From family dinners to boardroom discussions — Eight families share their recipes for impact investing
Families play a unique and crucial role in the impact investing landscape, be it as investors, pathfinders, or ecosystem builders. As investors, families are often described as agile actors who make decisions guided by long-term thinking, often with the goal of not compromising the needs of future generations. Combined with the fact that these investors frequently have the privilege to witness the impacts of their investments firsthand, compared to other investors like pension funds, insurance companies, or foundations, families are often ideal for paving the way for value-aligned and impact-driven investing.
Despite the abundance of potential, family investors come with complexities. Just as families are uniquely independent and agile, they are also characterized by intransparent decision-making, unquestioned hierarchies, diverging needs, and conflicting priorities.
We at CSP and our partners at The ImPact have come to realize that impact investing is synonymous with learning by doing. Sometimes the ingredients enabling impact are there, but the recipes are not. Other times, visions of impact are clear, yet the pathways leading to impact are not.
These are the knowledge gaps the report Ten Ingredients for Impact Investing — Eight Families Share their Recipes fills. The report explores eight journeys toward impact investing shared by families who have walked the talk. For most, the walk is all but completed.
The impact investing insights featured in the report are based on experiences shared by the following people, among many others:
- Paolo Fresia: who created a framework that enables him to make investment decisions that address globally underfunded and pressing needs, as well as gives him tools to measure his investor impact;
- Valerie Rockefeller: who mobilized her family to pressure a multinational investment bank to align with international environmental goals and uses her voice to push politicians to do the same; and
- Temple Fennel: who led his family on a journey transforming a legacy of oil investments into a portfolio paving the way for sustainable energy and agriculture.
The ImPact’s 10 Key Action framework
The insights shared by the family members are grouped along The ImPact’s 10 Key Action framework. The framework maps the steps families take as they envision, develop, implement, and refine their impact strategies. These include:
Define your “Guiding Lights”: Before defining your vision and goals, identify the social or environmental needs you want to address and the beneficiaries you want to impact positively. Then identify the weights that are to guide your decision-making. Once done, you have identified your “guiding lights.” One-size-fits-all approaches for this exercise are hard to find, yet tools to get you started are plenty. Examples include the UN Sustainable Development Goals, Toniic’s Impact Theme Framework, and Effective Altruism.
Achieve family buy-in to a shared impact investment vision: Engage in conversations that enable you to identify the values your family shares in order to broaden and deepen your family’s engagement in investment decisions. When speaking the language of values instead of finance, disengaged family members are given the opportunity to participate in investment decisions using a vocabulary they are comfortable with. External support might be invaluable, and in case you reach a dead-end, carving out your own assets might be an option.
Build an investment team for your impact investment strategy: Finding the right talent is not easy in a dynamic, emerging field. No less so when navigating a myriad of family decision-makers and external experts. Regardless of the structure of the team, clear processes, policies, goals, and measurement models ensure that learnings cumulate to expertise and gradual growth.
Map your assets to know what you own: The first step in a transformation process is knowing where you are coming from and what you are working with. Once you have mapped your foundations, devise a plan, start implementing it and keep yourself and your team accountable for the goals you set.
“Seven years ago, when the family went through the process of mapping their assets, they realized that their largest public equity holding was in ExxonMobil. This was just exposure through passive strategies,” said Mark Preston, CEO of Skagen Conscience Capital.
Build impact into your Investment Policy Statement: Write and clarify the normative frameworks to guide your investment activities and align vocabularies across relevant policies. Do you, for example, want to talk about a responsible, impact, or sustainable investment policy? The words you use define the reality you operate in, the goals you set, and the compromises you are willing to make.
Weave impact into the due diligence processes for all your investments: Use shared frameworks or separate structures to assess investments against their social and environmental impact. Some structures and frameworks might not work for some asset classes, yet this does not mean that the assets do not have an impact. All investments have an impact. Yet the ones we measure get managed.
“No one wants to invest in businesses that are negatively impacting society and the environment. This means every business is now claiming to be an impact business. Having a system in place to filter deals and differentiate impact claims from real impact is becoming more and more important,” said Johannes Knorz, CEO of 4L Vision GmbH.
Build an impact portfolio in accordance with your Investment Policy Statement: Fund managers are your go-to experts for deals and learnings. Even if you aim to build an in-house team for your family, a way to get going is by investing in fund-of-funds and becoming a limited partner in an impact fund. This will protect you from learning the hard way. In addition, building a robust, diversified impact portfolio is easier when families work together with aligned partners to source investments and collaborate on due diligence. These partners can be families, institutions, or investment experts.
Establish an impact measurement methodology for your portfolio: Before calling your investment an impact investment, it is vital to understand the difference between the impact a company has and the impact you as an investor have. To understand the full spectrum of the impact you are having, measure both. There is a plethora of tools and experts to help you get started. You are not in this alone.
“A red flag for me is when there is not a clear impact reporting and measurement policy and when a company doesn’t have staff that is dedicated to impact measurement,” said Melissa Sesana Grajales, co-founder of Asiri S.A.S.
Engage the institutions that support the deployment of your assets: When operating as a family, it is important that families understand the leverage they have when working collectively as a unit and collaborating with their peers. Families can be catalysts for change when they identify common impact investing products and standards, thus signaling a demand for quality impact investments across institutions, markets, and society.
“High-level individuals in our network are putting pressure on the Biden administration to focus on the role of banking in mitigating climate change. We’re prioritizing these issues on the national agenda,” said Vanessa Fajans-Turner, Executive Director of BankFWD.
Support the flourishing of an impact ecosystem: Impact investing is not just about investing. It is about enabling the existence of an investing ecosystem geared for impact. Transforming the investing ecosystem calls for more knowledge, strong networks, and visionary individuals pushing for long-lasting, foundational change. This means that the ones seeking to do impact investing are also called to act as pathfinders. Enabling the growth of a robust impact investing ecosystem increases everyone’s ability to make better impact investments now and in the future.
Read the full report here.
