by Marcia Nelson
Over the next 30-40 years it is estimated that in America alone, $30 trillion will transfer from baby boomers to their heirs, and a large portion of that wealth passing to millennial-aged recipients. This younger generation is driving the interest in sustainable investments and using their money to “do good” not just to “do well.” With the biggest wealth transfer in US history looming, many wealthy families are re-evaluating what tools and resources are available to them and how integrating a sustainable investment and impact strategy in their portfolio can help them further align their values across multiple generations. Here are some steps to take to get your family on the same sustainable investing page.
If you’re not all together in the same room, it can be hard to learn about each other’s interests. The next time your family meets—over Sunday dinner, Thanksgiving, or a Family Reunion, carve out some time to talk about your values and interests. Don’t expect everyone to agree all at once – or ever – but spend time thinking about your family values and your legacy. Some families unite around a cause that they care about – maybe a loved one had an illness and everyone can come together in support of organizations that target it. You don’t need to solve the world’s problems in the first meeting – make some action items such as everyone agreeing to do some research and come together again in three to six months. Eventually you’ll find a structure and timeline that works for your family. If you need help, you can bring in outside consultants who specialize in family meetings, or a trusted advisor (attorney, account, wealth manager) who can guide the family members through a process that helps you find common interests.
What are other families doing in regards to their sustainable investments? Even if you’re not a super wealthy family, you can learn from a group such as the Rockefeller Brothers Fund (RBF). RBF is a prime example of a multi-generational wealthy family that started by aligning its philanthropic initiatives and recently re-shaped the foundation to incorporate the interests of newer generations. It was established in 1940 by five brothers, third generation wealth inheritors, who wanted to coordinate their philanthropic efforts. Nearly 75 years after its formation, the fund sought to align the investment portfolio with is philanthropic mission. It started divesting from fossil fuel and allocated to public equities that had economic, social and governance (ESG) criteria. In addition, the fund set aside 20% of the portfolio to invest in specific impact and sustainable development products that would generate a financial return along with a social or environmental return – “Doing Well by Doing Good.”
There are a variety of tools and resources to help those interested in sustainable investments.
Here are a few top organisations to get started:
The ImPact, which was cofounded by Justin Rockefeller, is a membership organization that inspires families to make more impact investments more effectively. (www.theimpact.org)
The Global Impact Investing Network (GIIN) provides online research, case studies and investment measurement tools. (www.theginn.org)
Toniic is a global community of impact investors, and in addition to its knowledge center, one of the key resources is its directory of impact investments. The tonic directors is a catalog of over 1,100 investments across asset classes. (www.toniic.com)
Wealthy families frequently use their philanthropic gifting as a mechanism to bring multiple generations together, create mission statements, and prepare and educate future generations about wealth and giving. One easily accessible tool to start with is a Donor Advised Fund (DAF). These have been around in the US since the 1930s and have grown in popularity in recent years. For a relatively small initial investment, anyone can open a DAF. Once the donation has been made, the DAF manages the assets and then the grantor selects the public charities to donate to. Many DAFs are now incorporating sustainable investment options in their underlying portfolios so they’re more aligned with their donors.
Ok, at some point you actually have to invest. Start slowly—perhaps you meet with your financial advisor and start to look closely at how your portfolio is currently invested. You may want to start by divesting of tobacco then move up to seeking out funds that invest in specific criteria – a certain number of women in senior positions, or zero carbon companies. Many families start with their stock portfolio, and add green bonds, which can contribute to environmental sustainability. It’s important to keep going back through the cycle of convening and educating. Some advisors suggest carving out a percentage of the portfolio for younger family members to do some angel investments and learn about the landscape of direct investments. This also addresses the millennial inheritor’s desire to have more control over where the money goes and how it is spent.
Sustainable investing is becoming more mainstream. Some early investors considered it more like charity, and were willing to give up financial returns. As the landscape has changed and evolved, investors are generally getting smarter about the investment vehicles available to them and realizing that they can both “do well and do good” with their money. Sustainable investing is still in its infancy, but it’s growing quickly and as this market matures, more and more products and companies will become available. Wealthy families that are not looking at this area are likely to be left behind in someone else’s carbon footprint.