PERSPECTIVE3-5 min to read

Uniting generations through impact investing

80% of families with average net wealth of £1.1bn believe that impact investing has the ability to prepare generations to take on greater family responsibilities.* At a time when one of the biggest threats to families is the dilution of wealth through inter-generational transfer, our Head of Philanthropy and Impact explores what this looks like in practice.

28/03/2023
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Authors

Lyn Tomlinson
Head of Impact and Philanthropy

Family offices, perhaps more than any other source of capital, have a unique role to play in investing for positive impact. They bring a history of innovation, an appetite to provide “patient” capital and, very often, a commitment to leaving the world a better place. As a result, these families are well positioned to catalyse a shift in capital away from investments that cause environmental and social harm towards investments that contribute to solutions to some of our most pressing challenges. They can also positively influence the broader financial system by demanding their advisers up-skill and join them on this journey.

That said, families must navigate the unique challenges that can arise from complex family relationships as well as different attitudes and priorities across generations. Where should a family that is considering impact investing begin?

Setting the impact strategy

Set the strategy and intention for positive impact from the top and ensure that everyone’s views are heard and incorporated. Understand that family members may be coming from a different place and have unique perspectives. Harness the skills and knowledge within your family - some members may be very knowledgeable and may have been forging their own path which you can learn from.

Working with an external adviser or professional mediator can help to resolve any family tensions. This external support may also help families compromise and agree to a set of shared values.

This can help determine which path is right for your family. In some cases, a “total impact” approach may be appropriate. This involves applying a sustainable and/or impact lens across all assets, including any operating businesses. Alternatively you may decide to carve out a portion of your wealth to invest for impact, potentially providing those more focused on this path with a degree of autonomy over capital allocation. This can help to avoid a situation where family members feel that their views are not being heard and attempting to separate their wealth from the broader family.

Understand what you own: set guardrails and guiding lights

A useful starting point is to understand what you own within all your investment portfolios, across all structures and whether these investments are aligned with your values or working against them.  From here we suggest three key areas of focus:

  1. Avoid harm
    Many clients look to set “guardrails” that are designed to ensure their investments avoid the most severe negative impacts and/or that are not aligned with the family's values.
  2. Establish your priorities
    Establishing priority areas for your family – such as climate change or biodiversity loss -should be an important part of your impact strategy. Embedding these priority areas into your investment policy will help ensure that your investment managers are actively pushing investee companies to improve outcomes for people and the planet.
  3. Allocate capital to investments that are aligned with the family's purpose and mission
    There has been huge innovation in financial markets over the past decade and it is now possible to access investments in public and private markets that actively contribute to solutions to the issues that matter most your family.

Ensure you have the right team

Trustees, lawyers, accountants, investment managers - there are many trusted advisers to family offices. However, not all understand sustainability and impact investing. There are many myths perpetuated by those who are not day-to-day practitioners. Where you encounter these barriers, appointing experts, who understand impact, and can unblock those barriers for you, will be essential to your family making progress and realising your ambitions.

Consider aligning with the family’s philanthropy

Almost every family is involved in some form of philanthropy. This can be a natural place to start thinking about impact, particularly when it cannot yet be incorporated into the broader family wealth. Most agree that current best practice in philanthropy is to ensure that endowment or foundation assets are not working against the philanthropic objectives (e.g. a foundation with a focus on healthcare investing in the tobacco sector). In addition, there can be opportunities to allocate capital to investments which maximise the impact of a family's philanthropy (e.g. healthcare companies).

Don’t go it alone

We have worked with many families that have successfully adopted an impact investing strategy. Many of them speak openly about their experience to encourage and inspire others. Case studies, such as those highlighted in The ten ingredients for impact investing  (see more links in our further reading section at the bottom of this page), can give useful insight into the range of approaches taken.

Intergenerational conflict is far from a modern development, but it can often feel as if young and old are further apart today than they have been in decades. Impact investing is not a panacea. For the wealthiest families, however, it can provide a welcome opportunity to bring generations closer together. As families grow and move in different directions, it can also provide them with a hugely valuable sense of common purpose.

How we worked with a multi-generational family to invest for impact

In 2019, a family office client passed the responsibility for overseeing the family’s investments to the next generation (now mostly in their thirties and forties). The wealth dates from the nineteenth-century and the family has a long tradition of what it calls “purposeful stewardship.”

For the younger generation, sustainability and impact investing represented a clear opportunity to better align the family’s investment portfolios with its strong sense of values. The Covid pandemic, which saw the private and public sectors come together to solve a significant global challenge, strengthened their desire to change the family’s investment approach.

Implementing this strategic shift was not without challenges, given that the family encompassed six generations across five branches. We met with the family’s key representatives in early 2021 in order to help develop a model of sustainable and impact investment that could gain broad support.

Over a series of meetings and workshops, we explained the various investment approaches that the family might consider, including exclusionary policies to prohibit investment in potentially harmful sectors, sustainable passive options, using their influence as shareholders through engagement and impact investment. This educational approach was particularly useful for the board, many of whom were financial services experts but had not been involved in sustainability or impact investing before.

We helped the family understand how Cazenove Capital and Schroders could help align the family’s investments with its values, using the UN Sustainable Development Goals (SDGs) as a tool for understanding potential impact themes. These ideas were taken away for wider discussion across the family.

We understood from these meetings that the family was focused on the use of proprietary research to ensure that their “manager had conviction and was able to explain and justify its investment selection to the family.”

In mid-2021, the family’s Advisory Committee produced a “Statement of investment intent” for the directors of its main holding company. This statement specified that the “investments should actively seek to create a positive impact for people and planet whilst maximising financial returns.”

The board agreed to adopt our proposed investment strategy in 2022. It resulted in a shift towards greater use of directly-invested equities, allowing us to reflect the family’s focus on proprietary research, using our influence through engagement with investee companies and low investment costs.

We have worked with the family to understand the most important aspects for them. Our quarterly reporting includes climate data as well as mapping their investments to the UN SDGs.

This is the beginning of the family’s journey into sustainable and impact investing. Four family members also wanted to start a philanthropy programme. We worked with the families' lawyers to arrange for a tax-efficient distribution from one of the family trusts into individual philanthropic vehicles via our Donor Advised Fund. This allowed them to have the autonomy to invest in and give to causes they each cared about, whilst keeping the family’s investment assets together.

Further reading and sources 

* Investing for Global Impact – A Power for Good 2022 

Impact Management and measurement framework 

Making an impact through engagement 

Ten Ingredients for Impact Investing – Centre for Sustainable Wealth and Private Finance (PDF)

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

Authors

Lyn Tomlinson
Head of Impact and Philanthropy

Topics

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.