How can family offices turn interest into concrete sustainability action?

The term carbon offset and carbon credit are used interchangeably, although they differ slightly in their meanings. Broadly, carbon offsets refer to a reduction in greenhouse gas emissions – or an increase in carbon storage, used to compensate for emissions occurring elsewhere. Similarly, a carbon credit is a transferable instrument certified by bodies or governments to represent one metric tonne of CO₂, that a purchaser can claim to reduce their emissions across another area of their supply chain. Simply put, offsetting is a way of paying to reduce emissions or absorb CO₂ to compensate for your emissions.

Over the past decade, there has been a surge in philanthropic involvement with ultra-high net worth (UHNW) individuals donating a greater proportion of their wealth to charitable causes. The scale and manner of giving by UHNW individuals has both a direct impact on the non-profit space, in addition to influencing the wider philanthropic trends and activity across the general population. Therefore, UHNWs hold a pivotal position in inspiring other segments of society to commit to greater engagement.

In addition to philanthropy, there has been an increase in UHNW impact and ESG investing; the most recent Impact Investor Survey results show a 300% increase of UHNW’s investing in ESG, compared to just 24% of individuals investing in 2010. This increase in ESG investing is linked to a desire to positively impact the world, seeking out investments which prioritise social, ethical, and environmental considerations over financial returns. A recent global study, “World Shaping Wealth: The Impact of Affluence on the Next Economy,” found that 77% of UHNW individuals are prioritising using their wealth for a long-term positive impact on society and charitable aims.

This trend of increasingly prioritising social and environmental impacts of wealth over financial returns has also been seen within the next generation of UHNWs – a study conducted last year, found that over 50% of young UHNWs are investing in ESG solutions. It has been predicted that Millennials could invest between USD15 trillion and USD20 trillion into ESG investments over the next 20 to 30 years. With the ESG and sustainability market poised to reach a valuation of $39.9 billion by the end of 2023, family offices must be prepared to accommodate the shifting focus and criteria for investing of UNHW individuals and their families. A recent PwC report summarises how family offices can begin to translate their commitment to more responsible investment opportunities that align with UHNW values and legacy. Below are some of the suggestions to turn interest into concrete action:

1. Adopt the common language: The Sustainable Development Goals (SDGs) provide a blueprint for “good growth” nationally and internationally. Family offices should consider aligning their investment strategies with relevant SDGs to guide and shape their investment strategies.
2. Dedicated resources: As responsible investment becomes mainstream, family offices should be prepared to play a key advisory role for both existing and future family leaders on ESG matters. Developing the necessary expertise may involve a combination of both external advice and in-house training.
3. Monitoring and reporting: Key Performance Indicators (KPIs) allow family offices to measure performance, track progress towards goals, and communicate the results of their efforts to integrate ESG matters into the family’s investment strategy.
4. Valuation of performance: Assessing, monitoring, and managing the non-financial dimensions already make sense for many families who are contributing to a lasting legacy. Family offices can lead the debate and help define impact standards to bring greater consistency and rigor to impact claims.

In conclusion, philanthropic and ESG investing is becoming increasingly popular among UHNW individuals who want to make a positive impact on society and the environment. Family offices have an important role to play in supporting UHNW families interested in ESG investing and helping families translate their commitment to responsible investment opportunities that align with their values and legacy. Adopting a common language, dedicating resources, monitoring and reporting progress, and valuing performance are some of the ways that family offices can turn this increased interest into sustainability action.