Sustainability is a macro trend that influences and shapes various industries in a myriad of ways. As conscious consumerism takes hold globally, greater transparency and sustainability are fast becoming business imperatives and impact a critical investment metric in traditional and sustainable investment spheres.
While this is a positive trend, impact, sustainable, and ESG (economic, social and corporate governance) investing are relatively new disciplines. Measuring the impact of such investments is often complex and challenging to quantify and report on, let alone standardize. Without access to accurate data, it isn’t easy to understand and manage these investments correctly. This lack of data opens investors and family offices to the risk of inadvertently investing in something that is not strategically aligned with their objectives and values.
For these reasons, many of the new investment technology players have begun to offer solutions that start with ESG data, augmenting and extending it to provide deeper insights into the possible outcomes of target investments. Here is a look at how they can assist family offices in making decisions and measuring their impact.
Identifying strategically aligned opportunities
Sustainability goes beyond purely environmental or social impact; it also relates to whether a particular venture or the act of funding it is sustainable or not. According to the GIIN’s Institutional Asset Owners: Approaches to setting social and environmental goals report, “Identifying impact priorities and setting specific targets is a foundational step in measuring and managing impact, and the resulting insights allow for discerning portfolio decisions, around strategy setting, portfolio management, and exits; this is critical in enabling asset owners to assess progress relative to their goals and revise targets as needed.”
Technologies that couple ESG or impact data with AI-driven machine learning prove to be powerful allies in helping family offices identify strategically aligned opportunities and evaluate targets. With various providers in the market, selecting the most appropriate solutions comes down to the family’s values, objectives and where their preferred avenues of investment lie.
No One-Size Fits All
The reality is that there is no one solution that would work for everyone, and because of this it’s important to look at a couple of players and explore their ideal use-cases.
One provider, Clarity AI is a sustainability solution for wealth, asset and fund managers and family offices. The platform offers information at a company level and aggregates information at the portfolio and fund levels. This data is gathered from tracking over 29k publicly traded companies granularly classified in 168 sub-industries, 198 countries, 385+ governments and 200k+ funds with over 1000 sustainability indicators aggregating and cleaning structured and unstructured data and filling in the gaps with estimated data.
Clarity AI’s big data coupled with machine learning provides family offices with actionable intelligence that highlights opportunities and empowers strategic sustainable investment decision-making aligned with the family’s values and objectives.
Beyond ratings, Clarity AI affords family offices the ability to report on their portfolio’s impact footprint in an understandable way with a single click. This allows family offices to determine how their investments are aligned with SDGs.
For family offices looking to identify opportunities in both listed and unlisted companies, Upright’s net impact platform offers information on over 43,000 of these, from start-ups to large corporations. In addition, the platform equips investors with unified reporting and tracking for various asset classes to make informed decisions. And should a particular company be of interest, Upright’s model enables users to peruse detailed information on it.
ESG and net impact are two very distinct concepts that answer different questions. Essentially, ESG metrics describe how a company does what it does and the extent to which it complies with specified standards and operations. An organization’s net impact profile, on the other hand, describes the value that the company creates and the costs associated with this. Ultimately, this measures the positive and negative impacts its core business has on the surrounding world.
To truly understand the investments they make, family offices should examine both of these metrics. Having an overall view of a portfolio with a single report on these factors can help family offices quantify their investments’ full impact. This helps to determine whether investments truly match the family’s intentions. To achieve this, however, requires actionable data and real-time insights.
For family offices seeking more traditional ESG data insights across a variety of topics, including human rights, gender equity and emissions, Act Analytics provides real-time ESG intelligence via API or web-based application (Act Explorer).
Owl Analytics also provides traditional ESG data, harnessing the power of big data within its OWL ESG propriety technology. The solution aims to help users reduce the subjectivity that is often inherently present in ESG and impact investment data. By curbing subjectivity across all levels, the scoring and ranking process ensures a firmer foundation for using ESG data in understanding various elements of the investment process.
Arabesque is renowned in asset management and data provision. Arabesque S-Ray combines advisory and data solutions with big data and environmental, social and governance (ESG) metrics to assess the performance and sustainability of global companies.
For family offices that require portfolio and sustainability analysis that goes beyond ratings, a view of their impact footprint and SDG sentiment, Matter is worthy of consideration. The company has partnered with Nasdaq to give them a data edge and leverages this through its platform that seamlessly integrates with various platforms for enhanced reporting.
Telling relevant stories to various stakeholders
Family offices are often multi-generational and comprised of family members with unique interests. Many have both internal and external stakeholders with different views and values. To ensure engagement longevity each family member needs to have access to the data that interests them. For example, one member may be more interested in the financial returns their investments are generating. At the same time, another may wish to understand the actual impact they have on the environment or community.
Impact technology is a potent tool in this regard. When strategically implemented, it not only engages those directly involved in the family office but can also be used as a vehicle for inspiring others. In addition, research can be conducted and use cases constructed and shared.
Sopact offers an end-to-end solution that helps family offices to create an impact framework, apply relevant standards and methodologies and listen to stakeholder input and feedback. The data sets gathered from these processes are connected to impact efforts, and dashboards can be created to demonstrate relevant information to various stakeholders. Solutions like Sopact are a great way to manage and measure the impact process and build consensus-driven approaches.
Family offices that harness technology to turn data into information and information into insights will be better positioned to truly measure the sustainability and impact of the investments they make. This facilitates more effective investment alignment with their values, goals and objectives. In this way, ultra-high net worth families can make a significant difference in the world and its future.