Aligning Your Investments with Your Values

By Trevor Neilson 

Co-founder and CEO i(x) Investments

WHAT ARE YOUR VALUES? 

Having met with hundreds of family offices in every corner of the world I have found that often that is a question that most family office advisors have never asked the families they represent.  

Most families have values they hold dear, yet when it comes to family offices there seems to be a divide between conversations around profit and conversations around purpose. While some family office’s may have crafted mission statements and their advisors help to facilitate philanthropic investments, a small percentage have advised their clients about how to make for-profit investments that also address the issues their families care most about.  

Until recently most family offices have ignored the ability to invest with an eye on impact. This may be a function of our tax code and the tax exemption granted for charitable contributions.  For the last hundred years, high-net-worth families have primarily focused on using philanthropy to create social impact--but that is changing and it’s changing fast. We are all shaped by our personal experiences. My experience working in the Clinton administration and at the Bill and Melinda Gates Foundation has led me to conclude that neither government nor philanthropy alone can solve our world’s greatest challenges. Purposeful capital combined with innovative entrepreneurship and advances in technology can. 

Data from a recent Global Impact Investing Network survey, shows that investors moved  $35 billion into impact investment deals in 2017, a 58% increase from the prior year; while total impact assets of those surveyed were $228 billion, double the 2016 total.

This change is largely being driven by younger investors’ commitment to social impact.  Another recent study by U.S. Trust showed that 40% of high-net-worth investors either own or invest in companies with a strong environmental, social, and governance (ESG) track record, compared to 38% two years ago.

The same study showed that 77% of millennials own ESG stocks or include impact investments in their portfolio.

“The millennials want to do well, they also want to do good,” said Joe Quinlan, head of market strategy at U.S. Trust. “Now that they are one of the largest investing cohorts, the trend is more pronounced.”

The biggest firms in the world are paying close attention. A recent survey by BlackRock found that 67% of millennials want investments to reflect their social and environmental values—and when the data focused on women the number jumped up to 76%.

We are in the early days of this new era in investing, UBS has projected that that $7 trillion globally will pass into the hands of millennials between 2017 and 2020.  These investors reject the irrelevant notion that it is not possible to generate strong returns while creating positive social impact. 

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In fact, the data shows that investments which take into consideration social and environmental impact outperform their peers. A 2015 report by the Morgan Stanley Institute for Sustainable Investing, found that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. Wall Street is creating product with presentation materials that will find their way onto the radar of family offices. The time is at hand for investors and investment committees to move their values to the core of their portfolio decisions. These opportunities must stand up to rigorous due diligence processes and risk return parameters of any allocation. The key will be to have the ability to gauge opportunity alongside measurable impact. These dual mandates are achievable and will provide families with the long-term wealth creation embedded in successful family offices as they deploy multigenerational capital. 

The growing trend of families collaborating on direct investments will be a definitive catalyst for these strides forward. The thoughtful process of choosing our partners and focus of our capital is a statement of our inherent choices. Given the long-term nature of family capital, even at the most opportunistic level we can express a vision of how we are shaping the future. 

New investment structures that align the interests of capital providers and asset managers are evolving to facilitate this secular trend. Family offices are asset owners of what is designed to be permanent capital when their mission is successful. We are moving from philanthropy as the expression of our legacies to the active creation of new industries and economies. At i(x) we call this “Profit With Purpose” and our focus is investing in companies that address the most pressing areas of global need. To date, we’ve launched platforms in the following issue areas: Renewable Energy, Green Commercial Real Estate, Gender Equality, Media, Education, Fair Insurance and Workforce Housing. 

Over $100 trillion is currently invested in private wealth accounts around the world—and the vast majority of it has been invested without any consideration of social impact. This presents an exciting opportunity for high-net-worth families, and those who advise them, to align their investments with their values and to profit with purpose.