Sustainable investments: the best of all worlds for family offices

In partnership with UBS Evidence Lab

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sustainable investment strategy - Family Office

Sustainable investing (SI) is firmly entrenched in family office portfolios, as more than half (56%) globally have allocations, with family offices in Western Europe and Asia leading the way. Looking forward five years, family offices may use their flexibility to lead the way on adopting ESG integration, planning to increase the allocation to about a quarter (24%) of the overall portfolio.

Families are seeking out investments that not only earn positive returns but also benefit society after a year of pandemic that has heightened anxiety about environmental and social issues. More than half (56%) already invest sustainably, although with wide regional variations. Three quarters (72%) of families do so in Western Europe, arguably the global cheerleader for cutting carbon emissions and addressing societal problems. Adoption in Asia is broad-based, too, with more than two thirds (68%) of family offices investing sustainably. Meanwhile, just 45% of US respondents do so and a quarter (26%) in Eastern Europe.

Family offices look set to lead the way on adopting the “ESG-integration” form of SI, which incorporates the sustainability and societal impact of a business into investment analysis. Globally, family offices think ESG-integration investments will be about a quarter (24%) of total portfolios five years from now. Attitudes are steadily evolving, with appreciation of how ESG factors can cut risk, raise returns and benefit society. Today, the traditional approach of excluding investments judged unsustainable still dominates SI. Looking forward five years, though, this will account for less than a third (30%) of portfolios, while impact investing will make up just over a tenth (14%).

Why are families putting such faith in SI? The most popular answer is a sense of responsibility – it’s for the positive impact on society, according to almost two thirds (62%). Similarly, more than half (55%) say it’s the right thing to do for society. Roughly half (49%) also see it as being the main way to invest in future.

“We have more of an exclusion-based approach ourselves,” notes a Swiss-based CIO. “But when we engage with external funds that’s when we pay attention to what their ESG- integration approach is. On the impact side of things, that’s exclusively carried out through our charitable effort. Obviously, we’re now thinking long and hard about how far we should go and whether inclusion should become part of the overall allocation. We’re just not there yet.”

Mindsets are shifting. The barriers to investing are falling. When asked why they might not embrace SI, fewer say that they’re happy with their current approach or that they prefer to maximize returns in their investment portfolios and pursue philanthropy separately. But it’s also notable that after a period when SI strategies have often outperformed there’s less concern about giving up returns – only 11% still view this as a problem.

“We invest a lot in healthcare and education,” says the CIO of a Beijing- and Hong- Kong-based family office. “The financial return is the most important thing, but a lot of these technology-related investments will make a positive impact as well.”

Note: UBS Evidence Lab surveyed 191 UBS clients globally between 18 January and 15 February 2021. Participants were invited using an online methodology and were distributed across 30 markets worldwide. Global Family Office Report 2021.

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