How can you sync your plan to make sure it reflects what you feel most passionate about?
In my experience, high-net-worth investors often ask themselves this question: “How can I best use my resources to produce the outcomes I desire?” This is no small question, as their goals often extend beyond personal wealth growth to influencing and impacting the world around them.
Historically, achieving these objectives meant employing two distinctly different types of resources: one for investments and another for philanthropic pursuits. In recent years, a more holistic approach has evolved with the growth of the social enterprise sector and developments within the financial services space. Families now can integrate their personal values, vision, and philanthropic mission into their investment strategy, allowing them to strive for social impact as well as financial return.
How may this change how you approach investing today?
Unlike traditional investing, what we call Vision Investing begins with the context of a societal or values-based objective. The goal is a bigger-picture, more active approach that syncs traditional investing with the values reflected in philanthropy. So while financial benefits are important, your first step is to identify your personal values and to clarify the purpose you want to achieve.
The goal is a bigger-picture, more active approach that syncs traditional investing with the values reflected in philanthropy.
And because many families choose to pass on their values as well as their assets to the younger generations, we recommend that families of wealth include succeeding generations in the discussion about values. That inclusion can help your family maximize collective financial and human capital across generations.
This discussion may not be a quick one, as your family members may care about many different issues, and you will want to consider what role legacy and heirs will play in the process. As a recent report from Wells Fargo Investment Institute related, “When asked about which issues have the strongest impact on their investment decisions, many investors highlighted environmental issues like reducing pollution and protecting the environment. However, social issues — such as corporate policies relating to the COVID-19 pandemic or racial and gender equality — and governance issues — including business practices and financial transparency — are viewed as equally important.” There is much to discuss as you align.
What are some ways to approach a values-based investment strategy?
With a clear view of your family’s mission and objectives, you can begin to explore the spectrum of opportunities available to connect your money with meaning.
On one end, you can invest in social impact strategies that align with your vision and values by including non-financial factors in your investment analysis. This is often referred to as socially responsible or ESG (environmental, social, and governance) investing. On the philanthropic end of the spectrum, you can engage in traditional giving and, if using a donor-advised fund or family foundation, apply blended strategies such as program-related investments and mission-related investments. These investment options and strategies are not limited to just the philanthropic accounts; they are available across all investment portfolios. The key is getting comfortable with an approach that’s appropriate for your needs.
How do you get started?
In my view, the most important element is to find a partner that can help you and your family along the journey, meeting you where you currently are in the process. As this space evolves, terminology can be confusing and definitions may change, making it challenging for some people to feel fully confident in the options and strategies available. Look for someone who can assist you all along the way — from identifying and clarifying the values and impact most important to you all the way through aligning on an approach that meets your objectives and outlining various strategies and opportunities for exploration.
Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
“Sustainable” or “Social Impact” investing focuses on companies that demonstrate adherence to environmental, social, and corporate governance (ESG) principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions or that a strategy’s holdings will exhibit positive or favorable ESG characteristics. Different investment styles tend to shift in and out of favor. In addition, an investment’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors, or regions of the economy, which could cause it to underperform similar portfolios that do not have a social policy. Risks associated with investing in ESG-related strategies can also include a lack of consistency in approach and a lack of transparency in manager methodologies. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and liquidity in the market, including a robust secondary market. There are many factors to consider when choosing an investment portfolio, and ESG data is only one component to potentially consider. Investors should not place undue reliance on ESG principles when selecting an investment.