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Investing for impact is a key strategic element in finding the right ways to deploy your financial resources.

The Wealth Equation:
FW = R (HC + RC)

In designing my family wealth strategic review, I distilled all of a family’s potential financial capital deployment goals to three categories. Two of those categories are moreso about each family member: well-being and flourishing. The third category is moreso about others and yet below I focus on how helping others is symbiotic for family cultures.

Today, I want to talk about investing for impact.

The term “impact investing” has become synonymous with ESG investing in some circles (not for me!) So I will stick to “investing for impact” to distinguish what I am driving at.

Investing for impact has a significant positive boost to family culture in my experience. Helping others helps you to.

Investing for impact will significantly improve your family culture.

I challenge families to articulate their “why”, their unique answer to the tricky question “so what is all this money actually good for?”.

Answers that relate to well-being and flourishing, I often compare to deploying financial resources in hopes of fulfilling the needs on Maslow’s hierarchy.

With impact, Abraham Maslow’s work is still illustrative but this time, it is his concept of transcendence. *** Transcendence is the stage where spiritual needs really shine. Transcendence occurs when putting others’ needs ahead of your own. I believe impact investing fulfills transcendent needs.

Yet capital deployment for impact can go beyond philanthropic endeavours. Families will thrive for generations if they can find ways for the money to support their family members’ transcendence.

Counterpoints to investing with impact 

For some, an investment policy statement that includes a concept like “impact” does not resonate. I certainly do not want you, dear Reader, to hear “ESG” when I talk about the role of investing with impact in family wealth strategy. **** So, from that view’s skepticism, I say:

  • Purely altruistic investment ideas that do not materially grow your human capital are not what I’m talking about… I call that “missing the script” of investing for impact. Capitalism is an incredible tool for progress in our world, and applying capitalism to key human and environmental benefits is certainly worthy of us capitalists’ efforts.

Another skepticism of impact investing is the notion that non-financial goals should never be included in investment strategy. To those skeptics I say:

  • Impact does not have to be a straight line to the most altruistic of investment goals. But if there is no line between investment goals and the non-financial values of the family, the family’s investment discipline (and commitment to core values) is far more likely to weaken through time. Consider the addition of non-financial goals to your investment strategy as still an investment; it is an investment in the quality of your Human Capital and Relational Capital.

Family Wealth = Resources (Human Capital + Relational Capital)

How the family perceives their investments counts for a lot 

I’m reminded of a conversation I had with a real estate family that did not like low-income housing (the financial models are difficult and usually require government intervention for the returns to work). The patriarch was clear; “we build homes to make money. We use philanthropy to do good. They do not overlap.”

One of the family’s Rising Gen stewards simply could not agree; if the financial capital did not do good, it was bad. You can’t just want to make money.

And as a loving family with space for diversity of opinions, they dove right in.

It was a little messy and a lot confrontive. And that was only while I was still in the room.

The report back to me was that they indeed ended the discussion with complete alignment; consensus amongst the generations. Huzzah!

And the kicker? There was no change to the business. What they found was alignment of values around growing the local economy. They agreed on the role that real estate development has on economic progress, which pulls forward educational progress for the local citizens, and ultimately builds a stronger society. That alignment was more than strong enough for both generations to support the home building business.

Over to you, dear Reader; a challenge and request

Does your family know the “why” of your investment goals?

I’m very much looking forward to your description. Maybe you have specific non-financial goals written into your Investment Policy Statement. Maybe you have a Vision Statement that relates. Perhaps you, like many families, can tell me exactly what you do upon reflection, but do not have anything written down yet.

Well then why don’t you write it down in an email to me and then send it to your family members  😉

I’m learning from all the great (and varied!) answers that you incredible wealth stewards have to offer. Thanks as always for sharing.