Family offices are increasingly alert to both the investment opportunities and risks to their businesses associated with climate change, according to a new survey.
Climate change and sustainability-related investments across a broad spectrum of themes are increasingly being regarded as long-term investment opportunities by family offices, according to research from UBS.
A survey for the investment bank’s 2024 Global Family Office Report shows that 50% of family offices polled said they were very or somewhat likely to invest in green technologies over the next two to three years, while a further 27% were unsure.
“We think investors see climate tech investments as a fundamental long-term investment opportunity,” Antonia Sariyska, sustainable and impact investing strategist in the chief investment office of UBS Global Wealth Management, told Impact investor.
The 2024 report was built on a survey of responses from 320 single family offices spread around the world, representing families with an average net worth of $2.6bn (€2.4bn) and covering over $600bn of wealth.
In the short term, significant portfolio shifts would depend on several factors, including the continuation of public capital deployment under favourable policies such as those in the US Inflation Reduction Act and the EU Green Deal, and a low interest rate environment that would benefit growth companies, she said. Investment by family offices overall remains heavily skewed towards developed markets.
Other sustainability themes in which family offices say they are likely to invest over the next two-to-three years are food innovation (39%), water scarcity (33%) and the circular economy (30%). On the social investment side, 35% of family offices are likely to invest in education services. Top investment themes overall are artificial intelligence (78%), health tech (70%) and automation and robotics (67%).
“Family offices are telling us that sustainability considerations are increasingly important, both in the context of their investment portfolios, but also for the long-term outlook of their operating businesses,” Sariyska said.
Some respondents point to the attractive investment opportunities in areas like climate tech and healthcare. Others cite the role of regulation as a catalyst, such as in the real estate sector, where, for example, buildings may need to be upgraded to meet tougher sustainability and efficiency regulations.
Impact measurement challenge
The development of standards and frameworks related to carbon emissions have also contributed to growing interest, enabling investors to measure and compare real-world outcomes at scale with greater precision. However, investors are looking for more in this regard. Data availability and impact measurement are identified as a key challenge by 37% of family offices, according to UBS.
Risk mitigation is another driver for family offices when it comes to sustainability themes. Family offices now identify climate change as a leading risk to their operations overall in the next five years, was well as high debt levels. Top concerns for the coming year are the risk of a major geopolitical conflict, along with inflation and interest rates.
Sariyska said UBS’ experience was that investors were moving on from the assumption that impact must come at the expense of financial outcomes. In the survey, 66% of family offices said sustainable and impact investments should target market-rate performance.
She said the UBS view remained that a diversified sustainable portfolio would deliver comparable performance to a traditional portfolio over the market cycle.
“In our work, we often see that it is the lack of understanding rather than motivation, interest and investment mandate that prevents family offices from deploying into sustainability,” she said.
A lack of available solutions in which to invest is highlighted as a challenge by only 18% of respondents – a number that indicates the progress that the financial industry has made on identifying and developing sustainable and impact investing solutions over the past decade, according to Sariyska
Biodiversity prospects
Biodiversity and natural capital is an important theme for a growing minority of survey respondents, though one where investment opportunities are still more limited than other areas of impact investing.
“Overall, we think that climate adaptation and biodiversity will become increasingly prominent in sustainable and impact investing conversations,” Sariyska said. “The challenge with these areas at the moment is the relative nascency of investment opportunities and vehicles, beyond traditional philanthropy and conversation work, compared to the broader topic of climate change mitigation.”
But she said this is changing: industry initiatives such as the Taskforce for Nature-related Financial Disclosures (TNFD), as well as an increased focus on measurement and data standardization are likely to enable innovation across the financial industry, leading to a rise in viable investment opportunities in future.
Investing techniques
The survey shows that direct investment into green technologies, for example via private equity and venture capital, continue to be the most favoured approach – 46% of family offices say they are already active or planning to be active in these types of investments.
A similar proportion (44%) deploy equity stakes in public companies and green bonds.
“We were also pleased to see that shareholder and active ownership approaches are quite prominent, at 40%,” Sariyska said.
Approaches to sustainable investing that exclude polluting and other environmentally harmful activities, continue to dominate investment strategies, but UBS reported a shift towards recognition that the energy transition could only be achieved if hard-to-abate sectors and companies delivered on decarbonisation.
“This is why, in our view, sustainability-focused and impact investors are increasingly more willing to invest in ‘brown’ activities, as long as this comes with targeted engagement efforts,” she said.
In March, UBS’ Tom Hall told Impact Investor about how the institution was seeking to mobilise interest from family offices and others in its collective philanthropy activities.
