involves internal communication and speaking the language of key decision-makers. When introducing these concepts internally, sustainability teams must move past specialized jargon and frame their arguments in terms familiar to executive leadership and chief investment officers. For instance, framing climate risk through the lens of traditional risk management and portfolio protection typically proves far more productive than relying solely on broad macroeconomic theory, especially when backed by specific, actionable examples.

Leveraging Institutional Strengths and Partnerships

A third vital practice is identifying and leaning into an organization’s existing internal strengths and areas of consensus. Institutional investors should carefully examine where alignment is strongest regarding systemic issues, and evaluate whether specialized expertise across different asset classes or stewardship practices can be deployed more effectively. Resources such as The Handbook of System-Level Investing by Jon Lukomnik and Bill Burckart offer valuable case studies illustrating how leading organizations successfully build internal alignment while maximizing their core institutional competencies.

Finally, practitioners must continuously challenge their underlying assumptions regarding theories of change by working closely with external partners who possess deep domain expertise. Asset owners, for example, have every right to critically evaluate asset managers on their system-level strategies, seeking both innovation and alignment. At the same time, asset owners must remain open to collaborating with managers who maintain closer relationships with corporate leadership and possess sector-specific insights into the operational challenges companies face.

These collaborative exchanges often extend naturally into policy engagement, representing a crucial lever for reshaping the rules that govern the broader economy—a dynamic explored by Barnett and Patrick Peura in their paper, Future of Investor Engagement. While policy advocacy requires specialized skills that differ significantly from traditional corporate stewardship, engaging with policy professionals helps institutions determine whether they possess the appropriate risk appetite and resources to drive meaningful change without unintended consequences.

Ultimately, Barnett acknowledges that system-level investing remains a complex and challenging concept to translate into everyday portfolio management. However, he emphasizes that institutional investors should avoid getting bogged down in endless theoretical debates. Because every financial institution operates under unique constraints and mandates, the most effective approach cannot be found in shortcuts, but rather through a continuous cycle of experimentation, active listening, learning, and practical adaptation.