Sustainable legacy


I recently caught up with UBS’s Global Family Office Report 2020 which provided some fascinating conclusions with respect to how the world’s largest family offices responded to the COVID-19 pandemic and their future investment plans, particularly as they relate to both real estate and sustainable investing.

Undertaken during the second quarter of 2020, UBS’s survey received responses from 121 family offices, with an average net worth of US$1.6 billion. Perhaps unsurprisingly, the largest growth asset class was in cash, at the expense of bonds or Sukuk, with liquidity valued highly during a period of significant uncertainty.

But what to do with this cash post pandemic? Compared to the end of 2019 when on balance family offices intended to trim their real estate holdings, which accounted for an average 14% of their portfolio, when surveyed in May real estate was the most in demand asset class, with almost half (45%) of the respondents planning to increase their real estate allocation over the next two to three years.

As striking as this conclusion was the growth of sustainable investing. Thirty percent of family offices already employed an exclusion-based strategy, akin to Shariah compliant screening, avoiding investments not in line with their values, with the survey identifying an intention among the families for this proportion to increase.

And when asked to identify their top three performance indicators, while return on investment was included the most frequently in 43% of cases, an encouraging 22% included a measure on social return on investment, 12% assessed environmental impact and 10% measured performance against environmental, social and governance, or ESG, indicators.

As an aside, it is surprising that more than half (57%) of respondents did not include return on investment among their top three indicators.

The importance of sustainability was further reinforced by almost two-thirds (62%) of families considering sustainable investing as being important for their legacies.

I’ve shared before my observations that the wider investment market is moving toward the values that underpin Shariah compliant investing, with this report providing further evidence, along with a pleasing appetite for more real estate as part of diversified portfolios.

This article was first published in Islamic Finance news dated 9th December 2020 (Volume 17, Issue 49)