Family office head says restrictions deter impact investing among private investment groups

Alan Schwartz, co-head of Trawalla Group, one of Australia’s larger family offices, has warned impact investing will not save the planet unless corporate profits are adjusted to take account of environmental costs and benefits.

In an article called Impact Accounting Won’t Save Capitalism published in the Harvard Business Review, written with Reuben Finighan, he observes: “One of impact investing’s leading champions, Sir Ronald Cohen, believes that it could be the revolution that will save capitalism and solve many of the world’s greatest problems.” 

Kurt Morriesen, head of sustainable investing at the UN Development Programme in Europe,  says family office impact investing is happening. But he warns families often fail to measure the effectiveness of their programmes

Schwarz begs to differ. He points out nearly all the measures needed to deal with climate change, agreed in Paris in 2016, require capital to be invested in ways that will not be profitable under current accounting rules. This will deter investors, including family offices, from getting involved. 

He says: “Some harmful investments offer inflated profits because investors don’t have to pay for the damage they cause through, for example, carbon emissions or the health impacts of air pollution. Meanwhile, many worthy investments are unprofitable because investors are not rewarded for their associated benefits, such as improvements to health by reducing air pollution.”

In the absence of state subsidies, under existing rules, investors could end up losing $1 trillion a year. Gains, relating to the elimination of climate change are never measured. Schwartz says accounting rules need to be changed to take account of external issues: “Once externalities have been internalized, then all investing becomes impact investing. A baker can profit from feeding the community, a builder can profit from housing the community, and a forester can profit from sequestering emissions for the community.”

Duncan Austin, former partner at Al Gore’s Generation Investment Management, wrote a research paper reported by Family Capital on 19 September 2019. It agreed that the way profits are struck hold back environmental initiatives because they fail to take account of green issues. 

Adjustment cannot change underlying cash flows, but it would create holistic benchmarks for corporate performance and executive pay.  Austin says: “We need to embed better markets in a society that recognises the value of non-market mechanisms too.”

Schwartz’s views have developed out of his lobby group, Universal Commons, which backs a system where public benefit and private profit are aligned. The proactive stance of Schwartz puts him firmly into the progressive wing of the family office movement, likely to become more prominent as new generations gain influence. 

Sometimes the change will be dramatic. James Murdoch, for example, has slammed his father’s news outlets over their climate change scepticism and separated his business affairs. 

Family offices backing impact investing include Scopos, backed by the Brenninkmeijer family, which has invested $230 million and parts of the Rockefeller dynasty. Impact lobby groups, like Toniic, have a growing list of family office members. 

However, family offices also have beneficiaries to serve. They can be reluctant to back impact, unless they are offered a return to compensate them for the risks they are taking. Others are only prepared to seek quick wins, putting PR over process. 

Kurt Morriesen is Europe’s head of sustainable investing at the UN Development Programme. He says family office impact investing is happening. But he warns families often fail to measure the effectiveness of their programmes. According to Environmental Finance, he said: “From the families that I know I estimate that just 5% of those who are interested in integrating impact and ESG in their investment decision making.” 

Alan Schwartz has been a successful entrepreneur in Australia for years, buying and selling businesses in publishing, software and professional services, such as legal publisher Anstat Group, sold to SAI Global in 2005. 

At Trawalla, he has pulled off a string of asset management and business deals. Last year, Trawalla was ranked on the Family Capital 700 of leading family offices due to its proactive approach. 

Schwartz started Trawalla Group with his wife Carol, a strong supporter of women’s rights in business and non-executive director of the Reserve Bank of Australia. She is founding chair of the Women’s Leadership Institute in Australia and recipient of several awards relating to business and the community. She recently became an independent director of EQT, a provider of trustee services. 

Trawalla Group’s foundation works with individuals with a vision for Australia’s future. It has developed a range of philanthropic pursuits and backs social impact initiatives such as the Social Ventures Australia Impact Board and the Murray-Darling Basin Balanced Water Fund.

The family has become a partner to several asset management boutiques. One of them is Qualitas, led by Andrew Schwartz (no relation), Mark Fischer, Tim Johansen and Kathleen Yeung. It has generated deals worth billions in the property sector, where it continues to seek partnerships. Trawalla also has a property division, currently developing offices in Hobart for the Tasmanian government along with a Marriott Hotel.

Trawalla’s Associate Armitage Associates is a long-term investor in Australasian growth businesses. BagTrans, an Australian transport business, is owned separately. In June, Trawalla contributed to a $1.3 million seed investment in Neighbourlytics, a community research and analytics platform. 

Stonehorn Global Partners, a specialist in Asian equities, joined the portfolio in 2019. Its investment team is led by Sam Lecornu, Duke Lo and John Lam, all of whom used to work for Macquarie banking group. Danish family office YardHouse recently agreed to become a backer, impressed with the depth of its research process.