As I write, it is almost twenty years to the day since I joined a corporate finance boutique as a fresh business graduate. It took me four months to figure out that that was not an environment in which I could thrive, and I left shortly after. So my gratitude at being asked to join the Simple experts’ network also had a certain hint of amusement at the irony of partially closing that circle.
As it is, there are fundamental shifts afoot in the realm of high finance, where balance sheets rule and investments unfold. We’re talking about transitioning from a profit-driven mindset to the broader horizon of “impact optimisation.” This is the first of a series of articles where I’ll be addressing this shift, the reasons behind it, and the implications for wealth owners into the future.
Shifting north star
We all understand the allure of profits; they’re the North Star that guides many (financial) decisions. But as is becoming ever more clear: There are implications associated with an unreflected and obsessive drive for profit maximisation. The effects of investment decisions ripple through society, influencing its structure and its resilience.
Imagine a world where investment decisions are made on the basis of optimising the impact and not the profitability. It’s a world where investments do not seek to grow portfolios for the sake of monetary growth, but to nurture sustainable practices, champion social causes, and foster ecological regeneration. I would argue that this is not some neo-hippy vision. It is a hard necessity for humanity if we are to steer ourselves through the upcoming century.
Increasing economic uncertainty
The idea of purpose-driven investing has had many names – impact investing, triple-bottom-line, etc. But the necessity of making this approach the norm is only increasing. Given the acceleration of climate change and biodiversity loss, the probability of a collapse of the global economic system is increasing daily. There will be no flight to safety possible, no amount of hedging or diversification will suffice.
Apologies if that all sounds a little apocalyptic, but it is – whether we want to admit it or not – the current direction of travel. The good news is that there is still a window of opportunity to avoid that worst-case scenario. It will require rapid and concerted effort, but family offices and (ultra-)high-net-worth individuals are excellently positioned to kick-start that work.
“Why should we consider this shift?” you might wonder. Well, studies reveal that businesses following sustainable practices often secure long-term success. You can think of that as the ‘wealth generation with a side of societal dividends’. Unfortunately, that probably won’t be enough. Asset owners will, at some point, have to prioritise wealth preservation in the context of a realignment and potential contraction of the global market.
Aiming for impact optimisation
Thus, we have to move beyond the paradigm of financial gains and economic growth-led development. The term I use for the necessary organisation-level paradigm is “Impact Optimisation”, which encapsulates a philosophy that resonates with our collective aspirations. It’s about constructing a legacy that extends beyond balance sheets, resonating with future generations and echoing value(s) that matter. It is wisdom (financial and otherwise) that stands the test of time.
Impact optimisation is about enabling the emergence of the ultimate asset: a world where ecological health, social equity, and prosperity coexist. It’s the pinnacle of responsible wealth management. Its where investment decisions map paths forward for communities and across generations, enriching lives and cultivating harmony.
So, how does one embark on this transformation while heading into uncharted territory? Simply put: The answer lies in recalibrating financial strategies. It’s about integrating robust environmental, social, and governance (ESG) considerations into screening processes, while also shifting the focus away from financial objectives and toward the optimisation of the impact generated by the chosen investments. The ESG sector is maturing rapidly, and many experts out there are better informed than I am.
Shaping the future together
For my part, I’ll dig into the impact side of the equation in the upcoming articles. I do so under the banner of collaboration. We’re all in this together, and only together can we catalyse the necessary changes. Every transformative journey begins with a single step. By weaving impact optimisation into financial strategies, family offices and UHNWIs can become architects of societal change, crafting a legacy that bridges the gap between financial wisdom and human values. It’s wealth in action, shaping a world we can proudly pass on.