Sustainable Investing

A consistent approach to sustainable family wealth

Apr 26, 2022

We’ll help you discover the approach that’s right for you and then find ways to start implementing your vision across your portfolio.

Wealthy families are increasingly exploring how they can help make a positive and sustainable change on society, not just through their philanthropy, but also in the way they run their businesses and position their investment portfolios. The pandemic and global social equality movements have shone a light on inequality and made people reassess what it means to be wealthy. More people are also paying attention to urgent environmental issues such as climate change.

With wealth in the spotlight, the reputational risks for the wealthy have increased if you’re not seen to be doing the right thing. We’re entering a new era of transparency and responsibility, with more people wanting to know how people are using their wealth. We’ve also seen a generational shift in thinking around the purpose of wealth. Younger generations have grown up with more awareness of social issues on a global scale and are asking questions about what their families are doing with their wealth and whether they can use it to help drive a positive change.

These shifts provide a great opportunity for families to come together to review their vision, values and purpose for their wealth and harmonize their approach across their businesses, investment portfolios and philanthropy. Defining a core set of values, that everyone in the family agrees with, provides a way to engage younger family members by encouraging them to take on new roles and foster a greater awareness. This can also help with succession planning by preparing the next generation for the responsibilities that come with wealth.

What can you do?

It used to be that families that made money through their operating business or investments would deploy those assets with one set of values and strategy, and subsequently spend their private wealth on philanthropy and other family initiatives with a different set of values and strategy. By integrating their values and purpose across all aspects of their capital, family businesses can create a model for sustainable family wealth.

Give wisely

Many philanthropists are driven by a deep desire to solve social problems and help others. Having spent years accumulating and growing their wealth, they want to give back and make the world a better place. For many people their charitable goals will be guided by their values, ethics and the things that inspire them. They are often motivated to give based on events in their life and choose to support causes that have affected them personally.

Getting your family involved in philanthropy can also create a powerful legacy. Engaging with the next generation in philanthropy can help teach them important lessons about their family’s values and promote cooperation. It could even help to prepare your children or grandchildren to manage their own foundation. From climate change to inequality, the COVID-19 pandemic has exposed complex societal issues, highlighting the vital role modern philanthropy has in addressing them.

While traditional philanthropy has consisted of giving a portion of family, business, or individual wealth away to good causes, wealth owners are increasingly seeing opportunity to create economic returns and have a positive impact on the world at the same time. This approach has resulted in many families aligning their charitable giving with their business and investment plans.

Reassess your business opportunities

Business owners are increasingly realizing that they need to focus on more than generating profits for shareholders and need to consider other stakeholders.. They know that their businesses could thrive when they take care of their employees as well as the communities in which they sell their products and services.    Reporting requirements have become mandatory in many countries, outlining companies' wider impact on society and the environment. For many companies this means integrating environmental, social and governance (ESG) concerns into their already established practices to address the societal impacts of their business activities.

Issues of social inclusion and racial equality have become top priorities for many companies in recent years. The increased prevalence of the climate crisis has also led to further emphasis on companies cutting their carbon footprint. It also makes good business sense to do this.

Realign your investment portfolio

Impact investing is an increasingly popular approach that goes beyond considering ESG factors with investments which directly tackle social or environmental challenges alongside financial return. Integrating impact considerations into investments in this way allows families to align their portfolios directly with their ethical and philanthropic values.

Source: infographic originally by Social Finance – www.socialfinance.org

1 SIFMA Capital Markets factbook, 2020: US Equity (by market capitalization): ~$30 Trillion, US Bonds (debt owed through bonds) ~$40 Trillion.

2 US Forum for Sustainable and Responsible Investing (US SIF), 2018; 

3 United Nations Principles for Responsible Investing, report, 2018

4 GIIN Report, 2020; 5 National Philanthropic Trust, 2020

Case Study: The Casillas family- reinventing the family business

Sofia Casillas* took over her family’s Madrid-based paper manufacturing business after her father retired last year. The Casillas family are passionate philanthropists and want to harmonize their business practices and investing with their charitable giving.

