Hierarchical organization of 'systems within systems' is an apparent characteristic of nature. For many biotic and abiotic systems it is known how the nested structural and functional order builds up, yet the general principle why matter evolves to hierarchies has remained unfamiliar to many. We clarify that increasingly larger integrated systems result from the quest to decrease free energy according to the 2nd law of thermodynamics. The argumentation is based on the recently derived equation of motion for natural processes. Hierarchically organized energy transduction machinery emerges naturally when it provides increased rates of energy dispersal. Likewise, a hierarchical system will dismantle into its constituents when they as independent systems will provide higher rates of entropy increase. Since energy flows via interactions, decreasing strengths of interactions over increasingly larges lengths scales mark natural boundaries for nested integrated systems.