• FutureTrack

Climate Change Risks and Opportunities for Trustees and Family Offices

“Companies that don’t adapt will go bankrupt without question.”

Mark Carney, Former Governor of the Bank of England and UN Special Envoy for Climate Action and Finance

In a world struggling to emerge from the global pandemic, international governments are pinning their collective economic hopes on a green-led economic recovery. Sustainability remains high on the world’s agenda for 2021; with the US re-signing of the Paris Agreement on climate change and COP26 coming up later this year in Glasgow. The pressure on businesses to act sustainably is growing all the time, with longer-term taxes, and penalties for companies, citizens, and nations that fail to act. As Mark Carney said in 2020, “Companies that don’t adapt will go bankrupt without question”. In this environment, sustainability data will reign supreme; there will be no room for greenwashing, virtue signalling, paying to pollute, or failing to measure and minimise environmental and ESG performance data.

Trustees and family offices will not escape the consequences for their own operations nor those of their clients. However, the international focus on the existential climate crisis will also provide business opportunities for family office and trust practitioners to develop new services or lines of business and differentiate themselves from the pack.

Adaptation of current practice will also be required. The carbon intensity of client activities will come under increased scrutiny and may be subject to carbon levies as well as more direct or indirect restrictions on lifestyle choices. Consumer attitudes to wealthy “super polluters” will likely darken, requiring careful management to avoid unwanted attention and vilification. We also hear that next generation family office clients are developing a strong desire to act sustainably and are more likely to select practitioners aligned to their values.

Now is the time for the industry to develop innovative new strategies to prosper in a green economy while also fully playing its part in addressing climate change and the broader ESG agenda.

Carbon Management Risks and Opportunities

Aside from the well-known incentives around lowering carbon emissions, ignoring the problem risks embedding higher costs into future operations as mandatory disclosure, carbon taxes, penalties, and emissions trading schemes come into place. As the corporate sector giants have committed to net zero by 2030, it is likely that similar standards will be applied to their supply chain and customer bases. Much of the financial services sector now have direct regulatory obligations and standards to meet. It is not difficult to imagine banking, insurance, or other financial services being restricted or withdrawn from clients that are not actively reducing their environmental impact. Of course the significant financial and reputational risks which flow from non-compliance and being excluded from the wealth management sector are enormous, and will only escalate over time.

Roadmap of UK mandatory TCFD-aligned disclosures. Reproduced from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/933783/FINAL_TCFD_ROADMAP.pdf

Carbon management is an opportunity develop new business opportunities in a number of ways that can generate new lines of business and revenue sources in trust and family office businesses. At ESIM we enjoy imagining some of these opportunities to incentivise action in your business, to futureproof it for the next 20 years. Below are just a few areas that deserve exploration:

  • Managing and offsetting family office clients’

  • Creation and management of family sustainability

  • ESG due diligence on

  • ESG due diligence on partners and

  • Developing ESG and low carbon investment

  • Creation of sustainability plans and communication of

  • Environmental mandates in trust incorporation to drive investment activity and acceptable use of

Jurisdictional and Company Survival

Trustees and family office services and the beneficiaries of the services, as well as practitioners and host jurisdictions, have become used to external political and socialised threats. In a post-pandemic world where there are winners and losers, including failed and failing states, industry, clients, and host jurisdictions are set for an unprecedented and continual attack that will constitute an ongoing clear and present threat. In turn this will encourage those using these jurisdictions to either “re-think” or ensure that those they use can show clear commitment and adherence to these new standards.

The responsibility therefore falls on jurisdictions as well as individual companies to adapt in order to survive.

Verifiable environmental excellence in all aspects of operations and markets will protect jurisdictions that embed higher standards into a green supply chain, act sustainably, and have a demonstrable wider environmental positive outcome globally. Jurisdictions that virtue signal but fail to achieve substantive environmental commitments will be outed and made examples of by nations wanting to blame their crippling problems on the wealthy and their enablers.

Trustees and family offices are the guardians of wealth for the financially secure and privileged few, with a growing perception they are leaving the “problem” for others to deal with and in turn abdicating responsibility. Now is the time to act and show how wealth can be used responsibly and managed with purpose and integrity.

Forward-thinking trustees and family office practitioners can, as a first step, work with ESI Monitor and its team of sustainability experts to develop its operational sustainability. In a changing world that’s increasingly green-minded, this is a prerequisite to developing new environmentally focused products and services which are crucial to business survival.