Pick up any newspaper, follow any news link and start any conversation and you will be confronted with at least one of the three pillars of ESG.
From COP26 reigniting Environmental talks to celebrities spurring Social change and world leaders calling for greater Governance, the last week alone has given us several reasons to talk about ESG but while there is a lot of talk, there is little action and it is not for a lack of trying.
The lack of action stems from a lack of education. While everyone wants to change the world, not many know where to begin and contrary to popular belief, the same rule applies to the top 1% of wealth who are constantly shamed for not doing enough.
Despite hosting the funds to make great change and an ambition to do so, Family Office Leaders do not know where to begin their journey of making change because while there is talk of ESG (environment social and governance), SRI (socially responsible investing) and SDGs (sustainable development goals), there is not much in the way of real education – especially not for the ultra-high-net-worth community which is assumed up-to-date.
This is why a new report has been published, focused on Philanthropy and Impact Investing within the world of the wealthy.
The report published by my team at Agreus focuses on the two colliding or perhaps complementing realms of change-makers and delves into the many different types of giving including the positives, negatives and considerations for each. The report also offers the tangible next steps high-net-worth individuals and families can take in order to achieve change and unveils the best way to measure social success.
While you can download the report in full here, I thought I would share my biggest findings from the report with you which includes key-drivers, benchmarks for success, talent attraction and ‘the ugly’.
1) High-net-worth individuals who opt to make Impact Investments over philanthropic donations are not driven by greed but motivated by excellence.
On the spectrum of making change, Philanthropy sits at one end and Impact Investments on the other. Despite hosting very different objectives, both methods of making change have the ability to make tremendous impacts across the globe but only one can make a financial return, which in turn can fund more change and make more impact. Rather than opting for a very linear and one-way version of making change, they chose to make impact time and time again, using their financial return to replenish their impact resources. This money does not solely return to the pockets of the investors but also, re-fund action and it is something 59% of Family Offices agree with by stating Impact Investing makes a bigger impact than Philanthropy.
2) Recruiting for a Foundation is an entirely different ball game.
Recruiting for a Philanthropic Foundation is a uniquely personal process that unlike Family Office recruitment focuses less on compensation and culture and more on individual mindset. Philanthropy is generally pursued by those who have a passionate interest in a subject, both from a “practitioner” perspective and that of a Family Office looking to use their resources to make a positive impact and leave a lasting legacy. As a result, the interest and passion has to be aligned. There is need for empathy and understanding and a common agreement on how to reach a goal. When recruiting for Impact Portfolios however, the same rules apply entirely and grave mistakes can be made when families think otherwise. Investing is investing and whether it is environment or economics, sustainability or stocks, the same recruitment principles apply – culture, competency and excellence.
3) Measuring social success is simple.
You can measure your social success quite simply so long as you do not overcomplicate it. Family Office Leaders are setting benchmarks for social good by lifting industry indexes, bringing business metrics into their Foundations and impact portfolios and finding something quantifiable within each and every objective. To offer an example from the report, a Family Office investing in the development of houses for the homeless might benchmark their investment against other real estate indexes. They might also benchmark their goal socially against the United Nations ambition to end poverty. It very much depends on each investment but the investor, just like any other, can extract an array of both tangible and quantifiable metrics from any investment be it improving biodiversity, reducing pollution or enhancing education in poorer communities. This can also on a simpler and more digestible level be erecting a fence around a certain conservation area or feeding x amount of children.
4) The two realms of Philanthropy and Impact Investing do not need to run mutually exclusively.
You can manage both a Foundation, an Impact Fund and even an incubator simultaneously. Not only can the two and sometimes three work together harmoniously but one can also be an inroad to the other. One Principal featured in the report stressed the importance of being open-minded to all aspects of change. He was involved strictly in Philanthropy but like any of the SDGs I introduced earlier, when you concentrate on making an impact you become acquainted with the community you are striving to change, its people and its customs which can offer a platform and a springboard for a more tailored investment strategy able to reduce risk and elevate your existing expertise. He now manages an impact portfolio which runs alongside his Foundation. They complement each other brilliantly and both accelerate one another’s change.
5) My final finding relates to the good, the bad and the ugly.
While you can be prepared to make good, you need to be prepared for the bad which comes in the form of scrutiny, due diligence and regulation, often from the Charity Commission. The Charity Commission is very observant off people using charities for their own gain. It is therefore important, as a family, to structure your foundation in a way that is easy to operate independently. Good governance and structured resources are key which means hiring the right people at the right levels to offer a layer of internal scrutiny between you and your objectives. It is also an element where having both a Foundation and Impact Portfolio might come in quite handy with one able to make change away from regulation.
Like all great responsibility however there is great reward to be made and this report helps you achieve just that. Download the full report here and join the conversation – should all reward make a return and can you have it both ways, always?