Impact Investing Is the New Philanthropy for Family Businesses
9 August 2016 at 12:01 am
Almost half of family businesses globally are actively engaged in social impact investing as part of their philanthropic portfolio, according to new research.
The Family Business Philanthropy – Creating Lasting Impact Through Values and Legacy report, released on Tuesday by the EY Global Family Business Center of Excellence, found 44 per cent of owners and managers invest in impact bonds.
EY Family Business leader for Oceania Ian Burgess told Pro Bono Australia News that impact investing was an emerging aspect of philanthropy.
“Family businesses in our experience are strongly inclined to give back to the community… the typical [method] – the old days of just get the cheque book out and write dollars – has always been a part of it,” Burgess said.
“Also, they’ve always given back through the businesses through services to communities and sponsorship of local organisations.
“So this is the third one – impact investing. We’re just starting to see families get more involved and happy to invest assets for potentially lower return in something that is going to actually give a good outcome… particularly as governments have not been able to deliver on some of these issues.”
He said, depending on the family business, impact investing could be an additional financial allocation or might actually replace philanthropy.
“It varies. I’ve certainly seen families that… have still set the dollars up [to] put into a private foundation. But then they’ve also got a whole lot of wealth outside the foundation and they’re now starting to turn that additional wealth… to impact investing, so that’s definitely an additional piece,” he said.
“But I think also for some families they’re choosing it as an alternative, it’s something more attractive.
“A lot of this… comes down to a point in time when a family’s ready. If a family business is still seeking to establish itself and to grow and the future is not secure, then they’re looking for ways to contribute to the community. It might not be an additional, it might be an instead of.”
According to the report, 76 per cent of family business owners felt there was a trade-off between impact investing and traditional forms of philanthropy.
“This trade-off might arise because many projects supported by traditional forms of philanthropy do not generate a financial return for the family and therefore would not be suited to social impact investing,” the report said.
“This implies that many family business owners seem to be torn between engaging in traditional forms of giving, for instance through charitable contributions, and the new form of social impact investing.”
The survey of 525 family businesses from 21 countries also found, on average, owners and managers allocated 3.1 per cent of their wealth to impact investing globally.
However, Australian family businesses were slightly lower at 2.9 per cent.
“It’s early days and so accessibility is still a bit of an issue. There are a range of collector vehicles that are set up specifically for impact investing, [but] they’re fairly limited in number,” Burgess said.
“At the smaller end of the scale there’s probably less opportunity. At the larger end of the scale – you’re largest family businesses and family offices that tend to do direct investment anyway – there is plenty of opportunity in the sense that they can seek out specific investment opportunities and areas of interest to them to make a social impact.
“It is a case of as time develops more products will become available, and more options to pursue that.”
Social impact investing was found to be least common in South America and most prevalent in Europe, Asia and the Middle East.
The desire to generate a financial return from family business philanthropy was also country-specific, with Switzerland scoring lowest and Japan scoring highest on a scale of one to four.
On average, respondents expected some level of financial return on their philanthropic projects with an overall score of 3.17.
Australian family businesses placed a higher emphasis on financial return with a score of 3.4.
The report also investigated how family businesses approach philanthropy, the drivers of philanthropic decision making, the role government incentives play, and how effectiveness is measured and evaluated.