Aligning family philanthropy and investing for impact

Please note: The article does not constitute advice or any form of investment recommendation.

Many families are motivated to use their wealth to have a positive outcome on our world. For most, this has historically been through their philanthropy, but a growing number are beginning to align or use their investments as well.

According to the latest ‘Investing for Global Impact’ report, which surveyed around 150 private investors with an average $730 million in assets, nearly seven in ten (68%) respondents felt that philanthropy and impact investing should be used jointly on the same issues to generate impact – and 58% said they sought to coordinate the aims and themes across both¹.

In this article, we explore why and how families are adding investing to their philanthropic endeavours, as well as some potential considerations for anyone contemplating this shift.

Families are taking a more integrated view of their wealth

Traditionally, UHNW families have separated their philanthropy, their investing and/or their oversight of any operating businesses. Family members are often allocated different leadership roles for these activities; and pursue them independently.

Sometimes this is even reflected within their charitable foundations. Trustees overseeing endowments tend to see themselves as stewards of its capital, investing to maximise return of the endowment’s investments. And the ‘giving’ part of the family’s philanthropy is often led by different team members or trustees, with a focus on proximity to, and understanding of, societal issues and how to solve them.

These separations can provide a clear allocation of responsibilities, but can also miss opportunities to amplify the overall impact of family wealth. Philanthropy (or investing) can provide only one type of the capital needed for solutions to our complex and systemic environmental and societal issues. Many families are now recognising the role their investments can play in exacerbating, or to improve, the causes being championed by their family philanthropy. The rise of sustainable and impact investing over the last decade has also created new opportunities to combine the pursuit of financial returns and societal benefit. 

According to Juliet Agnew, Head of Philanthropy at Barclays Private Bank, “Increasingly, families are thinking more holistically about their wealth. In turn, they’re looking to use all the available tools to achieve their impact goals – hence connecting their giving and investing.”

Linked by the same primary motivation

Part of this shift is based on the similarity of the underlying motives. In the ‘Investing for Global Impact’ report, respondents were asked, separately, about the main motivation for their philanthropy and/or impact investing. In both cases, around three-quarters of the philanthropists (77%) and the impact investors (75%) selected a “responsibility to make the world a better place” as their main driver.

Additionally, the survey found families to be similarly aligned around a more personal incentive: more than four in five respondents felt that involving the next generation in philanthropy or in impact investing (83% and 80% respectively) would prepare them take on greater family responsibility.

Understanding the different tools to hand

Before considering how to start aligning approaches, it is worth reviewing the aims and nuances of philanthropy and impact investing.

Philanthropy is finance “for good” – with the intention of benefiting society, but with limited or no expectation of capital being returned. In many cases, even the most strategic philanthropy often has a strong element of “heart” to it and holds deep meaning for the giver. It is also frequently about more than just giving money; many donors also seek to use their skills, time and networks to address the issues and initiatives they support.

Impact investing refers to “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”, according to the Global Impact Investing Network². Investors can seek to meet their financial goals and use their capital “for good” at the same time. It’s part of the broader sustainable investing movement, which also includes ethical investing (excluding certain investments based on personal values) and responsible investing (considering environmental, social and governance factors in investment decision-making).

In comparing the two, it’s possible to start seeing where there are differences and where they can be complementary. Philanthropy is a highly flexible form of funding. It can be particularly useful in situations where limited commercial finance is available, where risks are too high or difficult to quantify, where needs are urgent, or, conversely, where long-term, patient capital is required. Impact investing is more constrained by aims to deliver on both impact and financial criteria. But it tends to have the advantage of scale, as well as the ability to reinvest or reallocate any returns to increase potential impact further.

As such, we’re seeing some families use these tools in union or collaboration. Some have adopted blended approaches, where they’ve used philanthropic capital and taken first-loss positions to bring in more traditional investors. Others have staged their capital to meet the needs of a single organisation, such as using grants to fund ground-breaking projects in their early stages to pave the way for their investment later.

Considerations when connecting investing with philanthropy

In principle, linking impact investing to philanthropy can generate benefits for your family and for society (albeit it’s highly dependent on an individual’s personal circumstances and ambitions). In practice, this can be challenging to implement effectively. Here are a few considerations if you’re interested in using investments to support your giving:

Unite around common values and objectives

To begin connecting investing with philanthropy, establishing a common set of family values and objectives at the outset can serve as a solid and shared foundation for the subsequent efforts.

