How family business can lead us towards a truly sustainable society
Ahead of Campden Wealth’s European Family Office Forum in London (November 1-2) and the ClimateTech Investing Forum in Lausanne, Switzerland (December 6-7), Fabienne Michaux, director for SDG Impact at the United Nations Development Programme, talks about why family businesses should approach investment through the prism of the UN’s Sustainable Development Goals.
A 2021 report by Campden Wealth found that climate protection is a priority for 67% of family offices, while 94% of ultra-high-net-worth (UHNW) respondents feel they should play a leading role in combating climate breakdown [1].
Meanwhile, another Campden Wealth report found that 70% of family offices surveyed see “The transition to a global net zero emissions economy as the greatest commercial opportunity of our age”. But is there an argument that the road to true global sustainability requires a total change of mindset?
Adopted by all United Nations member countries in 2015, the UN’s 17 Sustainable Development Goals (SDGs) ‘Provide a shared blueprint for peace and prosperity for people and the planet, now and into the future’ by recognising that the fight against climate change, ocean pollution, poverty and other deprivations must go ‘Hand-in-hand with strategies that improve health and education, reduce inequality and spur economic growth’.
“The SDGs were a step forward from the Millennium Development Goals (MDGs), which really only targeted developing markets,” says Fabienne Michaux, director for SDG Impact at the United Nations Development Programme (UNDP), the first and only independent management standards in the market that places sustainability at the core of operations. “The SDGs came about in recognition that, to achieve sustainable development, we actually need to tackle this across all countries. The principle being that it’s not a government and donor issue, it’s every person, every citizen, every organisation and government working together to achieve the sustainable development goals.”
With a specific mandate to call out the role of the private sector and private capital in helping to make that change happen, SDG Impact was formed by the UNDP in 2018.
“This project is really focused on engaging and accelerating private sector activity and investment towards the sustainable development goals,” says Fabienne. “That’s a different place for the UNDP, which typically works with policymakers and governments in terms of delivering outcomes and helping countries.”
With the 17 SDGs running the gamut from zero poverty and hunger to sustainable cities and communities, the role of SDG Impact is to encourage more private businesses to adopt and adapt. But, as evidenced by a case study in a 2021 Campden Wealth report [3] – “There are things in SDGs we are not aligned to, our focus is more on regeneration and protecting resources,” said a Singapore-based wealth holder – compelling family businesses to invest according to all 17 SDGs is a hefty task.
We need to get to the point of reducing harm and really think about things from a value perspective.
“I think the UN has done an amazing job but a lot of organisations are maybe not getting behind the 17 goals to the 169 targets that underpin those SDGs and really focus on the areas that need additional capital and solutions,” says Fabienne. “What we really need to do is actually use the Sustainable Development Goals to drive different strategic decisions.
“A lot of people are thinking about one or two positive intended outcomes under the goals, but they’re not thinking about the unintended negative outcomes in their operations and supply and value chains. To us, that’s just as important.
“There’s around $150 trillion US dollars of capital in the system. We need all of that capital to be deployed sustainably, or else it’s a losing battle and we will continue to generate negative outcomes at a faster pace than we are generating to solutions to pre-existing issues. Then we need a really targeted focus on where the needs and gaps in achieving the SDGs are greatest – about $3.7 trillion a year, according to the Organisation for Economic Co-operation and Development (OECD), to fill the SDG financing gap.
“We need to get to the point of reducing harm and really think about things from a value perspective in terms of being regenerative and reducing the negative externalities in the system. The holistic systematic approach is what we’ve tried to capture in the SDG Impact Standards, because that’s what’s missing at the moment.”
The private sector needs to make all of its decision making and investments more sustainable.
Does the perceived pick-and-mix perception of the SDGs – adopting a goal or goals that most closely chimes with company and personal ethos – as opposed to an overarching pledge to do better and do due diligence throughout the supply chain potentially hamper full adoption of the SDGs?
