Wealthy families are having new conversations about how they can leverage not just their philanthropic endeavours, but also their investments and their business activities to create a better world.
The philanthropic response to the coronavirus pandemic has been difficult to ignore, and we have seen for ourselves how our clients have responded: with emergency funds, by extending their philanthropy beyond their usual areas of focus, and adopting different approaches to effecting positive change.
As the vaccine rollout progresses and the economic outlook improves, families are now looking to the future, incorporating activities beyond philanthropy to shape the world for the better. There are signs of a fundamental shift in how we think about social impact, and doing well by doing good has moved up the agenda.
A spark that ignites deeper change
The pandemic has reinforced that we are connected, global citizens. It has exposed inequality, and shown us how those most affected by the pandemic - the marginalised, poor, indigenous - are also those adversely affected by challenges such as climate change and gender and racial injustice.
In opening our eyes to the scale of these challenges, the pandemic has led many wealthy families to think deeply about the source and purpose of their wealth, and how they can mobilise their resources to create a better world. This shift takes social impact from a philanthropic add-on to a core activity that encompasses everything from lifestyle and investment choices to business practices.
Social impact can mean different things to different people. Russell Prior, Regional Head of Family Governance, Family Enterprise Succession and Philanthropy, EMEA at HSBC Private Banking, describes it as "the positive effect on people and communities created by actions, activities, projects, programmes or policies taken by individuals, organisations or government."
With this definition, we move beyond philanthropy to include all our decisions and actions, such as what we buy, how we travel and how we use our time. Those with wealth have considerable opportunity to amplify the positive change they can achieve by aligning their resources and endeavours in holistic, big-picture social impact strategies.
What makes a social impact strategy?
Alongside philanthropy, a more holistic social impact strategy incorporates action via investments and via business practices.
Increasingly, individuals are seeking to align their investments with their values. It makes sense to engage their financial resources for greater social impact, and many have realised that capital deployed to create wealth can be used to tackle some of the greatest challenges threatening our world today.
"A lot of clients are interested in responsible investment or ESG-screened investments, where they know that the money they're investing will help to build a better and more sustainable future for all," Dorothy Chan, Head of Philanthropy Advisory, Asia Pacific at HSBC Private Banking notes.
Families are exploring environmental, social and governance (ESG)-led investment approaches and products such as green bonds (which fund projects that have positive environmental or climate benefits), social bonds (directed to social projects in areas such as education, health and affordable housing), and sustainability linked bonds that encompass both social and environmental considerations. They are engaging in impact investing as well; the number of family foundations currently doing so has doubled since 2015.1
The crisis has also changed the way family businesses operate, and they understand that to succeed long term, they need to create value for all stakeholders - employees, customers, suppliers, the environment and wider society. Existing businesses can make positive changes through their supply chains and labour practices, for example, or by taking action towards net-zero carbon emissions goals.
And, in the knowledge that their actions today will affect people's lives and the environment tomorrow, individuals are creating positive impact via their spending and consumption choices, sustainable energy use and recycling habits.
A generational shift
Responsible investing and taking account of the environmental and social impact of business were both on the rise even before the pandemic. The drivers included government policies, and investor and customer demand, as well as the wealth transfer to younger generations, who often have a different perspective on social impact.
Increasingly, younger generations want to work with a company that aligns with their values, or embark on a career with a sense of purpose or that contributes meaningfully to society. Younger philanthropists are setting up their own social enterprises or NGOs, for example, taking risks and experimenting with new models.
As Prior explains: "The next generation don't see social impact as a choice - it is just the way things are." This shift in mindset, fueled by the pandemic, is likely to grow, with more social impact strategies combining resources and aligning with core values.
And all generations are looking to extend their social impact well beyond philanthropy to include all their endeavors: the companies they own and lead, who they invest in, the conditions of the workers they employ, the taxes they pay and their personal lifestyle choices.
"Social impact is not just ESG investments and philanthropy," Prior notes. "It's asking yourself: 'What am I doing across the entire spectrum, and how can I achieve consistency across every aspect?'"
HSBC Private Banking believes building a more sustainable world and growing your wealth go hand in hand. In growing, managing and preserving our clients' wealth, we are shaping the transition to net zero and safeguarding the future of generations to come. We can provide you with the insight you need to guide the development of your philanthropy, the direction of your investments, and the practices of your family business to make a positive change in the world. To learn more, contact us or your Relationship Manager.
1 Trends 2020: Results of the second national benchmark survey of family foundations, National Centre for Family Philanthropy, 2019 ↩