How is private wealth approaching impact?

Our people and planet face serious challenges from the developing climate crisis, natural disasters and rising inequality. No corner of earth is immune from the consequences. But we are far from powerless in the face of these global threats.

Fortunately, there is a growing global momentum towards sustainability. We've seen this positive change supported at COP29 and by the UN Sustainable Development Goals (SDGs). These initiatives provide guidance for countries, companies, investors and philanthropists to align their activities towards sustainability and protecting the environment for the next generation.

The growing appetite for sustainable investments is also reflected in the data. The Global Sustainable Investment Alliance (GSIA) 2023 review reflects global assets under management in sustainable investments were US$30.3 trillion in 2023, with growth of 20% in non-US markets over three years. This can arguably be attributed, in part, to what is being called the great wealth transfer.

A generational shift in considerations

We can often see a marked difference in perspective when it comes to Millennials and Gen Z and their attitudes towards the deployment of capital in the context of investments. These younger generations have a greater interest in impact investing and how capital can have a positive effect on community and environment.

Since the Covid-19 pandemic, we have been seeing more and more clients considering their own mortality and their legacies, with many clients and their families contemplating their family's genuine needs when weighed against the needs of society and the world we live in. As some may ask: "Why have wealth in a world we do not want to live in?"

The potential impact of private capital has also, arguably, been magnified by the Covid-19 pandemic, significant natural disasters and conflicts which have placed additional significant strain on public sector and government funding and resources.

Aligning wealth with new values

Private wealth plays an increasingly important role in supporting the global movement to align the financial system with sustainable development and environmental, social and governance (ESG) considerations, all of which are key to achieving the desired positive impact on the planet and the UN SDGs.

Engaged philanthropists, foundations and impact investors are vital players in supporting the transition to a sustainable economy and are stepping up to the plate to create solutions.

How high net worth families can most effectively make a difference is now a common question facing private wealth advisers as well as trustee and other wealth managers. Clients are increasingly looking to align their investments with their values and improve the application of private wealth in driving meaningful change.

The positive impact of private wealth is, of course, nothing new – many international families have for centuries used their wealth to positively benefit social, economic and environmental causes and movements. However, there have been a number of significant changes over recent decades.

The value of seeking expert advice

Families, trustees and, increasingly, family offices are now seeing the need for professional and sophisticated advice surrounding the structuring of philanthropic and impact focused ventures as they wish to correlate new wealth generation with positive impact. It's a trend reflected in the growth of impact investing and the key performance indicators for its assessment. However, structures with a particular focus on impact and ESG investing are often of a bespoke design with significant underlying value, and it is fundamental that specialist advice is sought, including legal advice.

These trends are reflected in what we see as an acceleration of a widening of the family-office investment universe beyond traditional asset classes into such areas as private equity, venture capital, ESG investments and even cryptocurrency. As investments grow more intricate and high net worth families become increasingly globalised, expertise is in greater demand.

For example, impact investing has become a powerful mechanism for family offices. According to recent data, a quarter of family offices are engaged in impact investing and over a third expect to increase their impact allocation in the next five years.

Trustees and foundations, which have played a critical role in pioneering a holistic impact approach, can also deliver environmental and social outcomes through several means, including traditional grant-making, program-related investments (PRIs) and mission-related investments (MRIs).

The increasing support from advisers

The support needed has expanded rapidly over the years. It is now commonplace for advisers not only to assist in creating new private wealth structures primarily focused on ESG, impact or sustainable investment objectives (be they trusts, foundations, companies or partnerships) but to provide advice on the evolving provisions, governance mechanisms, family constitutions and family office policies designed to further these objectives. This involves introducing them where they have not previously been a clear objective, particularly as next generation beneficiaries play a larger role in the family's wealth administration.

More and more individuals are looking to align their personal values with the way they give and invest, and this often requires long-term strategic thinking.

Whether through foundations, trusts or other structures, family offices or impact investing, it's become vital for clients to seek the right support and legal advice to bring new dimensions to their philanthropic activities.

How Ogier can help

With an experienced team of legal experts, Ogier can help trustees, foundations, family offices and philanthropists seeking to incorporate ESG considerations into existing private wealth structures or establish private wealth structures with ESG, sustainable or impact investment objectives.

To find out more about how our experienced team can help, please reach out to your usual Ogier contact or one of the contacts listed in this article.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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