The process of discussing core values and clarifying a deeper sense of family purpose can be valuable in itself. It can cement relationships and unite generations around common goals. And it can enable older generations to pass on insights and values which help to secure a lasting family legacy.

It also can form the basis of your overall impact strategy – and define how family capital can be used for investing and giving. Agreeing topics, such as family values, priority issues or themes, capital allocations and family roles, provides the foundation from which to start looking holistically at how family wealth is used for impact. This can lay solid groundwork for new approaches rather than jumping ahead to what may feel like a novel proposal to try impact investing.

By establishing common values and objectives, you can keep your end goals in view and an open mind as to the tools that may help tackle your chosen issues.

Winning over stakeholders

Some stakeholders may start with a different view about the purpose of your investments and a lower risk tolerance. As mentioned, trustees may be more focused on protecting assets and be averse to new ways of investing or giving.

While various approaches can manage this potential conflict through discussion, often actual experience can be more convincing. This can be accomplished by introducing small changes within existing, agreed structures. For example, some families begin by making impact investments using the grant-giving portfolio rather than their endowment funds. Or others allocate a small portion of the investment portfolio for different purposes, reflecting different appetites to risk, impact and experimentation.

As well, some difference in stakeholder perspectives may be intergenerational. Younger generations are often seen as driving interest in impact investing, whereas older generations have traditionally been less interested. However, we’re starting to see all generations engaging in this area. In the ‘Investing for Global Impact’ report, while 68% of respondents agreed that impact investing is being driven by the younger generation, 79% also reported it as being embraced by the generation in charge of the family’s wealth. Therefore, starting the conversation with the family head may be easier than in the past.

In the end, aligning investing and philanthropy may not be for everyone. The starting point for philanthropy may be highly personal. Individuals often have strongly held beliefs which fuel their giving and which generate some of the personal rewards of philanthropy – recognition, sense of personal and emotional fulfilment. In these cases, active integration of investing with philanthropy may not be possible; but ensuring alignment rather than divergence of efforts is still achievable.

Learning from and leveraging others’ experiences

Introducing or trying to lead the discussion with your family or foundation about combining investing and giving can be challenging without experience or knowledge of these topics. Already, family discussions are often fraught with tension and entrenched roles.

Even once committed, new skills and knowledge will likely be needed to implement the approach. Some capabilities may already exist within teams to be leveraged or uncovered. But you may also need to bring in or build up additional skills and knowledge. Educational programmes can develop capabilities through information about what’s out there and action-learning experience.

The good news is that pioneering families and foundations have been undertaking this combination for some time. Most are now sharing their hard-won experience, and networks of experienced funders and experts can offer intelligence and insights. So, learning from, and even collaborating with, others further ahead on this journey can be useful.

Start from where you are today

As an immediate first step, families can review their philanthropic aims and efforts in relation to their existing investments (and/or corporate activities).

Consider whether these align or conflict with each other, as well as the family values and impact objectives. Then make decisions about whether, when and how to start making changes. This doesn’t mean changes have to be actioned immediately. Even capturing them is a valuable step before prioritising and planning.

From there it’s possible to start learning how investing can be used proactively alongside grant-giving to help to address societal problems. Thereafter, consider what investment actions to make, with advice as appropriate.

For example, imagine a family’s wealth had been grown through real estate, and linked to this they’d focused their philanthropic efforts on homelessness. By starting to explore the investment field, they might discover new options that address the same issue as their giving. For example, they might come across social or affordable housing funds, or capitalisation of lenders for disadvantaged borrowers, or social enterprises that train and recruit homeless or vulnerable individuals.

Next steps

Integrating a family’s philanthropy and investing is often a journey rather than a single step. Taking a strategic approach and building a family legacy is a deeply personal, and sometimes challenging process. It requires balancing a myriad of factors from what the world needs, to your own circumstances and motivations. But it can be enormously enriching – both for you and society at large.

To find out more, you can listen to our 'Philanthropy and impactful investing' podcast, visit our dedicated Investing for Global Impact hub, or download the full report.

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