What happens when you bring a handful of impact investing experts together for a discussion on the potential for family offices in this contentious space? The short answer is a very long list of insights – but here are five that stood out.
Many are looking towards the family office space and its sizeable pool of financial assets to help solve some of our global issues. Applying trillions of dollars of investment towards companies and initiatives that seek to improve sustainability, promote social equality and increase responsible governance just makes sense, and the family office ecosystem is uniquely positioned to achieve that.
In a recent webinar hosted by Simple, a panel of experts shared their thoughts on how family offices. Here’s the five of the key takeaways that may be of some value in thinking about sustainable investing or exploring impact investing:
1. Industry terminology is confusing – rather focus on family values
Something that came out early on was the sheer variety of terms and areas within the broader impact and sustainability side of investing and how they generate a lot of confusion in how to approach the subject and where to focus on. A cleaner route is to look at the values shared amongst the wealth owners of the family office, since each family has unique values that should guide their investment decisions.
“We want to start with the intentions families have both to generate financial returns and societal impact. Only thereafter can you discuss matching the investment approach, whether its ethical, responsible, impact, or venture philanthropy, or a combination of these,” said Damian Payiatakis, Head of Sustainable and Impact Investing at Barclays.
This was echoed by the others who highlighted that discovering and aligning family values and a broader mission is an essential part of the process. This often requires workshops and facilitated conversations to help map these out and identify the shared priorities.
Compliment this approach by considering any existing philanthropic initiatives then seek to align impact investments with these interests, even leveraging their experience, data and research to do so more effectively.
An end goal is to reach a consensus where the collective family perspective is clearly defined and enables an investment team to understand and utilize those values and priorities in their decision-making.
2. Mainstream investors already consider sustainability for financial reasons
While once a nice-to-have, the shift towards incorporating environmental, social and governance (ESG) considerations into investing is becoming a baseline. Family offices are assessing how potential investments operate on material ESG factors to obtain a deeper understanding of the inherent risks and opportunities to making money.
“From our research, even if traditional investors do not see themselves as sustainable or impact investors, 72% now report using ESG considerations in their investment process,” says Payiatakis, reinforcing this notion. “Responsible investing is really about maximizing risk-adjusted return, with investors saying ‘I want to have the best set of data available, whether on financials or sustainability, to inform my investment decision.’”
Beyond risk mitigation, investment opportunities are emerging around global sustainability challenges. Commercial businesses that address social and environmental issues, such as climate change or longevity, often have significant long-term potential. So even where investors may not be interested about the positive outcomes, they’re attracted to the potential growth.
3. Measurability enables accountability
As the varied abbreviations and jargon can confuse the approach, the absence of clear and agreed-upon metrics can obstruct the flow of capital into investments that could truly help solve some of the world’s greatest challenges. The proliferation of definitions and frameworks in sustainability obscures things and beyond that, a lack of data uniformity has created space for “greenwashing” scandals and allowed the term ESG itself to become politicized. To make a real impact it’s clear that standardized definitions and credible data are essential.
“Data that allows more robust definitions and transparency in how it’s measured – that is a prerequisite for impact capital to achieve the desired outcomes,” said Lise Pretorius, Head of Sustainability Analysis at Matter, a Danish business that offers integrated data solutions to help investors understand the sustainability of their investments.
Ultimately if there is to be the desired shift towards impact then investors are going to need tools that provide easily available insights and uniform data sets. Standardized metrics will allow greater transparency and fair investment comparisons and will ultimately pave the way for significant growth.
4. Impact is an opportunity for family integration
Impact investing allows families to engage all members across multiple generations in investment decisions based on shared values. In doing that it creates a space for collaboration and joint investment theses, a process that can build alignment and unity among family members.
By taking the value-driven approach mentioned earlier, families have a chance to outline those issues that matter most and use this opportunity not just to direct investment in a meaningful direction, but use this understanding of their own similarities and differences as a means to connect.
“I think that it’s a very interesting position to be in as a manager in the impact space. It’s a really big challenge but also the most exciting part: getting to really be an extension of the family and of their team to help navigate an industry as complex and evolving as quickly as sustainability,” said Amanda Baker, who heads family office solutions at Ethic, which creates personalized solutions to help investors transition capital into sustainable strategies. “We really do like to lean into that, to learn deeply what they care about and share insights and storytelling as opposed to just an investment experience.”
5. We’ve got a long way to go
Adoption speed depends on both risk and appetite, and while it’s essentially easier to apply ethical screens or ESG parameters across an investment portfolio, intentionally generating impact through investing can require more effort. There is a movement started towards creating 100% impact investment portfolios but the reality is most family offices still have a relatively small proportion of their investments allocated to this now, and we can effectively consider this the early adopter stage.
“If we direct 10% of global investment towards impact solutions, that will be enough to engage the energy and climate transition,” said Brune Ribadeau Dumas, Director of Impact Investments at KIMPA, an impact-focused European multi-family office. “According to the Global Impact Investing Network we only have 1.1% now, so there is still a long road ahead.”
The family office ecosystem is better positioned than any other to drive things forward, and to paraphrase Anne-Marie Bonneau: we don’t need a handful of family offices doing impact investing perfectly, we need all of them doing it imperfectly. Thankfully the interest is there, the momentum is building and there is growing support in place empowering family offices to outline, measure and achieve their impact objectives.
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