Families who have a mission for their money
Family offices are using impact investing strategies and venture philanthropy to make a lasting difference in the world.
Unlike traditional investments, impact investments are designed to generate positive, measurable social and environmental impacts alongside financial returns. Venture philanthropy is an approach to philanthropy that applies the principles of venture capital financing to achieve philanthropic goals.
The primary goal of both these investment strategies is to deploy capital to generate positive returns that are measured both in terms of their financial success as well as their environmental and social impact. Here’s a deeper look at how family offices can leverage their resources to make a lasting difference.
The rise of impact investing & venture philanthropy
In recent years, there has been a marked shift in the investment strategies of family offices, with a growing emphasis on sustainability, social impact, environmental, and ethical considerations.
Family offices, given their substantial financial capabilities and flexibility in decision-making, increasingly are engaging in impact investments. This trend is driven by a desire to create a lasting legacy that positively influences the world. Family offices also are rethinking how they make philanthropic investments and are expecting greater returns from those donations.
Advantages of family offices investing
• Long-term perspective: Family offices often focus on preserving wealth across generations. This long-term outlook aligns perfectly with impact investing, which frequently requires a longer time horizon to see financial returns and impact results.
• Flexibility in investment choices: Unlike institutional investors who may be bound by client expectations or regulatory restrictions, family offices have the liberty to choose where, how, and when they invest.
• Personal values and legacy: Many family offices are motivated by personal values and the desire to leave a meaningful legacy, making them more likely to invest in projects that reflect their ethical beliefs and contribute to societal good.
Family offices can contribute to a wide range of sectors that have significant social or environmental impacts, such as renewable energy, sustainable agriculture, education, social enterprises and health care.
Case studies
Here are some examples of successful impact investments and philanthropic initiatives that demonstrate how family offices can create social and environmental impacts alongside financial returns:
Renewable energy projects
A group of 11 family offices have committed to invest $300 million in clean energy, infrastructure, agriculture, and water. The family offices are part of the Cleantech, Renewables and Environmental Opportunities (Creo) Network, established in 2011 and with more than 50 family offices and private foundations as its members. The commitment is in response to a White House roundtable that challenged investors to accelerate innovative investments to address pressing domestic and global issues.
Sustainable agriculture
The Grantham Foundation: Created by Jeremy Grantham, co-founder of GMO, a foundation that focuses on environmental sustainability. The foundation has made significant investments in sustainable agriculture to improve soil health, and overall investments to redesign our energy systems; to spare the ocean from acidification or to directly recapture carbon from the atmosphere.
Health care innovations
Bill & Melinda Gates Foundation: Microsoft founder Bill Gates and Melinda Gates, through their foundation, engage in significant impact investments, particularly in health care innovations that cater to underprivileged populations. Investments include funding companies developing vaccines and therapies for diseases that disproportionately affect the poor, such as malaria and tuberculosis.
Agriculture transformations
The Bill & Melinda Gates Foundation also has funded research at the University of Illinois’ RIPE (Realizing Increased Photosynthetic Efficiency) project, which aims to improve photosynthesis efficiency in crops. This groundbreaking research seeks to enhance food production capabilities by genetically engineering crops to convert sunlight into energy more efficiently. The project focuses on staple crops such as rice and cassava, which are critical for food security in many parts of the world.
These examples illustrate how family offices can deploy capital in a way that not only yields financial returns but also creates substantial social and environmental benefits.
Challenges and considerations
While the potential for impact is significant, family offices face several challenges in this field:
• Assessment and measurement: Measuring the true social and environmental impact of investments can be complex and requires transparent and robust metrics.
• Balancing returns with impact: Finding the right balance between financial returns and impact effectiveness is crucial for sustainable impact investing.
• Educating family members: Ensuring all family members understand and support impact investment philosophies is vital for maintaining commitment across generations.
Conclusion
Impact investing allows family offices not only to protect and grow their wealth but also to play a crucial role in addressing some of the world’s most pressing challenges. By investing in sustainable and socially responsible initiatives, they can leave behind a profound legacy that transcends financial achievements.
• Steven Thayer, a partner at the national law firm of Ice Miller, has more than 25 years of legal experience representing individuals and businesses in a vast array of business and legal matters.