How Family Offices Invest for Sustainability and Impact

Family offices are increasingly focused on sustainability and impact — in terms of both risk and opportunity — according to the recently published Global Family Office Report 2024 from UBS. The report found that two-thirds of family offices look for market-based financial returns in their sustainable and impact investments.

Family offices are also looking for more information to help them achieve their sustainability and impact goals across their holdings: 37% want data analytics to measure the impact of their investments and/or businesses, and 34% want educational materials on sustainability-related topics.

Andrew Lee, global head of sustainable and impact investing for UBS Global Wealth Management, discusses what UBS is hearing from clients about their current thinking on sustainability and impact:

How does investing in sustainability fit into the broader spectrum of ways families can deploy their wealth?

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Sustainability and impact, from the perspective of our family office clients, increasingly focuses on how they can drive toward sustainability outcomes that they care about, utilizing different approaches to deploy their capital across a continuum spanning philanthropy, social impact opportunities that are not expected to achieve market-rate returns and investments that are expected to achieve market-rate returns.

Philanthropy sits at one end of the spectrum — typically grantmaking with no expectation of a return — and sustainable/impact investments expecting market-rate types of returns anchor the other end, with the area in between occupied by social impact or catalytic opportunities, where clients might expect no return or outcome-driven returns or a return that’s not market rate. Sustainable and impact investments are increasingly in focus for family offices, as many seek to better align foundation and core investment portfolios with their philanthropic areas of interest.

What issues do family offices address with sustainable investments, and how do they do it?

Family offices have long been leaders in allocating capital to sustainable or impact investments alongside their philanthropic efforts to drive capital toward their preferences in a range of different areas: Climate, health care and education are typically popular focus areas. But each family office will have its own view on what themes are in top focus, typically based on their family priorities and preferences.

Private market investments across venture capital, growth equity, real assets and infrastructure are often utilized when there is an interest to deploy investment capital to drive positive change alongside financial returns in areas like health care or the energy transition. While private markets tend to be frequently used for impact investments, families also look to pursue positive change in other opportunities across their portfolios, for example through engagement in public equities.

What do family offices need to be successful in this area?

The universe of potential sustainability or impact-focused investment opportunities has grown significantly over just the past decade. As this solution set in funds and direct deals has grown, so, too, has the necessity of having strong internal capabilities to source and evaluate these opportunities from a financial and sustainability perspective. Relevant expert networks of investors and sustainability specialists, alongside trusted investment advice and solutions providers, can enhance family offices’ ability to incorporate sustainability and impact into their investment portfolios in ways that complement their philanthropic activities.

A portrait of Andrew Lee
Andrew Lee is Managing Director, Global Head of Sustainable and Impact Investing, UBS Global Wealth Management.

Sustainability data and analytics can also help family offices to assess whether an investment is achieving its sustainability and impact objectives — with similar rigor as you would assess financial performance.

What types of outcomes define sustainable investing?

Sustainable investing covers a range of different investment approaches across asset classes, each with distinct sustainability objectives. This allows investors to construct investment portfolios with diversified exposures addressing sustainability in a variety of different ways that go beyond just exclusions.

Within public equities, for example, there are a variety of strategies available. Investors can choose exposure to companies that demonstrate better performance on material environmental or social metrics. Alternatively, they could focus on companies whose business model is about addressing environmental or social challenges, like charging infrastructure or educational technology. Neither of these necessarily directly leads to positive change, in contrast to engagement with public companies that targets specific outcomes or positive change.

Then there are specific types of investments such as, on the fixed income side, development bank bonds. The proceeds from those bonds are utilized to support sustainable development projects around the globe.

Do family offices that seek out sustainable investments use these criteria for their entire portfolio or just a percentage of it?

While each family office will have its own approach, we see more emphasis on exploring how to incorporate sustainable investments across portfolios rather than dedicating a specific percentage to sustainable investments. The availability of solutions across asset classes and geographies helps to facilitate this. Achieving sustainability or impact across a diversified investment portfolio can take time, so every investor will be at a different point in this journey at any given time.

We also observe many looking at sustainability through an opportunity lens for their investments, recognizing that some of the most transformational opportunities that will drive economic activity and capital allocation over the coming decades are squarely sustainability-related. Decarbonization, inequality and water scarcity are just a few examples of areas that family offices are exploring how to incorporate across their investment portfolios.

What trends are you seeing in sustainable investing for family offices?

We continue to see growing interest from family offices in looking at the family office capital in totality, across a continuum of philanthropy, social impact and investment, and how these distinct segments of capital can be better aligned around sustainability and impact objectives, rather than potentially misaligned silos where investment portfolios might in some cases even be working at cross purposes with how philanthropy is being deployed. We see and advise family offices on implementing this in foundation portfolios as well as core investment portfolios.

About the Author

Margaret Steen

Margaret Steen is the editor of FO Pro, The Family Office Professional. Based in Silicon Valley, she has written for Family Business Magazine for more than 15 years.


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