The Devon View: Systematic Stewardship - what is it and why does it matter?

October 2026

Alice Jones, ESG Analyst

As a bottom-up fundamental investor, Devon assesses climate risk at the company level. For electricity companies like Contact Energy and Genesis Energy, understanding how they are transitioning away from gas and thermal coal is integral to understanding the business and investment case. Equally, assessing whether mining company BHP can replace its fleet of diesel trucks with battery alternatives is important to understanding if they will be less exposed to carbon pricing schemes or changes to government diesel rebate schemes. We also track each company’s decarbonisation targets, engage with management on how those targets are set, and evaluate the reasoning when targets are missed. At the portfolio level, we monitor the carbon intensity of every portfolio against its benchmark to flag any that are running above their benchmark’s carbon footprint. 

But in doing all this, have we risked missing the wood for the trees?

The 2022 paper by Columbia Law School professor Jeffrey Gordon, Systematic Stewardship, suggests a different approach. It starts from a core principle of investment management, which is that investors seek the best return for the risk they take. Diversification can remove company-specific (“idiosyncratic”) risk, but it cannot remove market-wide (“systematic”) risk. Gordon argues that because systematic risk is what remains in a diversified portfolio, stewardship aimed at reducing it does more for portfolio outcomes than engagement aimed at lifting individual companies, where one company’s gain often comes at a competitor’s expense. Climate change is his leading example, alongside financial stability and social stability. Essentially, company-level engagement is about picking the better boats, while systematic stewardship is about the tide that moves them all.

Gordon’s argument is aimed, mainly, at large, diversified funds such as index funds and universal owners, whose portfolios effectively represent the global economy. Devon is different; we are an active, long-only, trans-Tasman equities fund manager. However, our portfolios are anchored to the New Zealand and Australian markets, and for whatever stocks we hold, we cannot diversify away the climate risk embedded in those economies. Gordon argues that most active managers should consider systematic risk alongside their company-specific work, and that logic applies to us.

In some ways, Devon’s stewardship efforts have already been moving towards a more systematic lens. For many years we have been a contributing investor in Climate Action 100+, a collaborative initiative where investors encourage the world’s largest corporate greenhouse gas emitters to improve climate governance, cut emissions and strengthen disclosures. For several years Devon have been assigned to work with supermarket giant Woolworths, and more recently, Bunnings and Kmart owner Wesfarmers. Both companies operate large, complex supply chains and are highly influential with their suppliers, so the scope for decarbonisation beyond their own operations is greater than for most businesses. This is the kind of collaborative company engagement where progress at one company can instigate progress more broadly – in our view this is systematic stewardship at work.

Recently, we also took part in a collaborative sovereign engagement initiative with New Zealand government ministries, organised by the UN Principles for Responsible Investment under its Collaborative Sovereign Engagement on Climate Change initiative. We were hosted at the Treasury in Wellington at a meeting that brought together representatives from the Treasury, the Ministry for Cities, Environment, Regions and Transport, the Ministry of Foreign Affairs and Trade, the Department of the Prime Minister and Cabinet, and Te Puni Kōkiri, alongside domestic and international investors. The investor-led agenda covered how investors integrate climate risk into investment decisions, feedback on New Zealand’s climate policy, and the importance of robust climate disclosures. Our key message was that climate is a core, financially material issue, and that stable, credible and bipartisan climate policy matters for New Zealand’s cost of capital and its reputation as an investment destination. Investors outlined how we use climate related disclosures to assess governance oversight and transition risks, and as a basis for ongoing engagement with companies. We also noted that policy uncertainty makes it harder for companies, like those in the electricity sector for example, to attract foreign investment. As one local investor put it, New Zealand is not an optional market for us, so we need supportive policy settings to address climate risk in our portfolios. Engaging on policy and disclosure in this way is systematic stewardship in practice, as it targets the risk that stock selection can’t avoid.

Systematic stewardship will not replace our engagement with individual companies. We think it’s complementary. As an active manager, Devon can overweight, underweight or divest from companies, giving us more scope than a passive manager to respond to risks within our portfolios, but some risks may reach every company we hold in some shape or form, and those are best addressed by looking beyond the individual stock to the system as a whole.

Systematic Stewardship - Jeffrey N. Gordon, Columbia Law School