Family offices often have more freedom than other financial institutions to embrace new ideas, and although not a completely novel concept, impact investing is still a relative youngster. How can family offices contribute to development?
An earlier version of this item was published in sister publication Family Wealth Report. It is republished here because the editors here believe insights from the North American family office sector are interesting to people working in this sector in Europe, Asia and elsewhere. (To see another recent article drilling down into the details of "impact investing", click here.) We hope readers find this interesting and respond. You can contact the editor at email@example.com.
Many wealthy families and institutions are helping to define best practices around impact investing programmes and the array and availability of related opportunities, according to a report by Cambridge Associates.
The report, entitled The Foundation of Good Governance for Family Impact Investors, said those family offices that have had success with impact investing tend to structure their approach around purpose, priorities and principles:
1. Define the purpose: Cambridge Associates noted that many families and institutions refrain from “diving into an impact programme”, and instead spend significant time defining their core values and what they hope to achieve.
2. Formalise: Another best practice that many family offices and institutions follow, the firm said, is not just confirming and articulating the purpose of their impact investing initiatives, but also identifying priorities.
3. Establish principles to align investment decisions: Guiding principles might include, for example, the notion that ESG investments should not detract from financial returns or that impact programmes should provide continual learning for the family.
A family or institution can then pursue other key decisions, according to Cambridge Associates, such as:
- Deciding whether to incorporate impact investment decisions into existing governance structures for the broader portfolio, or to create a separate governance model only for the impact programme;
- Considering the extent to which the impact programme will exist in tandem with a family's broader philanthropic or grant-making activities;
- Choosing a strategy for implementation; and
- How best to pivot or re-evaluate when an impact programme hits a roadblock.
"The exciting thing about impact investing is that it's constantly evolving, and everyone is learning from each other," said Rebecca Carland, an investment director at Cambridge Associates and co-author of the report. "Of course, not every family or institution will pursue impact investments. But for those that do, the key to success is often a willingness to embrace change, and to do so within a well-defined framework of values and objectives."