Wealth Management with Impact: Family Offices and ESG Criteria

Family Offices (FOs) have evolved from simple managers of large fortunes to becoming strategic platforms for sustainable and impact-driven investment. In today's context, where ESG (Environmental, Social, and Governance) criteria play a key role in decision-making, FOs have the opportunity to lead the transition towards responsible financial models without compromising profitability. A FO can integrate ESG principles into its investment strategy, leveraging financial instruments aligned with sustainability.

Objectives of a Family Office with an ESG Focus

Integrating ESG criteria into wealth management is not only an ethical and regulatory imperative but also enhances the long-term resilience of capital. The objectives of an FO with a sustainable focus include: • Protection and growth of capital under a framework of responsible investments. • Diversification into ESG assets, mitigating risks associated with unsustainable sectors. • Generation of positive social and environmental impact. • Tax and regulatory optimization, taking advantage of incentives for sustainable investments. • Succession planning and family legacy aligned with ethical and sustainability values.

Methodology and Constitution of the Sustainable FO

The transition towards a Family Office oriented towards ESG criteria requires a structured and multidisciplinary approach. Below are the key steps for its establishment and functioning:

1. Defining the ESG Investment Framework

The first step in establishing a sustainable FO is to define an investment strategy aligned with family values and international sustainability standards. This includes:

• Guiding principles: Deciding whether the FO will prioritize impact investments, exclude non-sustainable industries, or adopt a hybrid approach.
• ESG selection criteria: Applying recognized methodologies such as the UN Principles for Responsible Investment (PRI), the EU Sustainable Finance Disclosure Regulation (SFDR), or the Sustainability Accounting Standards Board (SASB) framework.
• Establishing metrics: Defining key indicators such as carbon footprint reduction, measurable social impact, or compliance with corporate governance regulations.

2. Establishing and Registering the FO

To operate legally, the FO must be constituted as a legal entity, generally under one of the following structures:

• Private investment company: Manages only the family's assets, offering greater control over ESG investment decisions.
• Family foundation: Focused on philanthropy and impact projects, benefiting from tax incentives in various jurisdictions.
• Hybrid structure: A combination of an investment entity and a foundation to balance profitability and social impact.

The constitution process involves:

1. Registration with the Commercial Registry as an investment company or financial advisory firm (EAFI in Spain).
2. Opening bank accounts and setting up an operational structure for sustainable asset management.
3. Defining the governance model: Establishing an ESG committee to oversee investments and ensure compliance with the sustainable strategy.
4. Implementing control tools to monitor financial and impact-related risks.

3. Selecting ESG Investment Vehicles

A sustainable FO should avoid traditional financial products that do not meet ESG standards and instead focus on alternative investments aligned with its strategy:

• SRI & Thematic Investment Funds: Specialized in sectors such as renewable energy, green technology, and access to essential services.
• Sustainable Private Equity: Investing in companies with certifications such as B-Corp or focusing on cleantech innovations.
• Green and Social Bonds: Issued by governments and corporations to finance sustainable projects.
• ESG ETFs: Funds that track sustainability indices such as the MSCI World ESG Leaders Index.
• Discretionary ESG Portfolios: Managed by private banking experts with a responsible investment mandate.

4. Implementing a Control and Impact Measurement Strategy

To ensure that investments meet ESG objectives, control and transparency tools must be implemented, such as:

• ESG ratings from agencies like MSCI, Sustainalytics, or Bloomberg.
• Impact reports using frameworks such as the Global Reporting Initiative (GRI) or the Sustainable Development Goals (SDGs).
• Regular ESG audits to prevent greenwashing and ensure alignment with the FO’s strategy.

Investment Policy and ESG Wealth Strategy

A Family Office aligned with ESG principles should design an investment policy focused on:

1. Impact analysis: Assessing the profitability and sustainability of each investment.
2. Transparency and performance measurement: Implementing reporting tools like the ESG Score.
3. Investment in energy transition and circular economy, reducing exposure to highly polluting industries.
4. Governance and shareholder activism, promoting better corporate practices in invested companies.

Family Offices have evolved towards more sustainable models, combining profitability with a positive impact on society and the environment. This transformation is not only a response to the growing demand for responsible investments but also provides competitive and tax advantages in a rapidly changing financial landscape.