Family firms increasingly turning to impact investing
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According to new research, almost half of family businesses across the world are now including social impact investing as part of their philanthropic portfolio, highlighting the growing importance of the investment medium.
The Family Business Philanthropy – Creating Lasting Impact Through Values and Legacy report, which was carried out by the EY Global Family Business Center of Excellence and surveyed 525 family businesses across 21 countries, recently revealed that 44 per cent of owners and managers of family firms actively invest in impact bonds.
Impact investing was said to be a major emerging sector of philanthropy, according to EY family business leader for Oceania, Ian Burgess.
Mr Burgess told Pro Bono Australia News: “Family businesses in our experience are strongly inclined to give back to the community… the typical [method] – the old days of just get the cheque book out and write dollars – has always been a part of it.
“Also, they’ve always given back through the businesses through services to communities and sponsorship of local organisations. So this is the third one – impact investing. We’re just starting to see families get more involved and happy to invest assets for potentially lower return in something that is going to actually give a good outcome… particularly as governments have not been able to deliver on some of these issues."
Impact investing even had the potential to replace philanthropy altogether, added Mr Burgess, making it so much more than merely an extra financial allocation.
“It varies. I’ve certainly seen families that… have still set the dollars up [to] put into a private foundation. But then they’ve also got a whole lot of wealth outside the foundation and they’re now starting to turn that additional wealth… to impact investing, so that’s definitely an additional piece,” he told the news source.
“But I think also for some families they’re choosing it as an alternative, it’s something more attractive. A lot of this… comes down to a point in time when a family’s ready. If a family business is still seeking to establish itself and to grow and the future is not secure, then they’re looking for ways to contribute to the community. It might not be an additional, it might be an instead of," added Mr Burgess.
The report also confirmed that the vast majority – 76 per cent – of family business owners located across the world believed that there was a "trade-off" between more traditional forms of philanthropy and impact investing.
Mr Burgess told the publication: “This trade-off might arise because many projects supported by traditional forms of philanthropy do not generate a financial return for the family and therefore would not be suited to social impact investing.
“This implies that many family business owners seem to be torn between engaging in traditional forms of giving, for instance through charitable contributions, and the new form of social impact investing," he added.
The research also found that, on average, family firms currently allotted 3.1 per cent of their wealth to impact investing globally. Overall, social impact investing was found to be the most common in Europe, the Middle East and Asia and least prevalent in South America, the report found.
In terms of looking to make a financial return from philanthropy, it was found that family firms in Switzerland were the least likely to be aiming for this, while those based in Japan were the most likely.