Making an impact
Impact investing is set to become more prominent as the next generation rises through the ranks and places an increasing focus on the environmental, social and governance impact of business activities.
And it is more than just impact investing.
It is the fact that the new generation does not want to do anything harmful to society: they are very concerned about doing the right thing.
So one part of that is about making a positive impact on the environment and society, but it is also about investing in companies that do not engage in human rights abuses or those that have real gender equality.
Right now, one in four family offices are already engaging in impact investing; a figure that is predicted to increase, with a third of family offices expected to allocate 25 per cent or more of their portfolio to responsible investments in the next five years.
And not only that, but increasingly investors are focused on investing and preserving capital in a sustainable and compliant manner across all investments.
It will become a priority for family offices and wealth managers to be investing in businesses operating within full ESG criteria.
Advisers will need to be assessing investments in relation to governance, human rights, laws and regulations and ethics in order to align with the client’s values and objectives.
Social concerns aside, the promise of meaningful financial returns is also pushing family offices and wealth managers towards impact investing.
According to a recent survey by Campden Wealth, for the vast majority (81 per cent) of family offices, their impact investments matched or outperformed expectations compared to their traditional investments of the same type over the past 12 months.
The trend towards impact investments will continue to grow and it is important that advisers recognise this increasing enthusiasm.
Consultancies who fail to effectively engage in the interests of new investors could risk losing substantial business.
The problem for a lot of advisers is that there are currently no standards.
A lot of what has been done was ‘greenwashing’; everyone is attempting to be ESG-compliant because they need to be, but one has to look closely and ask, ‘What are they really taking into consideration?’
It is about investing in a compliant and respectful manner. It means some things are off-limits, and this impulse is coming not from the companies and from regulation but by the pressure of investors.
It no longer means investing in companies that make a profit, no matter what the cost.
Parents who are transferring wealth may not have thought ESG was that important, but the younger generation is demanding it, and expecting the investment providers to prove they are ESG-compliant.