How can family offices lead the charge in impactful sustainable investing?

According to Campden Wealth and Raffles Family Office’s Asia-Pacific Family Office Report 2022, 42% of family offices are now engaged in sustainable investing, with 29% of their portfolios dedicated to sustainability (up 4% from 2021 and 2% higher than the global average).

This growth is expected to increase to 50% over the next five years but, in the wake of COP27, is it enough?  

Marcos Neto, director of the United Nations’ Sustainable Finance Hub, discusses how family offices and ultra-high-net-worth individuals, can be guided towards effective and rewarding social and environmental change through the United Nations Development Programme (UNDP) and the Sustainable Development Goals (SDGs).
 

In light of COP27, what are effective and impactful ways to increase the understanding and awareness of sustainability and how can family offices lead the charge?
UNDP’s Strategic Plan (2022-25) identifies development financing as an enabler to scale up development impact and has also articulated a moonshot to promote the investment of more than $1 trillion of public expenditure and private capital in the SDGs.As stated in UNDP’s Strategic Plan, “Leveraging finance at scale includes working with partners to take portfolio approaches aimed at longer-term, transformative goals and brokering stronger public-private collaboration.” UNDP is committed to working with all stakeholders, including family offices and philanthropies to align and leverage catalytic finance of all types to strengthen the sustainable finance architecture and achieve the SDGs for people and planet.

This need was reinforced in November in the Sharm El-Sheikh Implementation Plan and other decisions coming out of COP27, where it was explicitly stated that “A transformation of the financial systems and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors”

UNDP welcomes the agreement reached at COP27. Under our Climate Promise, UNDP has supported more than 85% of all developing countries to define and implement their national pledges under the Paris Agreement. Of these countries, 90% of developing countries have increased their mitigation ambition and 95% have increased their adaptation ambition. Developed countries must also step up to the commitment to provide $100 billion per annum to poorer nations to finance climate action, especially right now as 54 developing economies (40% of all low-and middle-income countries) suffer severe debt problems, a majority of which are also the world’s most climate vulnerable countries - making it hard for them to take decisive climate action. Using Nationally Determined Contributions (NDCs) as a roadmap to guide investment in action not just on climate change but on sustainable development priorities, we must ensure that all countries can fulfil their pledges, including new access to finance and innovative mechanisms, coupled with debt relief.

Many ultra-high-net-worth (UHNW) families are recognising the limitations of modern financial capitalism, the complexities and inter-connectivity of our current challenges. To reduce the impact of climate change, we need to also solve social, environmental and economic issues at the same time. The SDGs serve as the blueprint for achieving sustainable investing and considering these different but connected elements holistically.

Family Offices (FOs) have a significant role to play in the fight against climate change. The World Inequality Lab recently found that the bulk of total emissions from the global 1% of the world population comes from their investments rather than from their consumption. By asking the right questions and directing capital to where it matters most can move the needle on the achievement of the SDGs and goals of the Paris Agreement.

New approaches to sustainable finance are relevant to both aspects of FOs’ business activities - i.e. asset management and philanthropy. These include such concepts as innovative financial tools and financial blending. In that context, FOs are quite uniquely positioned as they can bring business and philanthropy much closer to each other and offer solutions at their convergence points with innovative finance.

What strategic directions can UNDP address to support family offices in their sustainability journey?
UNDP’s approach to sustainable finance is to build bridges and facilitate cooperation between stakeholders in order to catalyse new resources, promote an enabling environment, scale-up local capacities, expand voice and increase access to financing while addressing inequalities to achieve greater impact.

Our programming portfolios and policy engagements provide a platform from which to do this. Unlike financial institutions, UNDP is not primarily engaged with financial transactions but can provide advice on how sustainable development can be integrated into financial transactions. This provides a niche for UNDP’s role on finance as a neutral player with in-house development expertise and access to partners and knowledge that can bring finance to sustainable development policy and programming. UNDP's engagements across governments, private sector and other partners uniquely place UNDP as an architect for the multi-stakeholder platforms needed to leverage and align finance at the scale necessary to deliver on the SDGs.  

UNDP has developed a suite of offers to build skills and knowledge in sustainable finance using the SDGs as the North Star. The goal is to empower FOs to make better decisions that consider all SDGs, including SDG 7 Renewable and Affordable Energy and SDG 13 Climate Change in tandem with the rest of the other SDGs and to better understand and manage the trade-offs between them. Our offer includes:

- Awareness raising and capacity-building – to deliver and curate educational programs and events on sustainable investing
- Impact advisory for impact investment funds to establish the impact management and measurement (IMM) framework for impact funds
- Support for venture philanthropic programmes by offering access to impact accelerator programmes to portfolio of social enterprises for those who are looking to generate high positive social impact and generate financial returns.
- Make sure that family offices’ commitments to the Paris Agreement are anchored on integrity and generate the expected impact

How can UNDP and family offices bring together the right actors, technical resources and leverage its public and private sector network to facilitate an enabling environment for impact and innovative ways of philanthropy?
At COP27, countries reached a historic decision to establish new funding arrangements for loss and damage for developing countries that are particularly vulnerable to climate change, including a new loss and damage fund with a focus on addressing loss and damage. The negotiations and this decision has brought to the forefront the role that finance needs to play in addressing climate change, from putting countries on pathways towards net-zero to strengthening resilience and adaptation to addressing loss and damage, all towards achievement of the SDGs. This complements the incredible mobilisation achieved by the private sector through the Global Financial Alliance for Net Zero (GFANZ).

