The Role of Family Offices in Impact Investing and ESG Integration

As values-based investing moves further into the mainstream, family offices are emerging as leaders in adopting impact and environmental, social, and governance (ESG) investment approaches aligned with their legacies.

The Rise of Impact Investing

Impact investments are those aimed at generating specific positive social or environmental effects in addition to financial returns. For many family offices, this dovetails perfectly with their multigenerational perspectives.

• According to the IFC, some $2.3 trillion of assets have an intent for impact, of which $636 billion of these assets clearly have impact management and measurement processes in place. More than $400 billion is managed in accordance with the Impact Principles, the market standard for how to manage an investment portfolio for impact.

• Among family offices, 39% currently pursue impact investments as part of their portfolios, according to the Campden Wealth Global Family Office Report 2022.

• Common areas of focus include renewable energy, affordable housing, micro-finance, and community development initiatives.

Impact investing allows families to extend their philanthropic ambitions while still adhering to sound investment principles for long-term capital preservation.

Embedding ESG Across Portfolios

Beyond dedicated impact strategies, there is also a concerted push by family offices to fully integrate ESG factors across their entire investment process and holdings.

• Based on findings, 42% of family offices now engage in ESG investing, up from just 25% in 2019.

• This shift is largely driven by next-generation members: 68% say their rising leaders are prioritizing sustainable investing.

• From a performance perspective, research shows companies with high ESG ratings delivered superior returns with lower risk compared to low-rated peers.

Implementation Challenges

While interests are high, family offices still face challenges in implementing effective ESG and impact investing programs:

• Lack of standardized frameworks and inconsistent reporting from managers

• Limited availability of investment products across all asset classes and risk profiles

• Balancing financial returns with values-based impact priorities

To overcome these hurdles, many families are bringing in specialist ESG advisors and working directly with fund managers on customized sustainable investment solutions.

Looking Ahead

From impact investments to full-scale ESG integration, family offices appear to be at the vanguard of cementing sustainability principles into the core of their investing activities.

As both values-alignment and financial materiality factors converge, sustainable investing is positioned for further acceleration among family offices.