Wealth holders have always been stewards of their own wealth; increasingly that stewardship requires wealth holders to act responsibly. But what does being a responsible wealth steward mean, and who is this responsibility to, and why does it matter?
The “why does it matter” question can be answered by focussing on three distinct themes. The first focuses on the issues that have shaped the global economy since the financial crisis of 2008, including the publication of the Panama and Paradise Papers which fuelled a sense of distrust between rich and poor, leading to a societal shift in the perception of wealth and expectations of the wealthy. The Covid-19 pandemic only served as a catalyst to this shift, with the economic effects of the pandemic being felt most greatly at the lower end of the wealth spectrum. The second is to recognise that, environmentally, the world is in crisis, with climate change and biodiversity loss and the need for government and businesses alike to pivot to more sustainable practices for the sake of the future of the planet. The third acknowledges the generational shift in perceptions of wealth, with younger generations often grappling to find purpose when faced with financial wealth they have not helped to create and more sensitive to the plight of the less advantaged and the environment.
Consequently, wealth holders are increasingly viewing or expected to view their wealth by others around them through a different lens, appreciating that as wealth holders they have a responsibility to invest and distribute wealth in a way that looks to redress the economic balance and encourage more sustainable practices. This can have the corollary effect of bridging the generational gap and giving a renewed sense of purpose to the rising generations of family wealth. The sense of responsibility is a personal one and may derive from internal family pressures or external factors such as, for example, public sentiment towards a wealth holder or businesses in more traditional sectors where sustainability remains to be embedded.
Conversely, being a responsible wealth steward may not be an active decision taken by a wealth holder. The acronym “ESG” cannot have escaped the reader’s attention, and this denotes social, environmental and governance metrics which the majority of companies now measure their performance against, and consequently even the most individualistic of wealth holders are likely to be exhibiting some form of responsible behaviours, albeit indirectly, through their investments.
More active stewardship practices focus on wealth redistribution and donating excess wealth, often through impact investing (which may be at the risk of low or negative financial return), actively avoiding tax minimisation practices or taking steps to realise more tax, donor-advised philanthropy, or a combination of all or any of these practices.
The starting point in determining a responsible wealth stewardship strategy will often centre on identifying a shared family purpose, values and priorities, which will form the basis of investment decisions and appropriate mechanisms to be incorporated into trusts (and other wealth holding structures), Wills and powers of attorney for family members.
In future editions of Globally Speaking, we will focus on what it means to be a responsible wealth steward in practice and how we work with clients to help them fulfil their roles as responsible wealth stewards.