Family Office

ESG: Not Just Fiduciary Duty For Family Offices

Kwan Chi Man, 1 December 2021

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This commentary on ESG issues from the chairman of Family Office Association Hong Kong sketches out the approach that family offices should take on a subject that continues to be a dominant theme in the wealth and investment management sphere.

How should family offices approach the world of environmental, social and governance-driven (ESG) investment? Family offices are or should be exemplars of “patient capital” – an approach that ought to suit investing in areas where the payoff can take time to bear fruit. Keeping on top of ESG investments is arguably more laborious than is the case with more conventional approaches – there is more to think about, measure and act upon. (Hence the debate on whether ESG really can outperform traditional approaches, given certain risk constraints.) Smaller family offices face the choice of whether they can manage ESG requirements in-house or outsource the role. 

With ESG being a fast-moving field, it is timely for this news service to carry this commentary from Kwan Chi Man, chairman, Family Office Association Hong Kong. The editors are pleased to share these insights; the usual editorial disclaimers apply to the views of outside contributors. To comment, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com 

Also, please do look at this news service's WealthforGood Awards 2022 programme, a new venture by the publisher of this news service.)

Amidst the rising tide of sustainability and ESG initiatives, family offices across the region are increasingly conscious of their carbon footprint and what they invest in. The Intergovernmental Panel on Climate Change (IPCC)’s Sixth Assessment Report has again sounded the alarm for the world to act now to avoid the irreversible consequences of climate change. The landmark Paris Agreement adopted in 2015 marked the beginning of a shift towards net-zero emissions to limit global warning to below 2 degrees Celsius, compared with pre-industrial levels. Governments around the globe have pledged to become carbon-neutral by the middle of the 21st century, with a growing focus on the sustainable development of economies. 

In Hong Kong, the Green and Sustainable Finance Cross-Agency Steering Group (CASG), co-chaired by the Hong Kong Monetary Authority and the Securities & Futures Commission of Hong Kong (SFC), was established in May 2020 to coordinate the management of climate and environmental risks to the financial sector and help transition the financial ecosystem towards carbon neutrality. 

Most family offices are, by design, accustomed to take the long-term view on planning, to preserve and grow wealth across generations. The devastating consequences of climate change are a real threat which is already impacting livelihoods and the environment, this will affect all humanity, and the consequences can destabilise the best long-term plans or family legacy. Therefore, it is imperative for family offices to have a plan of action in place that identifies, evaluates, and mitigates the emerging risks such as transition and physical climate-related risks. 

The long and inevitable transition towards a carbon-neutral economy requires collective action, and there are many areas where family offices can contribute and make a positive real-world impact for the next generation. As independent owners of substantial wealth and assets, family offices are guided by their values that underly their purpose and shape their investment strategy. 

Driven by the younger generation with a passion to make a positive impact, family offices are often leading ESG integration and socially responsible investments. Whether it be exclusionary or inclusionary approaches to investing, or active engagement with investee companies, family offices can help facilitate the intricate yet essential transition to a carbon-neutral economy by pushing action on the ESG conversation.

Family offices are already at the forefront of responsible investment, effective impact investing and philanthropy, investing in education, healthcare, and climate-related issues. Through patient capital they are often the first to identify innovative and problem-solving solutions, and their unique investor profile provides the much-needed flexibility to nurture and scale these advanced solutions for the benefit of the wider society and environment.

As a family office industry practitioner, I have long advocated that sustainability and impact investing be stewarded in a family’s legacy, to build a better world for our future generations. Many family offices now believe responsible investment can generate greater value, whether directly or indirectly, and affect real positive change in the long term. As ESG and the target of net zero continues to gain momentum in Hong Kong and across the region, family offices must lead the way in making the positive impact they desire. 

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