Family offices, with their smaller teams and streamlined investment decisions, may be well suited to become leaders in the ESG space.
That’s according to a report issued last month titled “Insight for emerging managers: How family offices can create an effective impact investment strategy.” The report was based on a virtual panel discussion from Level Ventures in partnership with First Republic Bank and Runway Innovation Hub.
The audience for the panel consisted of 184 professionals, with 20 percent of the polling respondents coming from family offices, 25 percent from large-cap and mid-size venture firms and the remaining 55 percent holding high-level positions at institutional investment firms and tech companies.
The report found that 39 percent of the polling audience had more than half of their portfolio invested in ESG-related initiatives.
ESG, or impact investing, as the panelists called it interchangeably, was thrust into the mainstream last year following the social justice movement in the US and as concerns over climate change also spurred more to rethink sustainability concerns. Many now view 2021 as the year that more investment firms are expected to put ESG policies into action.
But more than half of the respondents said that they aren’t significantly oriented towards ESG initiatives. The panel – which included Kunal Doshi of Capricorn Investment Group, Sophie Durey of Tamar Capital Venture and Seyonne Kang of Greenspring Associates – made a few suggestions of key steps that family offices should consider when implementing impact investing/ESG for those that are new to the arena.
“Start with a strong mission that guides your evaluation and investment criteria,” the report said. This is partly what makes family offices so well suited to make waves in the ESG space: the class of investors has transitioned to become more mission driven from the start.
“Historically, many family offices were run more like side investment arms, while the individual carried on with their normal activities,” said Ian Foley, venture partner at Level Ventures, a venture firm with a platform that helps investment managers build and create their own investment thesis.
“Instead, what I’m increasingly seeing is the principal getting more deeply involved and focusing on a mission-driven investment approach,” Foley told Venture Capital Journal.
This shift has also made it easier for such investment offices to put capital to work, as fund managers don’t have to worry about pleasing hundreds of investors with a particular investment decision.
The report also suggests family offices should “look for benchmarks, such as sustainable development goals (SDGs) to objectively measure investments.” This, too, has become easier for managers to navigate and report on, as the now 15-year-old UN Principles for Responsible Investing (PRI) has been adopted by most large investors, and ESG ratings firms have even developed options for the private markets.
But, ultimately, creating an effective impact investing or ESG policy and sticking with it may require managers to think about their investments a little differently.
“As an impact investor, you need to ask not only about the investment’s return on investment but also the investment’s return on humanity,” said panelist Doshi, an investment manager at Capricorn Investment Group.
That often brings up discussions of diversity, where panelists were most interested in investing in diverse founders.
Panelists also remarked on which industries they see as ESG investment hotspots, addressing the California wildfires and other natural catastrophes, life sciences and healthcare monitoring and access, social justice, financial inclusion, as well as education and worker retraining.