Socially responsible investing is the need of the hour. This is because it enables investors to put their money in the right places. There are three major factors that socially-responsible investors focus on – Environmental, Social, and Governance (ESG). In fact, ESG investing has become a mainstream form of investing in recent years. Investors are increasingly making use of these three criteria in order to shortlist socially conscious instruments. For instance, investors are carefully monitoring a company’s social and environmental initiatives covering issues such as climate change, workforce diversity, and governance practices.
Similarly, several modern-day investors are also focused on impact investing. This concept aims to bridge the gap between asset management and philanthropy. As ESG investing and impact investments gather pace, it is likely that Family Offices will also pay more attention to these areas. For instance, the 2019 Global Family Office Report, which was released by UBS and Campden Research, highlighted that over 25% of Family Offices are already engaged in sustainable investing. The primary concerns of Family Offices include climate change, health, and clean water access.
Although Family Offices are not at par with global institutional funds in terms of the capital at hand, they do have access to significant resources. Family Offices have the ability to invest client funds in a range of different instruments. This is where they have the potential to act as a bridge between ESG investing and asset management. Since Family Offices are already managing the assets of HNWIs, they could choose to do so in a sustainable environment. At present, most Family Offices do not have clearly-defined indicators that could help them in assessing whether an investment falls under the ESG category. However, they could change this situation soon.
As a first step towards connecting asset management and ESG investing, Family Offices need to lay down a vision. This vision needs to entail the family’s core values, their long-term goals, as well as their legacy. Secondly, Family Offices need to develop clear guidelines that help them screen out the so-called “undesirable” sectors and companies. Thirdly, they could also create dedicated functions that work towards ingraining the ESG investing criteria within their existing processes. Finally, Family Offices would need to develop specific metrics that help them in assessing the actual impact of their ESG decisions.
Thus, it is evident that Family Offices could have a major role to play in the field of ESG investing. They could truly act as a bridge between asset management and ESG investing, thereby ensuring that socially-responsible decisions can be taken. Family Offices that will be able to strike the right balance between responsible investing and maximising returns are likely to become the leading names in the industry in the near future.
