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Are ultra-rich ditching philanthropy for sustainable investment?

Are ultra-rich ditching philanthropy for sustainable investment?

Philanthropy has certainly been a fashionable topic among the ultra-wealthy in recent years, with private banks often touting the benefits of using charitable giving as a succession planning tool – setting a family constitution for how the wealth should be used.

But has the recent surge in sustainable and responsible investment meant that altruistic giving has become old hat?

Maya Prahbu, head of wealth advisory, EMEA, at JP Morgan Private Bank, said that with some clients, money is now being redirected.

‘I’ve seen cases where people are carving out some of their grant money to do some soft impact investing. They’re also carving out some of their hardcore investment pots into investments that could have a social and environmental impact, as well as a return.’

But Lenka Setkova, executive director of the Coutts Institute, said the two can happily co-exist. She pointed out that in the past decade, there has been a ‘massive boom’ in philanthropic gifts of £1 million or more. Although she recognised that social and responsible investing is significantly on the rise, she felt it cannot replace pure-play philanthropy.

‘Responsible investing is unlikely to ever replace the need for the diversity of charitable activities that we have in society,’ Setkova said.

‘We need that healthy ecosystem of philanthropic resources, as well as investments made through the main investment markets which are more orientated towards sustainable development goals.’

Sustainable investment’s increase to philanthropy’s detriment?

Mary Humphreys, manager of client services at Equiom, said she felt that the increased drive towards social change recently has been stimulating an appetite for impact investing.

‘Impact investors usually look to make a profit while making a positive impact. Philanthropic giving has a more altruistic feel, with the potential of added tax incentives. This could be interpreted as being an inefficient and ineffective allocation of philanthropic resources.’

Alexandra Loydon, divisional director for private clients at St. James’s Place, suggested that a move towards sustainable investing has been more noticeable among younger clients.

She said the extent to which this influences their decisions around their philanthropic pursuits depends on what their philanthropic objectives are and what can be achieved through a sustainable investment strategy.

A 2018 study by Nordea found that selecting investments more mindfully is much more impactful than a whole range of everyday activities, such as using less water in the shower, flying less and eating less meat.

The study also suggested that sustainable investment can also lead to greater financial returns. Loydon believes that this is likely to have an impact when high net worth individuals (HNWI) allocate their money.

However, Loydon also noted that on the flipside, philanthropy grants wealthy individuals tax relief.

‘Philanthropy can afford the donor significant tax relief, which sustainable investment options don’t offer. In an environment of high tax rates, this relief afforded to philanthropists in the UK is an incentive.’

‘Doing good’ holistically

Wealthy investors are not merely segregating their main investments and philanthropic endeavours. Loydon suggested that there will likely be a trend towards combining sustainable investments and philanthropy to magnify the impact.

Prahbu added: ‘In our experience, sustainable investment and philanthropy are running together. If there was one silver bullet to solve the problem, we’d all be doing it.

‘Some things can only be grant-funded because they don’t have the ability to earn an income. That doesn’t mean they’re not worthwhile.’

Coutts’ Lenka said that more HNWIs are ‘joining the dots’ when it comes to how their personal wealth is invested and the impact of their philanthropy. She added that philanthropy does not have to be purely in the form of gifts, and can be via other forms of finance such as zero interest loans.

Grants the only way to achieve certain goals

Lenka added that Coutts’ clients are not necessarily looking to replace philanthropy with sustainable investment, and that many of their sustainable goals will not result in a financial return.

She said: ‘Clients realise that the types of causes they care about don’t always lend themselves to market solutions. We need organisations in society to tackle so many different breadths of what chartites do.

‘From art institutions, healthcare, or preventing violence against women – there’s so much activity that doesn’t lend itself to a market solution.’

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