Finance
Opinion Article
INVITED EDITOR
Editorial from
Rodrigo Tavares
Rodrigo Tavares is an Associate Professor at Nova SBE and Founder and President of Granito Group.
November 16, 2022
8. Decent work and economic growth

8. Decent work and economic growth

Promote inclusive and sustainable economic growth, full and productive employment and decent work for all
LEARN MORE

What internal shifts need to occur for a family office to embrace sustainable investing?

Family offices can offer a much higher level of customization and a greater alignment of interest than private banks or wealth management firms. They are also showing a growing appetite for the myriad of investment approaches under the “sustainable finance” umbrella. In this context, the following questions often surface:

Family offices can offer a much higher level of customization and a greater alignment of interest than private banks or wealth management firms. They are also showing a growing appetite for the myriad of investment approaches under the “sustainable finance” umbrella. In this context, the following questions often surface:

Which approaches to sustainability investing are most aligned with the family office’s investment philosophy?

Should the family office prioritize an approach that seeks to mitigate environmental risks across all portfolios or purposely allocate capital to investment opportunities that are driving positive changes in the world?

What is the most appropriate set up for a family office to deliver on its financial objectives according to its sustainability principles?

Does the adoption of sustainability principles demand changes in internal culture, structure, and human resources?

There are no ready-made design blueprints, and each family office should mirror the family’s interests and values. Family offices may also vary wildly between single to multi and virtual offices, each with their own idiosyncrasies.

But some practices may be common and desirable in all types of organizations:

Values

A family office’s sustainability investing approach needs to be built around its core family values, long-term objectives, and investment preferences. As we wrote earlier, sustainable finance enables values to be aligned with asset management – in many cases, for the first time. It also equips family members with new tools to discuss priorities and trade-offs and provides new options for the family to fulfill its social responsibility mission.

Education

A shift in mindset is more important than a change in the family office set up. For a single-family office, this often means building an internal understanding of the pros and cons of different approaches to sustainability investing and selecting an investment style that corresponds to its core investment beliefs (be it divestment, engagement, integration of ESG analysis in all investment decisions, impact investment or a combination of the above).

Because some of the assets may not be managed internally, it also means assessing whether external asset managers are effectively applying the desired investment style.

In the context of multi-family offices, a process to educate clients, understand their preferences, and apply it across the total wealth management approach is also needed. This can be more complex as the diversity of views and preferences increases, requiring more engagement with clients to build consensus around some common approaches to implementing sustainable investing.

ISGAM AG, a Swiss-based multi-family office, adopted a dual approach consisting of “tailoring” and “mainstreaming” to address this challenge. It offers its clients sustainable versions of their equities and fixed income portfolios whilst incrementally incorporating sustainability considerations across all aspects of its investment services, including external asset managers’ selection.

Investments

With proper training or assistance, the family office’s investment team will be able to develop its sustainability investing guidelines and implement these in its investment strategy, asset allocation plan, and individual investment decisions. They will also be able to integrate strategically significant ESG issues into their asset management and philanthropic activities, tap into blended finance opportunities and improve their reporting to clients and beneficiaries.

For instance, at the Swiss family office Oyat AG, sustainability considerations are integral to the analysis of financial performance and long-term competitiveness. It guides sector allocation and stock selection by shedding some light on which companies are positioned and managed to succeed in the short-run and the long-run.

Avoidance of silos

Some family offices may wish to create sustainability committees or boards, develop alternative sustainability investment strategies, and hire sustainability analysts. This could be useful at the beginning of the journey to support the change management process internally. But ultimately, it leads to unnecessary duplication and higher costs.

The goal should always be to embed ESG principles and practices into traditional ones rather than facilitating segregation. Ideally, a family office should first develop a common vision of what sustainability investing means them and then let investment teams and clients advisors take ownership of the implementation process.

In reality, however, this visioning exercise is often an iterative process as there is no black or white answer to the question of what is and what is not sustainable. A common understanding will be built over time through ongoing internal discussions in the investment committee or another governance body.

This content was originally published in Granito Group.

Rodrigo Tavares
Rodrigo Tavares is an Associate Professor at Nova SBE and Founder and President of Granito Group.
LEARN MORE
SHARE

Keep reading

PhD Series - Meet Fahiz Baba-Yara

Fahiz Baba-Yara started his PhD journey in Economics and Finance in 2015. His research focus on finance, specifically how machine learning models help us make better this decision and how we can improve the forecasting ability of these machine learning models. Fahiz is now heading forward to Indiana University as Assistant Professor from next semester.

Internal Labor Markets, Wage Convergence and Investment

Rui Silva joined Nova SBE as an Assistant Professor in Finance! Recently, he published "Internal labor markets, wage convergence, and investment" in the Journal of Financial and Quantitative Analysis, 56(4), 1192-1227. Click to read the abstract and access the paper.

Competition and cooperation in mutual fund families

Melissa Prado, Novo Banco Entrepreneurship & Technology Chair, explains her recent research paper. The compensation strategy to attract and retain fund managers is a key decision in operating a successful investment advisory firm. This analysis helps to identify the impact of two different compensation approaches – maximising fund performance or encouraging cooperation among their managers – and the characteristics of investment advisors who choose cooperative or competitive incentive schemes.

A new tool will help you invest for the long-term

In a panel on “Investing Wisely” held at Horasis Global Meeting last week, a New York-based investor in the audience challenged the panelists with: “while you are praising long-term investing, my average holding period is 7 seconds – and I make money.”

THE CHOICES OF

The local-for-local open innovation platform Nestlé Hatcher

Our first series dedicated to impact in Africa end with this lively and exciting conversation between Professor Filipe Alfaiate and Mr. João Barreto, the Head of Innovation and PMO at Nestle, based in South Africa. They discussed impact journeys, the BOP market in Africa, opportunities and challenges and in particular, a very interesting local-for-local open innovation platform for all in Africa called Nestlé Hatcher that João designed and launched. Good learnings!

Subscribe our weekly newsletter

By subscribing to the Nova SBE Role to Play newsletter, you can stay up-to-date on the latest articles posted on the website.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

We all have a role to play

We are on a mission to be a community dedicated to the development of talent and knowledge that impacts the world.

With just ten years to go, an ambitious global effort is underway to deliver the 2030 promise. We want to take a stand and we are calling on our community to showcase how they are contributing to the 17 Sustainable Development Goals, whilst influencing more and more people to unravel their role to play.

Here, you will find four different ways your ideas can flourish, dialogue can be enhanced, and action can take place. You can choose one or all four, and Nova SBE will be there to support you all the way and guarantee tangible change.

We all have a role to play, and this is your way in.