Like real estate, private equity, and other investing categories, family offices are also big on environmental, social, and governance (ESG) investments.
According to the most recent US SIF Foundation’s report on US sustainable, responsible, and impact investing trends, American families have increased their ESG asset allocation by 71% between 2016 and 2018, from $2.4 billion to $4.1 billion.
Although that’s not much, family offices are low-key and able to be much more nimble than their peers at, say, a public pension plan. Oftentimes this makes families one of the first on the scene of an opportunity. ESG-based allocations of participating families total $39.4 billion.
However, the top criteria for ESG investments in 2018 has changed, moving from 2016’s environmental-based requests to today’s community-based investing, particularly in small and medium businesses, microenterprise, and community services.
Environment-related goals are the most favored family investment selections.
Mamadou-Abou Sarr, director of product development and sustainable investing at Northern Trust Asset Management, said this ESG concentration is due to wealth changing hands to the next generation.
“It is one of the drivers when you think about the wealth transfers happening in the US,” he told CIO. “For me, there [are] two markers that are worth noticing.” The first is a youthful new workforce, which is leading to a demand for ESG options in their 401(k) plans. The second is what Sarr predicts as the “largest wealth transfer,” when Generation X passes its money down to Generation Z.
“In particular, we’re seeing younger members of families asking for ESG options more and more often, and over the past … four years, we’ve implemented a strategy called Quality ESG focusing on both quality as a factor and ESG best practices and low carbon,” he said, adding that the tactic has generated the most buzz in global family offices.
Most of the younger generation getting that wealth will be women, who, according to the survey, are also more likely to gravitate toward ESG investments based on principles such as the United Nations’ Sustainable Development Goals.
“For me, that’s a great marker because most of the requests are coming from global family offices where the younger generation at the table is demanding ESG options,” he said.
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