For some years now, ESG, ethical and impact investing have become increasingly central to the strategies adopted by family offices – the most recent Global Family Office Report, for example, suggests that 32% of the average family office portfolio is expected to be dedicated to sustainability in the next five years, up from 19% today.
It’s an approach that has been informed by a conscious recognition of the rise of wealth politics amongst the current generation through increasing awareness of the repercussions of inheriting record levels of wealth.
Recent history tells us that in the aftermath of economic downturns, governments – and increasingly lobby groups – seeking accountability, sometimes settle on wealthy individuals, wealthy families, and the agents of the wealthy as catalysts. As a result, wealth advisers, investment banks, private client lawyers and tax advisers, have all come under greater scrutiny.
Only relatively recently has the world emerged from the global financial crisis – a crisis that is still very much in the minds of individuals and their families. Although the crisis had its roots in unsustainable property-related debt instruments, the financial system itself was called into question with public bailout of banks highly criticised.
The result has seen a re-shaped family office landscape that is demonstrating a new sense of self-awareness and an understanding amongst family offices that they can play a crucial role both in re-shaping perspectives of wealth and in bringing about positive societal change at the same time.
‘Stewardship’ became the watchword as wealthy families began to look increasingly at strategies that could demonstrate social conscience, help to restore trust and promote a constructive dialogue.
Disruption
As the world resumed its growth trajectory after a decade of rebuilding, ESG moved into the mainstream and reputational rebuilding was well under way, only for the world economy to once again face significant disruption, this time from the Coronavirus (“COVID-19”) pandemic.
The dislocation from an economic perspective is apparent, and this will see governments’ the world over scramble to fill large holes in public finances for years to come.
For families, this means that the rhetoric around wealth politics will likely return. We are already seeing proposals for new wealth taxes by those looking to balance the books. The massive challenge of rebuilding severely impacted health systems and infrastructure will see the theme of wealth distribution placed firmly back in the spotlight.
There are some significant contrasts to the aftermath of the crisis of 2008, however. From a family office perspective, the good news is that cultural approaches to sustainability, impact, and ESG investing are far more advanced and sophisticated than they were a decade or so ago.
On that basis, the evolving attitudes amongst wealthy individuals and families will accelerate as they look to deploy their ability to bring about positive societal impacts.
On the other hand, however, the impact of COVID-19 is extraordinarily multifaceted and complex. The scale and impact of the pandemic is unprecedented for modern times, with societal, health, economic and environmental issues emerging in developed and developing economies alike. This complexity will mean that family offices will need to completely revisit the rulebook they had designed pre-COVID-19 and look to reframe their vision and objectives in a completely new world.
While the ‘green’ part of ESG had become the critical growth area previously, the social and governance elements will become far more pronounced as economies look to rebuild.
Meanwhile, the family office space was already becoming increasingly complex and sophisticated – more multigenerational, progressively diverse, more digitally-led, and more professional in its approach.
Experience
As a result, family offices will need to ensure they are drawing on high quality, well-informed, and broad skillsets as they look to reframe their ESG and impact investment strategies. How do they implement a governance structure on which to build a newly framed plan? Where do they access the talent and advisors they need to implement this successfully? Whom can they trust to provide neutral and informed advice?
A common challenge is reconciling a passion for the emotive issue, such as environmental change, with the clarity needed to put that aspiration into practice.
Doing so requires specialist teams and experts who can make that aspiration a reality. Apex was built on the foundations of local service delivery and has always put the client first, building teams around each individual client to provide tailored, professional solutions that address specific challenges.
That kind of collaboration and multidisciplinary approach to ESG investing will become even more critical in a post-COVID-19 environment. Families will need to navigate multiple markets, sectors, structures, and governance issues to achieve their aims sustainably, efficiently and successfully, built on a robust strategic platform and backed up by detailed evaluation and reporting. This is where service providers, such as Apex, that are set up to support through delivering ESG ratings and scoring can be a critical asset.
It will be a new context for ESG investment. Still, thanks to a decade of developing a socially-conscious approach to investment behaviour and embedding professionalism into their models, the aspirations to bring about change are undoubtedly there. The challenge now will be to adapt to a new mindset and transpose that aspiration into a new, highly complex and likely highly charged environment.
Those families that can meet that challenge head-on, by building teams around them that can deliver the multidisciplinary specialist advice they need, will be ready and able to make a positive impact addressing the fallout of the pandemic and targeting longer-term change too.
