Wealth originators are understandably cautious about handing over the reins of their business to the next generation. At the same time, they want their money to make a difference in the world. Fortunately, so do their offspring. Could these underlying motivations align through sustainable investing?
Heraclitus, the pre-Socratic Greek philosopher, said ‘change is the only constant in life’. It’s a saying that’s particularly pertinent for families today as they grapple with change on an economic and social level, while seeking to ensure a successful wealth legacy.
The transfer of wealth from one generation to the next is seldom an easy process – even if some families in the Principality have more experience than many. Today, older wealth owners are wary of change while inheritors – a generation of digital natives and at the forefront of shifting social norms – are keen to embrace new investment outlooks. As a result, a sense of mistrust during the wealth transfer process can be common.
Research from Barclays Private Bank shows a large proportion of wealth owners (67%) are cautious about relinquishing control of their wealth to the next generation. Differences in attitudes, risk appetite and educational background are the most common issues creating barriers between them. Risk aversion is one of the biggest causes of tension, as almost 40% of wealth owners want to take less risk in a bid to preserve their wealth for future generations.
This contrasts with 26% of millennials who want to increase their wealth, but to do so in line with their sustainable values.
Among all generations, Millennials and Generation Z have the highest consideration for sustainable investing. No longer seen as an investment fad, our research shows 37% have invested sustainably, and nearly half (45%) are considering it. These figures reflect a growing sense of awareness that accompanies Millennials and Generation Z, of the challenges their generations face as they inherit wealth. They also want to use their wealth as a force for good over the long term.
This concept is not new. Every generation shares a sense of responsibility to invest their wealth appropriately and give back to the causes that matter to them the most. However, according to our research, among the older generation (38%) this has traditionally been conducted through philanthropy or charity as opposed to an investment strategy.
Yet the personal values that shape the older generation’s desire to give back are echoed in those of Millennials and Generation Z, who use sustainable investing to create positive change.
As the narrative among inheritors begins to shift, sustainable investing is a much-needed ‘bridge’ that can help align family values and bring multiple generations closer together through a shared motivation to do good.
Making a difference together
The research from Barclays Private Bank shows younger generations’ views on this style of investing can help to shift the perspectives of older generations.
Sustainable investing has frequently been linked to younger generations. Most of the narrative around sustainable investing focuses on the benefits for portfolios alongside people and planet. Now we can see its potential benefits for aligning families around shared values and enabling intergenerational wealth transfer.
Sustainable investing acts as a conversation enabler between generations. A shared sense of purpose for individuals will drive a common investment outlook as well as the family’s legacy. The principles behind sustainable investing help generations define the common causes that express the shared family values. This communication between generations alleviates trust issues or conflicts that often arise during the wealth transfer process.
Today, issues such as climate change and global warming are rising in prominence and the need for action has become more urgent amongst Millennials and Generation Z who are driving the need for change. With the sustainability pillar being much more important to them, they’re encouraging their families to take sustainability into account when it comes to their business interests.
Aligning sustainable motivations
Yet investing sustainably and growing wealth are not standalone pieces of the wealth management puzzle. In fact, long-term themes driving sustainable investing – demographic shifts, movements to build a greener and more inclusive world, rise of artificial intelligence, and globalisation trends – are key to future-proofing investments. This focus on long-term value creation and returns is a natural fit for families who want their wealth to reflect their own personal aims, and stand the test of time for generations to come.
Our conversations with families usually include one of four motivations for sustainable investing. Firstly, it’s often seen as a way to enhance the legacy of family wealth overall. Secondly, it can help to ensure family values are articulated.
It can also be used to motivate young inheritors of wealth to allow them make more meaningful investments. This can be done by offering them an opportunity to invest from a young age or a ‘seat at the table’ to discuss sustainable causes. And finally, it can be used to create family unity.
All of these motivations arise when families are asked: what do you want to do with your wealth? Why are you interested in sustainable investing at a financial or personal level? They want to grow their money, of course, and they may see how the big societal challenges are impacting certain markets. But from a personal perspective it comes back to their own values and motivations.
A sense of responsibility
High net worth individuals tend to agree, according to the 2020 edition of Investing for Global Impact produced by Barclays Private Bank in partnership with Campden Wealth and Global Impact Solutions Today. The report notes the number one priority for 38% of respondents engaging in sustainable investing relates to their sense of responsibility to make the world a better place. A further 26% want to show that family wealth can be invested for positive outcomes.
A journey of discovery
We see these conversations as more important than ever before, following the impact of COVID-19 on economies and likely volatile and challenging markets ahead. Indeed, figures suggest sustainable funds weathered the recessionary impact of coronavirus on markets in the first half of the year much better than non-ESG focused portfolios. No longer is this type of investing seen as exposing hard-earned wealth to higher risk metrics at the expense of returns.
The pandemic represents a step-change for the sector and more investors are likely to become aware of the benefits of investing sustainably. The zeitgeist is shifting and COVID-19 has been the first test of sustainable companies. People have been impressed and they are asking questions about sustainable investing and how we can help them place their money.
At a deeper level, the pandemic has seen many wealth creators reflect on the legacy they are choosing to leave behind, and whether it appropriately reflects their values. In our experience of advising local families, we know this can be a challenging, but rewarding discussion to help facilitate.
By including younger generations in their outlook, there’s an opportunity to approach investment through a new lens. One that preserves their wealth in the long-term but also contributes to a more sustainable planet for humanity and most importantly, our children and grandchildren.
Article: Damian Payiatakis, Head of Impact Investing, Barclays Private Bank