IMPACT

“This supersedes political parties, race, creed, religion, it doesn’t matter. If we do not solve the environment, we’re all damned.”

Elon Musk, CEO of Tesla and SpaceX.

We advocate that global family offices embrace sustainable and impact investing. Sustainable and impact investments are redefining the global economy by aligning capital with positive societal outcomes. At our multi-family office, we believe that allocating resources to environmentally and socially responsible initiatives is not only financially rewarding but also instrumental in creating lasting change for future generations.

Research from several academic finance journals supports the assertion that sustainable investments often outperform traditional portfolios, especially over the long term. For example, a study published in the Journal of Finance analyzed a large dataset of sustainable and traditional investment portfolios over a decade and found that sustainable investments exhibited not only comparable but often superior risk-adjusted returns. This outperformance is frequently attributed to factors such as enhanced corporate governance, resource efficiency, and reduced regulatory risks that sustainable firms manage proactively. By focusing on responsible business practices, sustainable investments help mitigate long-term risks and improve portfolio resilience, ultimately leading to stronger financial performance.

Further supporting this view, the Financial Review published an analysis of over 500 firms with sustainability-focused strategies. The study observed that companies demonstrating responsible practices, particularly in environmental and social areas, tend to attract a larger customer base and foster higher brand loyalty. This results in consistent revenue growth, even in turbulent markets. The report indicates that portfolios incorporating companies with strong social and environmental practices experience less volatility and stronger growth, especially during economic downturns when such factors become even more critical to business continuity and consumer trust.

Additionally, research from the Journal of Portfolio Management highlights that sustainable investments provide unique diversification benefits, helping to reduce portfolio risk without compromising returns. The study revealed that sectors aligned with sustainable development goals, such as renewable energy and sustainable agriculture, often exhibit counter-cyclical performance, thus enhancing portfolio stability. This diversification across resilient sectors allows sustainable investments to offer a buffer against market fluctuations, leading to overall improved performance relative to traditional investment strategies focused solely on financial metrics. These findings underscore that sustainable investments are not only ethically compelling but also financially advantageous.

Following are key global standards and principles that global family offices are embracing in 2024 and beyond:

Sustainable and Impact (SI) Investing

  • Mainstream Adoption and Market Shift: Sustainable investing has rapidly gained traction across institutional and family office sectors, with the global investment landscape reflecting a strong shift toward responsible investing. Family offices are increasingly diversifying their portfolios with sustainable investments, from mutual funds and private equity to alternative vehicles, meeting both financial and social objectives.

  • Financial Performance and Stability: Contrary to misconceptions about concessionary returns, research consistently indicates that sustainable investments can achieve returns equal to or surpassing traditional portfolios. A study in the Journal of Sustainable Finance & Investment reviewed over 2,000 studies, finding that sustainable practices enhance financial performance, reduce risk, and improve resilience, especially during market downturns.

  • Long-Term Profitability: Sustainable companies tend to attract high-quality talent, foster brand loyalty, and implement efficient operations, resulting in reduced volatility and long-term profitability. Evidence from the Financial Analysts Journal demonstrates that sustainable firms often achieve above-average returns with lower downside risk, as they proactively manage factors like regulatory compliance and social impact.

  • Diversification Benefits: Research from The Review of Financial Studies highlights that impact investments, particularly those aligned with sustainable development goals (SDGs), provide unique diversification benefits. These investments not only perform well financially but also enhance portfolio stability, making them a compelling choice for family offices focused on risk mitigation.

Aligning with Global Standards

  • United Nations Sustainable Development Goals (SDGs): A universal blueprint that enables investments targeting climate action, poverty reduction, and sustainable growth.

  • UN Principles for Responsible Investment (UNPRI): Supports responsible investment practices through transparency and accountability.

  • Global Reporting Initiative (GRI): Offers widely adopted guidelines for sustainability reporting across environmental, social, and economic impacts.

  • Task Force on Climate-related Financial Disclosures (TCFD): Enhances transparency on climate-related risks, guiding investments toward climate resilience.

  • Impact Management Project (IMP): Provides a framework to measure and manage the social and environmental impact of investments.

Additional Frameworks to Maximize Impact

  • Social Return on Investment (SROI): Measures the social and environmental value created, offering insights into the broader impact of capital.

  • B Impact Assessment (BIA): Used by B Corporations, this tool evaluates a company’s impact on employees, the community, and the environment.

  • Global Impact Investing Network (GIIN) IRIS+: A suite of metrics to assess social, environmental, and financial outcomes, allowing for optimized impact.

  • Equator Principles: A framework for managing environmental and social risks in project financing across industry sectors.

  • Carbon Disclosure Project (CDP): A global system that encourages transparency in environmental impacts, with a focus on emissions and water usage.

By aligning investments with these frameworks, global family offices can foster sustainable growth and ensure that investments yield strong financial returns while positively impacting society and the environment.