Prioritising sustainable investment gives purpose to family wealth – Mona ShahPublished on 13 Aug 2019
Investing in a sustainable investment portfolio is one of the simplest ways a family can find a common purpose and take control of the good they are able to do with their wealth.
According to our latest research report, ‘Practical Wisdom and Leadership for Changing Times’ (Four Pillars of Capital: The Next Chapter, 2018), 75% of some 150 family members and advisers surveyed expressed a preference for responsible investment in its broadest sense.
Interestingly, investment risk only ranked sixth on the list of threats to long-term family wealth, below a range of non-financial risks including a lack of leadership, family dispute and a failure to engage the next generation.
Critics of conventional financial analysis and valuation techniques share this view that, like families, investors focus on financial costs alone at their peril. It is difficult to disagree with this. How to reach a consensus on how best to do this, though, is less obvious. Integrating environmental, social and governance (ESG) factors into traditional financial analysis, however, is not a bad start.
At least it helps you to better consider the ‘externalities’, both positive and negative.
As a business, our focus is on preserving wealth through the generations, so it is only natural that we address ourselves to the concept of inter-generational equity. Considering the externalities is an important evolution for how we describe the ‘impact’ from our Global Sustainable Investment Portfolio. We believe it can have a positive impact both on the planet and society. While we don’t believe incorporating ESG factors into investment analysis results in lower risk investments, we believe that adopting ESG frameworks as part of a risk management process leads to better risk-adjusted returns.
In addition to including impact investments in the portfolio, we allocate capital to equity and fixed income managers who use a broader array of data to minimise negative externalities. In this way, the offering is able to transcend the ‘do no harm’ territory and enter into ‘actively doing good’.
Establishing what you stand for as a family takes work. Without setting meaningful objectives, engendering a sense of shared values will not be possible. But with successive generations growing up in a world where social outcomes are increasingly prioritised over investment returns it is unsurprising that we see sustainable investment moving ever higher up the agenda for the families we work with.
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