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What has transpired in the corporate world over the past 18 months looks, to many, like a revolution. CEOs of major corporations are pledging to serve all stakeholders, not just shareholders. Environmental, social and governance “best practices” and reporting have become the rage. Companies have been shamed for their embarrassing levels of diversity in the boardroom and at senior management levels.

This looks like a much-needed correction to capitalism’s overreaches. The system that has delivered unmatched growth and prosperity has also held us hostage to “short-termism” – prioritizing immediate profits – while failing to adequately address externalities and systemic risks such as climate change, financial-system instability and growing inequality.

If history is any guide, though, many of these “breakthroughs” will end up being little more than smart public relations moves.

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Consider the trend of public corporations racing to unveil polished “purpose statements” as evidence that they are changing their ways. It is possible these will motivate some executives, but it’s much more likely the messages will remain cosmetic – and will be met with skepticism and more mistrust inside and outside the corporation.

Worse, they could actually backfire because of something behavioural psychologists refer to as “moral self-licensing.” By making a gesture of moral behaviour, people often act more recklessly. Hiding behind a façade designed to impress and secure CEO legacies, corporate leaders often feel less constrained in their actual conduct.

There are also many governance reforms – constraining executive compensation, eliminating quarterly earnings disclosure, changing board composition, amending rules dictating directors’ legal duties – that have become grist for the governance industry mill. Again, while well intentioned, such reforms are often symbolic gestures – focused on improving governance “ratings” rather than on actual outcomes. Trust in the possibility of meaningful reforms diminishes as the gap between the “talk” and the “walk” widens.

To make a meaningful dent, we must empower the system’s new behemoths: a small group of giant institutional investors that manage a vast and growing amount of our savings and wide swaths of our economy. Because of this rapid concentration of savings, these large investment owners and managers, many of which invest passively in stock indices, now have dominant ownership (and voting) stakes in virtually all public companies. Yet their advocacy for better corporate governance remains half-hearted and ineffective.

The problem is mostly structural. Taking an active stewardship role is inconsistent with a business model that focuses on lowering money management costs and encouraging companies they invest in to maximize short-term returns. For things to truly change, these institutional investors must be held accountable as active catalysts for more sustainable performance.

To be fair, many passive managers are re-evaluating their investment and voting decisions, recognizing that environmental and social unsustainability is financially risky. Increasingly they tend to do so at the portfolio level, rather than just for individual firms. When you “own the market” for the long term, individual firm performance is less important than overall portfolio value.

How best to accelerate this process? A first step would be to follow the lead of the 2020 U.K. Stewardship Code, which defines stewardship as the responsible management of capital to ensure sustainable benefits for the economy, the environment and society. The focus is on aligning how money is invested with the investment objectives and time horizons of those who choose (or are obliged) to invest with these institutions (such as saving for access to quality education and retirement security).

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The code requires public reporting and an annual regulatory review of professed stewardship activities and performance. The objective is to align the power of these investors with the interests of their human clients and society. Until this happens, it is unrealistic to expect the companies they own and capital markets they dominate to do so.

Major investment managers should also be required to demand (and provide) better disclosure and accountability for systemic issues that have an impact on their portfolios. Financial regulators can make this happen by confirming the materiality of such corporate disclosures and overseeing the standard setters (as they do with credit-rating bodies). This would activate existing securities laws, which impose liability for misleading statements and omissions.

The time for aspirational statements has passed. The best way to ensure that promises become more than symbolic gestures is by requiring major investment managers to ask tough questions and be held to account in their investment approach and culture. Doing so should also serve their interests. Focusing on sustainable growth, environmental responsibility and a more equitable society will help legitimize a growing concentration of power that has outgrown expected responsibilities. This, in turn, will substantially reset our thinking about corporate governance.

Edward Waitzer is a former chair of the Ontario Securities Commission and was a founding director of the Sustainability Accounting Standards Board.

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