In recent years, the term ESG (Environmental, Social, and Governance) investing has been at the centre of both praise and controversy. Some regions (especially in Europe) have embraced it as an essential part of sustainable investment, while others push back, seeing it as unnecessary or politically charged.
However, ESG might have a branding issue that is currently causing more confusion. The conversation shouldn’t focus solely on the term “ESG” but the real focus should be on the outcomes of investments, which can be positive, negative, intended, or unintended. Regardless of what you call it, investments have real-world impacts that investors should pay attention to.
Why Should Family Offices Care?
When it comes to family offices, this topic becomes even more relevant. Family offices are a significant source of capital and are rapidly becoming a dominant force globally, both from a wealth management and investment perspective. The industry is experiencing explosive growth, with capital managed by these offices more than doubling over the past five years. Deloitte’s Family Office Insights Report highlights a 31% increase in single-family offices since 2019, and capital under management is projected to reach $5.4 trillion by 2030. This positions family offices to surpass hedge funds in terms of capital under management.
According to the latest Campden Wealth North America Family Office Report, family offices adopt various strategies towards responsible investing. The most common approach, used by 73% of family offices, is thematic investing, which focuses on themes aligned with the family’s specific interests. Another 68% integrate ESG principles into their investment selection process, assessing companies based on their environmental, social, and governance objectives. Exclusion-based screening, employed by 45%, avoids industries perceived to have negative social or environmental impacts, such as gambling or fossil fuels. Meanwhile, 41% of family offices use positive and negative screening to actively select or avoid investments based on specific ESG criteria.
Why ESG? Or Rather, Why Should We Care About Outcomes?
All investments have outcomes. When an investor directs capital towards a company, project, or cause, these decisions inevitably lead to societal and environmental impacts—some positive, others negative or neutral. Many of these outcomes are neither planned nor expected, and they can also be unintended. ESG screening provides one (potentially flawed) framework to assess these impacts, but it’s not the only way. Regardless of terminology, today’s data allows investors to assess environmental and social outcomes more accurately than ever before.
The backlash against ESG, particularly in certain regions like the US, often revolves around how it is framed. For example, critics argue that ESG actually perpetuates what it was partly designed to stop—greenwashing. This criticism, combined with inconsistent ratings and a lack of transparency, further muddies the waters.
However, the core idea behind ESG—that investors should consider more than just financial returns—is becoming increasingly accepted globally. Even without the “ESG” label, more investors and family offices recognise that assessing environmental and social risks is simply good business practice.
Challenges in the Family Office Sector
Working with advanced investment screening data requires proper technology. Many family offices still rely on basic technologies like email, Word documents, and Excel spreadsheets to manage complex portfolios. Research suggests that only an estimated 25% of family offices have adopted advanced digital tools beyond these rudimentary systems.
This technological gap not only slows down operations but also exposes family offices to various non-financial risks. One example is that it would be complicated to ingest external data on investments, making it difficult to evaluate their investments’ social or environmental impacts. Moreover, the sector’s opacity makes it harder to track and address unintended consequences, complicating efforts to align capital allocation with broader ethical or sustainable goals.
Without the right tools and frameworks, family offices may fail to optimise positive outcomes or avoid negative externalities—whether environmental, social, or governance-related.
The Future of Family Offices and Responsible Investing
As technology evolves and data becomes more accessible, family offices will face increasing pressure to consider the broader impacts of their investments. Advanced technologies like quantum computing and AI will likely revolutionise how data is collected, used, and made available to assess both financial and non-financial risks. Family offices that adopt these innovations will be better positioned to align their portfolios with long-term financial goals while also considering ethical and sustainable impacts.
The conversation needs to move beyond debating the merits of “ESG” and focus on the real-world outcomes of investments. The question is not whether an investor should adopt ESG principles in their investment screening but whether a portfolio aligns with an investor’s values and intentions. This way, investors can direct their capital to address the challenges society faces.