UKSIF puts forwards recommendations to address systemic risks

May 9, 2025

The UK Sustainable Investment and Finance Association (UKSIF) has set out recommendations to help asset owners, managers, and policymakers better tackle the challenges that systemic risks pose to investors.

In partnership with Scottish Widows and Canbury, UKSIF launched a report examining practical steps UK-based asset owners can take to address systemic risks within their portfolios.

The report defined systemic risks as un-diversifiable threats that can affect entire markets or economies, triggering chain reactions across sectors and disrupting growth.

Examples include climate change, biodiversity loss, income inequality, geopolitical instability, and technological disruptions like AI.

The report’s recommendations for how to tackle these risks centred around four main categories: misalignment, influence, measurement and terminology and framing.

To prevent misalignment and incentivise asset managers to address systemic risk, the report recommended that asset owners assess managers’ approaches to these risks during appointments and regularly monitor their commitment.

It also suggested framing systemic risk in terms of investment outcomes and fiduciary duty.

For influence, proposed leveraging internal specialists or collaborating with other asset owners, as well as assessing systemic risk approaches in service provision to ensure alignment with managers’ and providers’ objectives.

Systemic risks are not capture for in traditional risk models due to challenges in measurement. Therefore, the report advised asset owners and managers to recognise data limitations by starting with broad risk identification, using multiple methodologies rather than relying on a single framework to better capture these risks. It also suggested collaborating to strengthen portfolio-level frameworks that prioritise systemic risks.

To address the lack of consensus on defining and prioritising systemic risks, the report urged asset owners and managers to embrace the ambiguity of these risks, recognising that, while priorities may differ, they ultimately impact the whole system and require collective action. It also called on policymakers to ensure that new policies account for trade-offs.

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