“At the moment for a lot of organisations, it tends to be an add-on to what business gets done. It’s not the filter of how all business is done. And that’s the transformational mindset shift we’re really trying to achieve through the SDG Impact Standards,” says Fabienne, who, in addition to her role at SDG Impact, was a working group member of the G7 Impact Taskforce and is co-chair of the Australian Advisory Board on Impact Investing. “The private sector needs to make all of its decisions and investments more sustainable, then it becomes the filter in terms of how we think about what we’re doing and why we do it.
“We’re actually experiencing a lot of things at the moment that are indicative of us pushing against our planetary and social system boundaries. As we push more against those boundaries, we’re getting more and more unintended consequences, and we’re paying the price for that economically… The pandemic, the war in Ukraine and the ongoing effects of climate change have not been cost free. We’re already starting to experience all these impacts but we’re not actually putting two and two together in terms of realising that we’re creating the environment that’s resulting in these outcomes.”
“The reality is that if we don’t deal with our social issues and inequality, we can’t achieve the climate goals,” says Fabienne. “In many developing countries, they haven’t been the net contributors to carbon usage but they are going to experience the effects of climate change to the greatest degree and they have less capacity to adapt. I do think that there is a need to think about things from an equity perspective and to think about what’s important and what needs to be prioritised in context.”
Sustainability is complex. A lot of this is getting built as people are trying to fly the plane.
However, Fabienne (who previously enjoyed a 30-year executive career, including 22 years with S&P Global Ratings) does feel that UHNW families and individuals – a group that are traditionally very good at making great wealth through solid due diligence – have the ability to use their business nous to drive us towards a truly sustainable society.
“It’s a human trait to filter out information we don’t think is important and we’re not even conscious of a lot of the information that’s in front of us,” says Fabienne. “Once you actually start thinking in this way, it’s very hard to turn off. I’ve seen that with companies that have started in a very small way, around one product, and then it has ended up being taken on at the corporate level, because the goal is meaningful from a business performance perspective.
“Sustainability is complex. A lot of this is getting built as people are trying to fly the plane. So that makes it less efficient and more frustrating. But I do think it’s going to get there a lot faster now that a lot more people are thinking about it.
“The World Inequality Lab found that the bulk carbon emissions from the global top 1% of the world’s population isn’t from their consumption, it’s from their investment choices. So, they have an enormous ability to start enacting change by asking different questions from the investment decisions they’re making.”
This is a group that collectively could have enormous impact.
The sustainable investing ecosystem has been growing exponentially, both within the family office space and more broadly. At present, 57% of family offices in Asia-Pacific engage in sustainable investing – this accounts for 26% of their average portfolio and this proportion is expected to rise to 43% within the next five years [4]. As a result, Fabienne is seeing a clear uptick on businesses adopting at least some SDGs in their development and investment strategies – “We’re definitely seeing a lot more interest and engagement with the Sustainable Development Goals in the private sector” – driven greatly by next-generation family members with a desire to make a greater impact with their wealth.
“The next generation coming in is very interested in how to align their investment decision-making with their values,” says Fabienne. “I think that’s positive and is a real opportunity to make sure that people are armed with the right information to be able to make good and informed choices.
“By arming the next generation with the knowledge around what some of the shortcomings are in the current system will mean they’re in a position to ask better questions, to put more pressure on their investment advisors, to go and do the work and make sure that they’re actually incorporating this in the investment decision-making.
“This is a group that collectively could have enormous impact, which ultimately, will underpin and secure financial security for generations to come. It’s a group that can take calculated risks and be patient with their capital and have the education and wherewithal to really arm themselves with the information to make better choices and to use their networks to really start driving change at a systemic level.”
For more information on SDG Impact, click here.
[1] Asia-Pacific Family Office Report, Campden Wealth, 2021
[2] Investing for Global Impact: A Power For Good, Campden Wealth, 2021
[3] Asia-Pacific Family Office Report, Campden Wealth, 2021
[4] Asia-Pacific Family Office Report, Campden Wealth, 2021
