Family offices can lead the way in responsible investment

As responsible investment comes of age, family offices should look beyond the label to help families put their wealth to work for social good. 

Many family offices are already playing a key role helping families transition to more responsible investment. Recognising the scrutiny which comes with their wealth, some families are demanding an increasing focus on Environmental, Social and Governance (ESG) across their investment portfolio - a trend that can be seen across the alternative investment industry.

As PwC's recent survey Older and wiser: is responsible investment coming of age? Private Equity Responsible Investment Survey 2019 shows, ESG issues have moved from niche to mainstream, with the majority of respondents adopting responsible investment policy and reporting ESG matters to their boards at least once a year.

Below are some suggestions on how family offices can begin to translate their commitment to responsible investment into concrete actions.

1. Adopt the common language

The survey found an increasing alignment to the Sustainable Development Goals (SDGs), with over two thirds of respondents identifying and prioritising SDGs that are relevant to their investments in 2019. The SDGs are a collection of 17 goals adopted by all United Nations member states in 2015 and provide a blueprint for “good growth” nationally and internationally. Adopting the common global language for responsible investment early provides an opportunity for family offices to guide and shape investment strategies which can be easily communicated to stakeholders and actioned by third parties.

2. Dedicated resource

As responsible investment becomes mainstream, investment teams are up-skilling and the survey found over a third of the respondents have teams dedicated to responsible investment. Where there is not a dedicated team, investment or deals teams are now responsible for ESG matters. 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 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.

This does require careful consideration as the collection of accurate timely data from multiple sources can become time intensive and require a comparison of vastly different data types. For some organisations, manual solutions covering a few material issues are sufficient while others prefer bespoke software solutions for automating the collection of ESG data.

As with all reporting, success relies on family offices understanding why they are monitoring and what decisions will be driven by the results.

4. Valuation of performance

Whilst still in its infancy, progress is being made to bring greater consistency and rigour to impact claims. Assessing, monitoring and managing the non-financial dimensions already makes sense for many families who are contributing to a lasting legacy. Whilst the focus may have shifted, effectively managing ESG factors and a positive impact may suggest long-term growth and reduced investment risk.

This is an area where family offices can lead the debate and there are several global initiatives seeking to define impact and impact standards in an effort to bring greater consistency and rigour to impact claims.

A final thought on why this matters today: Alongside the family’s philanthropic activities, many of the next generation believe the social, economic and environmental impacts of the wealth invested are as important as the financial returns. For those family offices that are not currently required to advise on responsible investing there is a good chance they will be asked to in the future and should be prepared.

I believe family offices are well placed to rise to the challenges of bringing responsible investment to the mainstream and helping families put their wealth to work for social good.

If you would like to discuss how PwC can help your family office, please get in touch.

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