Report says family offices don’t always get sustainable investing right – but they are learning fast

Sustainable investment is growing apace, with assets worth $30.7 trillion using the approach, in one way or another, according to the Global Sustainable Investment Alliance. But many would say the movement is not growing nearly fast enough, given the challenges the world faces. 

The G7’s concern over fire in the Brazilian rain forests, plus a record heatwave in Europe, are merely the latest of several incidents to arouse concern over the way carbon dioxide emissions are boosting temperatures. The G7’s offer of forest aid worth $22 million, rejected by Brazil, scarcely amounts to a joined-up solution. Investors tilting portfolios away from stocks with high emissions also have limited aspirations. Government action is patchy.

There are dark days, early on, for any new firm, where family connections count for less. Simons told the Pathways report: “To establish yourself as a new player in the venture space is hard.” 

Family offices are in the front line of attempts to make a more permanent impact, as a new generation of family members gain their spurs.

Cambridge Associates, the investment firm, has produced a timely report on the lessons which can be learned from the way family offices are getting involved. It has written a report, Pathways to Sustainable Insights, with the Cleantech, Renewable and Environmental Opportunities (CREO) syndicate. Cambridge is renowned for providing investment advice to wealthy families, whose sustainable assets are rising by 15% to 20% a year, according to Cambridge.  

CREO wants to promote best practice in developing impact solutions for wealthy investors, family offices and institutions. The report sets out to explain how families who have surmounted a steep learning curve to master the operational issues which lie behind sustainable solutions.  A lot of families, like the Packards, are generous donors. 

But the Cambridge report seeks to look more closely at the proactive approach taken by family offices and a new generation of managers, including Nat Simons, the son of the founder of hedge fund behemoth Renaissance Technologies.

To date, hands-on approaches have been developed by trial and error but they have led to more sophisticated strategies, taught by the likes of Harvard University, CREO and the United Nations.  

Hard lessons have been learned from 2000s, when excessive debt, cuts in state subsidies and an abundance of energy led to the implosion of cleantech projects.

In the absence of expertise on the ground, family offices have started to find, or finance, their own. According to the Pathways report, the Laird Norton family developed a sustainable approach following a consensus between 500 members. Frustrated by the quality of available options it sought to back new approaches, latterly through the venture capital route.

Marie Eriksson an owner of the Stena AB family business secured its broad backing from her family for a sustainable approach and went on to win new converts through the World Economic Council family business community. 

She has launched the Formica Capital impact fund, Heartflow Ventures and Katapult, a developer of ocean tech, striving to follow her passion, while remaining sensitive to the priorities of the rest of her family. Her training as a lawyer helped her through a string of negotiations. 

The development of a sustainable investment approach often results from a philanthropic gesture, which unlocks deeper concerns. 

This development is typical of next-gen, which tends to be more concerned about climate change than more established members of their family, who can get swept up by the cause at a later date. According to green investor Jeremy Grantham: “The more you study it, the more desperate the situation seems.”

Reuben Munger, a former managing director of Baupost Group, became involved in the cause after pursuing grantmaking for environmental NGOs. His first environmental investment was in electric vehicles when he came across an NGO idea, “that needed to be funded”. 

The deal only foundered when a US government grant failed to materialise. But Munger further developed his interest in clean energy and formed venture capital firm Vision Ridge Partners. In 2016 it raised $430 million to invest in climate change initiatives, and it was backed by Capricorn Investment led by Jeff Skoll, former chairman of eBay. Skoll has backed a string of sustainable opportunities and Grantham was another backer to Vision Ridge. In the impact world, it pays to network. 

Nat Simons developed his early career at Renaissance, still run by his father Jim Simons, often perceived as the most successful hedge fund manager of all time.

Simons became involved in philanthropy in 2006 after developing his concern over climate change following an inspiring university lecture.  With his wife Laura he co-founded the Sea Change Foundation which donated $500 million to sustainable causes by 2018. 

They realised that low-carbon investing could become a sustainable theme and set up cleantech venture firm Prelude Ventures in 2013, also backed by Skoll.   

There are dark days, early on, for any new firm, where family connections count for less. Simons told the Pathways report: “To establish yourself as a new player in the venture space is hard.”

Keller Enterprises developed its early fortune out of the oil and gas industry, but went on to develop sustainable businesses including wind turbines and agriculture under Caroline Keller Winter. Initially, Keller viewed the wind turbines as a hedge against fossil fuel. Later it saw the importance of sustainability in its own right. 

Keller adviser Temple Fennell, a film producer, has a strong network of his own. He is co-founder of Clean Energy Ventures, a cleantech leader.

The Mulliez family of France developed its retail business after the war. It went on to develop Creadev, devoted to sustainable agriculture through food deals. Its passionate concern for food quality has produced a thriving business, although it needed to work out how to tackle, and price, US venture deals before getting going.

The Pathways report stresses new businesses need to feel their way with care: “The trial and error step can create tensions between family members as real money goes out of the door.”  

There can be fierce discussions over whether a family business, or its family office sponsor is better placed to pursue an idea. To avoid future problems, sustainable investors need to make sure their ideas stack up financially: passion over a cause can all too easily lead a business astray.

Veteran green investor Grantham told the Cambridge report that he once invested with well-known businesses thinking they would do the due diligence: “Nobody told me they would lose their shirts.” Pathways warns: “The path at this point can force a reckoning. Some new investors feel the urge to cut and run.” 

Family offices count their money carefully. In the wrong circumstances, they might never want to get involved in the impact business again. 

The report concludes:  “Impact investing is different. It cuts across all asset classes. Impact is more difficult to measure than simply by financial returns. It raises questions that are deeply personal and meaningful for the families that sponsor them.”