Part two
Building reputations, leaving legacies
It is clear from our study that UHNW individuals want to direct their wealth to create a thriving society, but what is motivating them to use their wealth to tackle these global issues? Our study reveals that profit and purpose both have a role to play, but that reputation is also an increasingly important driver, as wealthy individuals find themselves under higher levels of scrutiny from the media, government and the public.
Profit and purpose
UHNW individuals are motivated by the idea of their wealth having a positive impact. Two-thirds of our respondents say that they make investments that follow ESG criteria so they can be more involved in making a difference2.
UHNW individuals are attracted by ESG investments both because they can ensure their investments align with their values, and because they believe these funds are important to the growth of their wealth. Research by S&P Global revealed that large funds with ESG criteria outperformed the broader market in the first 12 months of the pandemic.
Seventy-four percent of UHNW individuals say that ESG investments will be central to growing their future wealth, and nearly 69% say that they are allocating more of their wealth to ESG investments as they expect returns to increase over the next few years. These findings reflect our experience, with our clients increasingly focusing on ethically motivated investments. We believe that ethical investing will become even more important with the transition of wealth to the next generation.
Central to successful ESG investing is understanding the frameworks, the impact and the returns. Legal advisors can work with both UHNW individuals and their wealth advisors to tailor structures to ESG goals, for instance providing appropriate mechanisms to overcome any issues around trustee duties. Through our well-developed network, we can help UHNW individuals to find trustees, asset managers and other advisors that have appropriate sustainability credentials. Impact and sustainability are now part of the decision-making processes of many UHNW individuals, and this means that they are seeking advisors who can take a broader, more long-sighted approach.
Alexander Erskine, Partner, UK
For the millennial generation of UHNW individuals, ESG factors play a large role in their investment decisions. They are not simply following current trends, it is important to them that that they invest in a way that leaves a positive mark on society.
Martin Kraus , Partner, Germany
2 ESG funds include equities and bonds that meet strict sustainability criteria, including factors like pollution records, labour relations and management practices. Funds also often explicitly exclude investment in certain sectors such as tobacco, arms and oil. ESG investing has seen a huge increase in popularity in recent years, with sustainable fund assets reaching a record US$1.7 trillion in 2020.
Leaving a legacy of positive change
While UHNW individuals can have some influence on global issues by making investments that have a positive impact, our study shows that they are also thinking bigger. Wealthy individuals are pondering the positive imprint that their wealth can leave on the world, and how they can shape the future.
This idea of leaving a lasting legacy is a powerful driving force. When asked to select the single most important factor for how their wealth should be used, “creating a legacy” came out on top, chosen as the number one consideration by half of UHNW individuals. Making more money, meanwhile, is at the bottom of the list, chosen by just 8% across all markets.
The meaning of “legacy” is broader than just the money that you leave behind – it is also about the stamp that you leave on the world. Our findings indicate that impact is motivating UHNW individuals more than accumulation of wealth. This is driven by an awareness, likely accelerated by the pandemic, of the responsibility that comes with wealth.
Emma Danks, Partner, UK
Many UHNW individuals want to give something back to society – not just though charitable donations but by investing in something for the future, such as human rights, economic equality and scientific research. Individuals like Pierre and Pam Omidyer and their focus on developing digital technology as a force for positive change and Laurene Powell Jobs with her focus on education reform are positive examples of the deployment of private capital for the benefit of all. They are asking what their legacy will be, and how it will be different to that which previous generations have left behind.
Lilian Klewitz-Haas, Partner, Germany
Reputation, reputation, reputation
In addition to the drive toward leaving a lasting legacy, UHNW individuals also view the need to build and protect a positive reputation and personal brand as highly important. Over the past few years, there has been an increasing public scrutiny of sources of wealth as laws around transparency rapidly change globally. Against this backdrop, ethical investment and involvement in important causes can help to build a positive personal image. Sixty-three percent of UHNW individuals say that developing their own personal brand is important to them.
There are many different facets of reputation management, including privacy, information protection, and protection from false or damaging media coverage or cyber leaks. Negative press coverage and reputational damage can be very costly, whether on the personal or business side. Our report shows that 74% of UHNW individuals believe that reputational issues are a challenge to protecting their wealth, and 79% of private wealth advisors believe that reputational issues are a challenge to protecting their clients’ wealth.
of UHNW individuals believe that reputational issues are a challenge for protecting their wealth
of private wealth advisors believe that reputational issues are a challenge for protecting their clients’ wealth
Percentage of UHNW individuals who see reputational issues as a challenge to protecting wealth
Information on wealth held in complex structures involving multiple jurisdictions will be automatically shared across borders under global transparency rules, and in some cases may be available to the public.
UHNW individuals will not always have control over the information shared, which may give a false picture of the ownership or control of wealth. They will need to understand what information is being shared and with whom to manage the potential reputational risks, enquiries from revenue authorities, media intrusion and data leaks.
Niri Shan, Partner, UK