The finance sector has been experiencing the emergence of a plethora of voluntary commitments led by the private sector. Many of these well-intended initiatives have been abused by some financial institutions and other non-state actors, including fossil fuel companies, who are exploiting different loopholes in net-zero standards.

National and International Financial regulators are stepping up to the game to “Green the financial system” and, today, the Green Growth Knowledge Platforms (a global community of organisations and experts committed to collaboratively generating, managing and sharing green growth knowledge and data to mobilise a sustainable future) has registered more than 650 green financial policy and regulatory measures.

During COP27, the Secretary-General launched the report of the High-Level Expert Group on Net-Zero Commitments, urging the global community to have zero-tolerance for net-zero greenwashing.

Family offices should take note of these developments and implement the recommendations put forward in this report.

In particular, we would like to see family offices commit their portfolio's to be net zero by 2050 following Science Based Targets (in line with IPCC scenarios limiting warming to 1.5 degrees) and to work with their portfolio companies looking to understand the underlying risk related to climate change, nature and inequality, in all its forms, as potential sources of systemic risk.

UNDP and FOs can leverage each other’s vast networks, convening power and information to accelerate the advancement of the SDGs through deal sharing, roadshows, advocacy, and philanthropic activities.

We can also come together to provide opportunities for co-investments to bring impact and sustainable investments at scale. This might include co-designing innovative business solutions and co-creating new investment and grant-making opportunities that embrace long-term thinking and sustainability. 

We encourage family offices and philanthropies to reach out to discuss how we can best support and collaborate with each other.

How can UNDP work with family offices to take concrete steps in driving investing focused on the SDGs?
UNDP and UHNW families can come together to collaborate in exploring philanthropy and business opportunities, sharing sustainable development ideas and investing in transformative initiatives that speed up the achievement of the SDGs at scale.

By working together, UNDP, family offices and philanthropies can ensure that the sustainable finance agenda is rooted in the realities of developing countries and that a broad range of partners are engaged with financial regulators in policy implementation. UNDP is currently working on unpacking the 19 actions defined in the G20 Sustainable Finance Roadmap into concrete activities that will help accelerate the mobilisation and alignment of capital to the SDG’s.

We can help FOs to navigate through the complex issues related to climate action, integrity of the pledges, avoiding greenwashing etc. This can be achieved through an integrated approach towards focusing on both reducing negative impacts and improving and maximizing positive impact on the SDGs.

UNDP can help FOs in their efforts to address those aspects of their investments that have damaging effects on the SDGs with the UNDP-published SDG Impact Standards (the Standards). They are independent, voluntary management standards that can guide organisations on the path to sustainability. The Standards promotes responsible business practices through advisory services on operational guidelines and governance matters based on the UN Guiding Principles on Business and Human Rights. As the world’s most authoritative normative framework that guides responsible businesses, they are crucial to FOs when making their investment decisions

We can also show investors the pipeline of investible opportunities targeting positive SDG impact. Our SDG Investor Map is a market intelligence tool that identifies SDG-enabling investment themes and proven business models, what we call investment opportunity areas (IOAs) - in the emerging markets where national sustainable development need, government policy and investor interest overlap. Once an SDG Investor Map is completed, UNDP and its partners organise networking and accelerator events for investors, intermediaries (including consulting companies or financial intermediaries), enterprises and public sector actors to consider the SDG-enabling investment opportunities. The market intelligence is freely available on the SDG Investor Platform, which allow for filtering of opportunities based on specific investment interests and offer an opening for family offices.

UNDP Impact Ventures Accelerators (IVA) are generating a pipeline of investible ventures with transformative and systemic business-based solutions targeting SDGs. IVAs built to combine business acceleration programs with robust and dedicated efforts on UNDP’s Sustainable Finance Hub (SFH) alignment, impact measurement and management (IMM), which assumes defining, setting parameters for impact measurement in the context of SDGs; impact scaling models through technological innovation and business model adjustments. UNDP’s venture acceleration programmes worked  with start-ups, growth stage and established companies to improve their business and impact models to increase their potential of addressing challenges manifested by SDGs- so far with over 400 enterprises from more than 50 countries.

Impact Advisory Services help to place SDGs at the heart of business decision-making. This offering is based on application of the purposefully designed SDG Impact Standards, independent and voluntary management standards that can guide investors and businesses on a sustainable path. There are SDG Impact Standards for enterprise, bond issuers and private equity funds. The SDG Impact Standards for private equity and asset managers, provide practical guidance to translate investors’ intent into action. The SDG Impact Standards are used to:

- Map and design a fund’s internal impact management system to support SDG-centred internal decision-making and external reporting requirements.
- Design and develop private equity funds in line with the SDG Impact Standards to optimise their contribution to sustainable development and achieving the SDGs.
- A supporting resource, the SDG Impact Standards Self-Assessment Tool can help family offices, or their consultants, conduct a gap analysis and see where they are on their journey to sustainability.

The forthcoming SDG Impact Standards Assurance Framework seeks to strengthen impact integrity back into the market and reduce green-and-impact-washing. Adopters of the SDG Impact Standards will soon be able to contract an independent third-party assurers to assure their management practices to determine whether they meet the minimum evidence requirements as set out by the SDG Impact Standards Assurance Framework.
 

For further information on the UN’s Sustainable Finance Hub, contact Lauren Bradford, Sustainable Finance Capacities and Philanthropy Specialist, at lauren.bradford@undp.org.