• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 1/8/2014

Impact investing and the family business 

Impact investing
The goal of impact investing is to make a sustained and measurable positive impact on society and the environment through strategic investments. Family businesses are well positioned to do just this, generally having a united vision of what the family wants in terms of its investment portfolio and legacy

Impact investing refers to investments made by companies into ventures focused on social or environmental issues. More specifically, impact investors pour capital into businesses, NGOs, or funds that will positively affect social causes (HIV/Aids research and low-cost housing initiatives, for example) or environmental causes (such as afforestation and species protection) while at the same time affording the investor a good financial return.

Positive impact through strategic investments

It’s a nascent form of socially responsible investing that has been gaining ground across geographical boundaries and economic sectors, as popular in developed markets as it is in emerging markets.

Owing to its dual focus on business growth and social investment, it’s felt by many that impact investing could rectify the shortcomings of traditional financial markets. Various types of company engage in impact investing, including family business.

So far the industry is proving popular among family-run businesses as it’s seen by the older generation as a means of transferring both sound money-making principles and a socially responsible perspective to the younger generations.

Socially responsible investing

Moreover, family businesses often have a long-term perspective, having the aim of longevity and succession, and impact investment is by its nature interested in long-term benefits, so the two are very compatible.

The power of a family business impact investment strategy is that it benefits from the wisdom and experience of the older generations while being coupled with the enthusiasm, innovation and energy of the younger generations. This can make for a well-rounded, multi-skilled and cohesive team.

Impact investment for long-term succession

Furthermore, with impact investing, not only do family business members develop a strong social responsibility ethic, but the family is drawn together even further as a unit through the process.
Impact investing can, and in many cases would do well to, be embraced as a holistic approach to investment, as it can tie into the brand and ethos of a company, enhancing operations and the bottom line.

To date relatively few companies have directed their entire investment portfolio towards impact investing, yet this is a rewarding angle, both financially and in terms of the degree of social/environmental impact.

The power of a family business impact investment strategy

The World Economic Forum Report, From the Margins to the Mainstream (PDF 2.82MB), published in September 2013, written up after a year of research into 150 varying organisations, discusses ways of mainstreaming the youthful impact investing industry. Some of their recommendations include:

  • “calling on impact investment funds to be transparent about the financial returns that are generated;
  • for impact enterprises to proactively measure and report on social and environmental impact;
  • for governments to provide tax relief for early-stage investments in which public benefit is created; and
  • for philanthropic endowments to commit their investment capital to impact investments and not just to programmatic allocations.”

Read more about this report.

A holistic approach to investment

“We are on the threshold of major change,” says Sir Ronald Cohen, Chair of the Social Impact Investment Task Force established by the G8…

“Investors are starting to see the benefits of allocating capital to impact investments while old and new intermediaries are bringing innovative instruments into the market.”

Family businesses wanting to engage in corporate social giving that will benefit their bottom line, as well as society or the environment, should review their investment portfolio with the benefits of impact investing in mind.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.

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