Families lead ethical investing charge

The Rockefeller family foundation’s recent announcement that it was going to dump its investments in fossil fuels may have raised the odd smile — after all, the family’s money was made through John D Rockefeller’s Standard Oil, the company which spawned both Exxon and Mobil.

But the change is typical of a trend that is growing as younger people take control of the family money: an investment strategy that aligns values with profits. People in their 30s and 40s are “much less relaxed” about investing in sectors such as weapons, mines and defence, and sometimes oil and gas, says Andreas Hoepner of the ICMA centre at Henley Business School.

This is only going to become more pronounced, because it is a question of generational change. “We certainly see indications of a rise in interest in responsible wealth management because the younger generations is taking over the assets, and they want to assert their beliefs into an investment context,” says Hoepner.

Mark Fairbanks-Smith, a partner at wealth management firm Sarasin Global, which specialises in responsible investing, agrees. “We have noticed that there have been some changes with families. Some sectors are more relevant to the younger generations than the patriarchs, such as energy efficiency and technology,” he says.

He adds that some people were out off investing in renewables after seeing poor returns from government-subsidised technologies in the last decade, but that there are now better ways to integrate your beliefs into the investment approach.

This is usually done through excluding certain industries from your portfolio. Arms, tobacco and pornography are common examples, but others might want to avoid animal testing and meat production. In addition, people sometimes want to positively invest in areas that they feels are ethical, such as waste management or the supply of water.

“So long as it doesn’t exclude too much, you can actually not only generate good, but potentially better returns,” says Fairbanks-Smith, though he points out that it takes at least 10 years to see how well such a “mis-shapen” portfolio performs. He does warn, though, that if you exclude a lot, you risk having more money than you might like invested in banks.

Institutions such as pension funds are perhaps better known for their ethical slant. But families can make very speedy shifts in their portfolio’s focus, and often do. “When there is a generational handover there is a totally new set of expectations. Institutional investors gradually might shift their policies, but they can’t move as quickly as a family office,” Hoepner says.

Many principles can influence investment strategy, of course, but Hoepner believes the issue that motivates most passion is climate change. He says that some people are starting to talk about “intergenerational pollution apartheid”, the idea that if the present generation refuses to do anything about climate change it is effectively oppressing future generations who will suffer the consequences, in a way that is comparable to white oppression of black South Africans.

“If that notion gains traction, we will see a very interesting debate,” Hoepner says. “And family offices will probably be the first ones to make changes.”