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The What, Why and How of System Stewardship: A Conversation With Sara E. Murphy

This is an interview with Sara E. Murphy, Chief Strategy Officer at the non-profit organisation The Shareholder Commons.

Q: Tell us a bit about your background and career, and how you came to focus on investment stewardship?

I began my career working for NGOs in the international development and disaster response fields. In 2001, I transitioned into Sustainable and Responsible Investment (SRI) research for the Investor Responsibility Research Center (IRRC), where I specialized in bioengineering and defense contracting research. After leaving IRRC, I spent several years at The Cadmus Group, an environmental consultancy. In 2005, I moved to Frankfurt, Germany to work as a senior sustainability analyst for Fortis Investments’ SRI fund management team. (Fortis Investments was acquired by BNP Paribas Asset Management during my tenure.) I moved back to Washington, DC in 2011, where I launched my independent consultancy on sustainable investing and corporate responsibility. After almost a decade doing that, I was beginning to feel, frankly, quite anxious about how far away the investment landscape still was from anything resembling a sustainable course, despite the progress we’d been making in ESG integration. When I heard about The Shareholder Commons’ focus on systems rather than enterprises, I knew that was the essential next step, and I joined up in 2020.

Q: As Chief Strategy Officer at the NGO The Shareholder Commons, what’s your work about and what are the objectives of TSC?

TSC is a non-profit organization that addresses social and environmental issues from the perspective of shareholders who diversify their investments to optimize risk and return. TSC addresses the divergence that often emerges between a company’s interest in maximizing its cash flows over the long term and its shareholders’ interests in optimizing overall market returns.

We believe that in a free-market system, investors must establish universally applicable minimum standards for portfolio companies, so as to preserve essential social and environmental systems that undergird diversified investment portfolios. TSC promotes system stewardship through four interrelated initiatives: public advocacy, engaging investors, policies, and litigation. My work focuses primarily on engaging and collaborating with investors to put system stewardship tools into practice.

Q: In pursuit of TSC’s goals, how must current market structures change? And how can investors get involved?

Investors can’t maximize their returns without addressing the social and environmental costs that portfolio companies externalize. We help institutional investors to preserve resources vital to long-term performance by encouraging companies to pursue business strategies that don’t impose social and environmental costs on the rest of their portfolios. For example, the economic loss a diversified portfolio incurs from unrestrained climate change is likely to far exceed any excess return an investor might receive from picking companies that outperform the market. By the same token, when companies overuse or misuse antibiotics, fail to pay their workers a living wage, evade taxes, and ignore human rights, they damage public health, destabilize society, threaten infrastructure, and risk the global order, all of which threaten diversified shareholders’ returns.

Our system stewardship resources help investors to protect their portfolios from such systemic threats. They help investors to ensure that the companies prioritize their systemic impacts over individual company profit in order to protect portfolio values. This reprioritization may require companies to reject practices that damage the systems that support our global economy, even if such rejection could decrease the individual company’s relative return. Our system stewardship tools are specifically designed to address this potential divergence of interest between diversified investors and the companies they own. I encourage interested investors to contact me at

Q: Some will disagree with this approach and argue that certain limitations make wide application unlikely such as perceived conflicts with corporate director duties, or activity replacement by other, less ethical, entities. What’s your response to such views?

A recent report from the law firm Freshfields Bruckhaus, A Legal Framework for Impact, shows that investment professionals around the world have not just the prerogative but an obligation to prioritize systemic issues such as climate change, inequality, and biodiversity loss over the financial performance of individual companies when they provide the greater risk to portfolios. In short, it’s squarely in line with fiduciary duty to implement the system stewardship approach we propound.

And yes, there is absolutely a conflict of interest between corporate directors—who are concentrated owners of their own companies—and their diversified shareholders—who rely on a resilient economy, supported by critical social and environmental systems, to maximize their diversified portfolios. That’s why we focus on institutional investors. Their obligation is to those shareholders, who are just trying not to run out of money before they die, and not to corporate boards.

As to activity replacement, the large institutional investors that dominate the capital markets can reach many privately held companies through their status as limited partners in private equity, venture capital, and infrastructure funds. There are also opportunities to affect businesses through debt markets and guardrails that reach into supply chains. Finally, system stewardship tools applied to some entities creates an incentive for them to ensure that adequate regulation is put into place, to avoid losing in the race to the bottom.

Q: One counterargument I can think of is how diversified ownership also reflects portfolio-maximizing strategies, e.g. by favoring risk-taking that increases the risk of individual business failures such as leveraged capital structures. Even so, many view general guardrails or merit-based approaches to corporate governance as often too prescriptive, so how do you marry the two?

The biggest thing that matters to diversified shareholders is the value of the economy itself—and, by extension, the environmental and social systems that sustain it—and individual enterprise value comes in a distant second. Guardrails are designed to prevent companies from maximizing their enterprise value, and thereby the marginal increase in financial return they deliver to shareholders, by externalizing their costs that shareholders absorb to a much greater degree across the rest of their portfolios. It’s just a bad trade for everyday savers. We are capitalists. We’re saying that companies should compete on providing the best product or service, not on externalizing costs.

Q: Systematic risks are often rooted in government shortfall, and still we call for policy action in many areas. Investors can play a catalytic role by meaningfully raising the salience of particular issues; any thoughts on balancing investee vs public policy engagement, and so forth?

In an ideal world, government would fully perform the function of setting limits that prevented companies from seeking profit through cost externalization. But we don’t live in such a world. The conditions for excessive greenhouse gas emissions, antibiotics overuse, worker mistreatment, and disinformation proliferation (to name just a few systemic risks) have gone unchecked, and in some cases have been fostered by regulatory support for unsustainable business models.

Considering the facts on the ground, guardrails are necessary to complement regulatory strategies for two reasons. First, they can act as stopgaps until regulatory solutions are reached. Second, they can reverse continuing industry opposition to meaningful regulation, which is one of the chief obstacles to government action by (1) prohibiting public influence campaigns aimed at interfering with needed regulation and (2) incentivizing support for regulation by companies subject to the guardrails.

Q: Do you see any particular regional differences or trends in investor practices here?

To a certain degree, we do, but there are no regional differences when it comes to fiduciary duty, and that duty is best served by system stewardship.

Q: Time for final remarks, if you could ask for one thing of investors, what would it be?

I’d ask them to recognize that just because we’ve become accustomed to doing things a certain way doesn’t mean it’s the best way. I’d ask them to find the courage to recognize that we cannot continue on this trajectory, and that it’s their fiduciary obligation to take care of the critical systems on which everyday savers depend for their basic prosperity.

Thank you Sara and good luck with the important work at The Shareholder Commons!

If you want to learn more about The Shareholder Commons, please visit its website at

Interviewer: Rickard Nilsson, Head of Stewardship Success, Esgaia

Interviewee: Sara E. Murphy, Chief Strategy Officer, The Shareholder Commons

About Sara:

Sara joined The Shareholder Commons in 2020 after 22 years working in sustainable investing and environmental and social advocacy. Sara began her career working for NGOs in the international development and disaster response fields. Sara holds a Bachelor of Arts degree from the University of Virginia in French and Spanish, and a Master of Arts degree from George Mason University in Economics. Sara grew up in Asia and sub-Saharan Africa, which fundamentally shaped her understanding of the business world’s long reach and influence.


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