The company has been part of the family for two generations and Sofia is now considering what can be done to limit the environmental impact of the business. To do this she’s looking at how the paper is sourced, and the efficiency of the machines can be improved to reduce the carbon footprint and cut down on waste.

Sofia says:

“Leaving a positive footprint of our passage on this planet involves addressing environmental issues, we all have a responsibility to make sure we do what we can to protect the planet. Since taking over the company I’ve been looking at ways we can improve the manufacturing process so it’s more eco-friendly.”

On the philanthropy side, she’s supporting non-profit organizations in the countries where they sell paper and source raw materials, with a focus on forest regeneration in those regions to help offset carbon emissions.

The family’s investments have also been given a significant shake up, so they are more in line with their values and have a positive impact on society. In the family’s investment portfolio, she’s excluding companies that are involved in cutting down forests and investing in sustainable forestry to combat the threat of climate change. Sofia believes that taking these steps will not only have social and environmental benefits but also deliver healthy financial returns in the long run.

How J.P. Morgan Private Bank can help

The first stage for many families is to sit down together and start exploring their vision, values and purpose. These conversations often reveal ideas and opinions that are unexpected, as well as different perspectives. It’s a journey and thinking about the issues you care about can help families harmonize their approach in terms of impact and goals.

Some families find it useful to document their approach through a written family charter or constitution. It’s not a legal document but something that can clarify and capture their thinking, which they can continually evolve.

What’s our role as your wealth manager? We’re able to support families across all three areas:

Investment banking can advise on ways to reposition your business to take a more responsible approach to a wide set of stakeholders.

Through our family governance advisory practice, we’ll help you discover your values and purpose. We can also help with intergenerational planning by getting younger generations involved in how wealth is managed today and in the future.

Through our Private Bank, we’ll help you re-align our investment portfolio so that it aligns with your values.

The most successful families that have owned assets for more than 100 years are those that adapt. It’s about being flexible and adapting to a changing world. We’ll help you discover the approach that’s right for you and then find the best ways to start implementing your vision across all aspects of your wealth.

 

* All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual results or experience of other individuals. Past performance is not a guarantee of the future performance of an investment.​

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KEY RISKS

Sustainable investing (“SI”) and investment approaches that incorporate environmental social and governance (“ESG”) objectives may include additional risks. SI strategies, including ESG SMAs, mutual funds and ETFs, may limit the types and number of investment opportunities and, as a result, could underperform other strategies that do not have an ESG or sustainable focus. Certain strategies focused on particular sectors may be more concentrated in particular industries that share common factors and can be subject to similar business risks and regulatory burdens. Investing on the basis of sustainability/ESG criteria can involve qualitative and subjective analysis and there can be no assurance that the methodology utilized, or determinations made, by the investment manager will align with the beliefs or values of the investor. Investment managers can have different approaches to ESG or sustainable investing and can offer strategies that differ from the strategies offered by other investment managers with respect to the same theme or topic. ESG or sustainable investing is not a uniformly defined concept and scores or ratings may vary across data providers that use similar or different screens based on their process for evaluating ESG characteristics. Additionally, when evaluating investments, an investment manager is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could cause the manager to incorrectly assess an investment’s ESG/ SI performance.

J.P. Morgan takes a global approach to sustainable investing and the solutions offered through our sustainable investing platform meet our internally defined criteria for a sustainable investment. The evolving nature of sustainable finance regulations and the development of jurisdiction-specific legislation setting out the regulatory criteria for a “sustainable investment” or “ESG” investment mean that there is likely to be a degree of divergence as to the regulatory meaning of such terms. This is already the case in the European Union where, for example, under the Sustainable Finance Disclosure Regulation (EU) (2019/2088) certain criteria must be satisfied in order for a product to be classified as a “sustainable investment”. Any references to “sustainable investing”, “SI” or “ESG” in this material are intended as references to our internally defined criteria only and not to any jurisdiction-specific regulatory definition.

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