Simplifying ESG consolidation and reporting for family offices

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An overwhelming majority of family offices agree that ESG standards should be part of their investment portfolios. However, few have simple solutions that make the integration processes possible. This article explores the dynamics of ESG considerations for family offices, the pitfalls to avoid and outlines a three-step process enabled by KeeSystem's software solution, KeeSense, to help them get started.

What you need to know

  • Many family offices believe ESG investments should be integrated into their portfolios, but few know of simple solutions to achieve this.
  • Greenwashing and the lack of regulatory clarity are the main roadblocks preventing family offices from getting started.
  • Modern family office software solutions offer a sophisticated yet simple three-step process to help them get started.

Software Published on Simple June 20, 2024

In recent years, the shift towards sustainable and impact investments has been a topic of interest within family offices. The recent UBS Family Office report revealed that almost half (49%) of family offices view climate change as a top risk over the next five years. In addition, for two-thirds (66%), achieving financial returns from sustainable and impact investments is just as important as it is with traditional investments.

“As they get more familiar with the topic of sustainability and impact, family offices want more sophisticated information and advice.” – UBS Global Family Report 2024

ESG considerations for family offices

When it comes to ESG considerations for family offices, integrating generational family values into the investment strategy is paramount. ESG investments should align with their long-term goals and family values. This approach makes sure their investments support not only their financial needs but also uphold their ethical standards, keeping their legacy consistent across generations.

Another important factor to consider is the ability to track the performance of their ESG investments. As pointed out by the UBS study, family offices want to see tangible outcomes that result in positive financial returns. Therefore, it is important for them to be able to measure, fine-tune and adjust their ESG investment portfolios when needed.

Lastly, family offices need to follow local regulations and reporting mandates while also paying attention to global standards, such as the United Nations Principles for Responsible Investment (PRI). This approach ensures that they remain compliant without violating globally accepted standards for ethical and sustainable investing.

Pitfalls to avoid

One of the major concerns hindering family offices from engaging in ESG investing is greenwashing. As seen in previous years, with the legal battles fought by some investment banks, the practice is a punishable offence that carries severe fines. The fear of inadvertently falling into the greenwashing trap discourages family offices from pursuing ESG investments despite their interest in sustainable ventures.

“Lack of clarity and rising costs related to ESG regulation continue to be pain points.” – Voice of the Asset Owner Survey 2023, Morningstar.

Another roadblock to family offices pursuing ESG investments is the vagueness of regulations. The need for external legal assistance to navigate the complex landscape of ESG compliance adds an unwelcome layer of compliance costs. This scenario makes it particularly challenging for family offices to engage confidently in ESG investing, as the additional effort required to ensure compliance could outweigh the benefits of the investments.

Three steps to ESG reporting

With the use of sophisticated wealth management software solutions like KeeSystem and its integration with SOPIAD, family offices can get started with ESG integration in their portfolios in a three-step process:

Step 1: ESG profiling and preferences

The process starts with the wealth manager capturing their client’s ESG preferences. Using the SOPIAD ESG questionnaire, designed to comply fully with MIFID regulations, the information gathered includes the following:

  • Sustainable contributions based on European taxonomy and SFDR regulations.
  • Identification of main negative impacts as per SFDR regulations.
  • Optional: Clients can choose among the seventeen Sustainable Development Goals set by the United Nations.

Once client preferences are captured, a diagnostic and suitability report for their portfolio is generated.

Step 2: Portfolio suitability and alignment

Upon completion of the ESG profiling, the wealth manager uses the SOPIAD solution to simulate potential portfolio reallocations. This helps to adjust or rebalance the portfolio while also aligning it with the client’s sustainable preferences. In effect, it introduces a third element to assessing risk and returns that considers sustainability.

Step 3: ESG Consolidation and reporting

From KeeSense, wealth managers can connect to the SOPIAD platform through two new tabs; one allows for assessing the ESG profile for their managed portfolios, and the other grants access to comprehensive ESG diagnostics. This integration is achieved through API communication with the SOPIAD solution, enabling the family offices to subsequently obtain detailed ESG profiles for their clients, covering all three ESG criteria alongside a tailored portfolio suitability report. This data is then incorporated into the client reports.

In conclusion

While family offices face challenges like greenwashing and regulatory complexity, leveraging advanced software solutions can streamline ESG reporting and compliance. By adopting sophisticated wealth management software, they can integrate ESG considerations into their portfolios, ensuring their investments align with both their financial and broader societal and environmental objectives. Using of modern software like KeeSystem, family offices can navigate the complexities of ESG integration, ultimately fostering a more sustainable and responsible investment landscape.

About KeeSystem

KeeSystem is a family office software provider.  With its automated portfolio management solution KeeSense, KeeSystem has been supporting wealth management professionals since 2009 in digitalising their activities, while preserving their identity and image.

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