The Rise of Sustainable Investing in Family Offices

As environmental, social, and governance (ESG) factors take on increasing importance, family offices are getting on board with sustainable investing. More than just a passing trend, embedding ESG principles is becoming a key consideration for multigenerational investors.

The Sustainable Investing Surge

Interest and adoption of sustainable investing strategies have seen a powerful uptick in recent years across the investment landscape, family offices included.

• Global sustainable investment assets reached $35.3 trillion in 2020, up 55% from 2016, according to the Global Sustainable Investment Review 2020.

• Among family offices, 42% now engage in sustainable investing, up from just 25% in 2019, per the Global Family Office Report 2022 by Campden Research.

This shift is driven by a mix of performance-oriented motivations as well as values-based priorities of younger generations.

The Next Gen Effect

Perhaps the biggest force propelling ESG's rise in family offices is the influence and demands of next generation principals.

• 68% of family offices say their next gen members are "prioritizing sustainable investing,” as reported by the Campden Wealth Family Office Report.

• NextGens are twice as likely to consider environmental and governance issues as important compared to older generations.

As wealth transfers to younger cohorts accelerate, family offices must adapt their investment approaches and decision-making frameworks accordingly.

The Performance Case for ESG

While values-alignment is a powerful motivator, the performance potential of sustainable investing strategies is also highly compelling for family offices focused on long-term wealth preservation.

• ESG factors have become crucial financial risk management tools for assessing items like climate vulnerability, workforce policies, and corporate ethics.

• Companies with high ESG ratings delivered superior risk-adjusted returns compared to low-rated peers between 2014-2019.

• Over a 25-year period, an investment strategy focused on companies with strong ESG scores would have outperformed by 3.4% annually.
  
  

Implementation Challenges Persist

Although interests are shifting, some headwinds remain for family offices adopting sustainable investing:

• Due diligence challenges assessing ESG factors & inconsistent standards

• Finding quality sustainable options across all asset classes

• Balancing financial goals vs. values/impact priorities
  

However, specialized advisors and evolving frameworks are smoothing the path forward for families. With values and performance increasingly aligned, ESG's trajectory seems firmly upward.