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The trend towards sustainable investing is not a short-term fad. In fact, sustainable development and sustainable investing are both here to stay. The aftermath of the COVID-19 pandemic has provided that now more than ever, the need for partnership across private, public and government is critical. Experts believe that sustainable investing will become the standard way that people choose to invest their money. Further, it is our belief at Aneuvia, that family offices are strongly poised to impact long-overdue changes across society, not only via their charitable endeavors, but also through their financial portfolios.
First and foremost, let’s start with a basic definition of what family offices are and what they set out to achieve. According to Investopedia.com, “family offices are private wealth management advisory firms that serve ultra-high-net-worth individuals.” Differing from traditional wealth management companies, they offer a total outsourced solution to managing finances and investments, such as budgeting, insurance, charitable giving, wealth transfer, and tax services.
The family office was originally conceptualized to serve as a wealth and trust management vehicle for high-net-worth families, under the notion of a multi-generation family business. There are several different forms a family office can take. Single Family Offices serve the investment needs of an individual family. Multi-family Offices are structured like an asset management firm, providing wealth management and planning to a group of families and/or high-net-worth individuals.
Embedded Family Offices are usually an informal structure that exists within a business owned by an individual or family. With embedded family offices, the family considers private assets as part of their family business and extends private wealth management to employees of the family business.
According to the Ernst & Young Family Office Guide, there are currently over 10,000 family offices globally. This is a dramatic increase since 2008, when there were an estimated 1,000 family offices globally. A contributing factor to this rise is the uptick in the wealth landscape. According to the Global Wealth Report from Credit Suisse, there are now 46.8 million millionaires, accounting for almost 44% of the world’s total wealth. Technological advancements, entrepreneurship and the growth of the knowledge economy has provided newly wealthy individuals with the opportunity to explore investment management solutions.
This article is part of a series that explains the differences between foundations and endowments, their power to advance the sustainable investing agenda, and investigates a variety of investment approaches.
Our planet has been pushed past its limits: floods, fires and extreme weather this past summer indicate that climate change is accelerating. A recent United Nations report found that the world risks soon hitting 1.5°C of global warming in the 2030s, a threshold that would ignite "extreme events unprecedented in the observational record."
The goal of the Paris Climate Agreement is to maintain that 1.5 threshold, however the U.N’s report explains that without "deep reductions in carbon dioxide and other greenhouse gas emissions," the world will surpass it within 80 years. As the 2030 deadline for the Paris Agreement and the Sustainable Development Goals agenda draws near, urgent action is required by consumers, regulators, governments, businesses and nonprofit organizations alike.
Foundations and endowments can support the shift towards a more sustainable future by integrating ESG factors into their portfolio, while also increasing an emphasis on impact investing and shareholder engagement. According to our latest whitepaper, in 2020, foundations and educational institutions together held 8% of the $6.2 trillion institutional investments in ESG assets. Besides employing negative and best-in-class positive screening strategies, many foundations and endowments are leveraging shares to engage in active ownership.
Negative screening refers to the exclusion of companies and certain sectors based on ethical, social, environment or religious factors. Most commonly, exclusionary strategies avoid investments in companies that are fully or partially involved in gambling, alcohol, child labor, human rights violations, tobacco and other related factors. Positive screening involves the inclusion of companies due to the social or environmental benefits of their products, brand value, leadership team or processes. Investors place a ‘premium’ on these ‘best in class’ businesses which ultimately increases their value.
Foundations and endowments have the unique opportunity to advance the norm of conscious investing and mitigate the effects of climate change. With our planet pushed past its limits, the urgency for sustainable investing has never been more important.
Aneuvia is an investment management firm that provides foundations and endowments with sustainable investing, integration of ESG and corporate strategies and impact investing consultation. View our latest whitepaper, Foundations & Endowments: Trends in Sustainable Investing, to learn more