Impact investing central to family business philanthropy

Tuesday, 9 August 2016

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Nearly half of family businesses surveyed use impact investing as part of their philanthropic activity, and larger family businesses tend to engage in more philanthropic activities than smaller ones, according to a new report from the EY Global Family Business Center of Excellence.

The Family business philanthropy – creating lasting impact through values and legacy report, which surveyed the views of 525 family business owners and managers across 21 countries including Australia, also looks at how these companies approach philanthropy, what drives philanthropic decisions, the role that government incentives play and how effectiveness is measured and evaluated.

Social impact investing plays important role

Nearly half (44%) of family business owners and managers surveyed indicate that they actively engage in social impact investing, where investments are made that intentionally target specific social objectives along with a financial return. On average, family businesses globally invest 3.1% of their wealth in social impact investing. Australian family businesses are slightly lower, at 2.9%.

Meanwhile, the majority of family business owners and managers globally perceive governmental support for social impact investing to be better than (28%) or similar to (62%) the support for traditional philanthropy, even though in reality only one country, the UK, has specifically legislated to accommodate and encourage it.

EY Family Business Leader for Oceania, Ian Burgess says, while family businesses invest in a huge range of philanthropic activities to achieve a variety of objectives, it’s clear that a significant portion are now engaging in the relatively new area of impact investing.

“This is no surprise, as the activities of the family business and associated philanthropy are  increasingly merging, and being thought of  “social investment”, with a clear value base and a desire to perpetuate those values through the generations,” Mr Burgess says.

EY Impact Investment, Social Finance and Philanthropy Leader, Christopher Thorn says social investment is increasingly delivering financial returns that enhance and leverage philanthropic activities, while also diversifying and changing the risk profile of the business.

“An example of this is the recent Murray Darling Basin Balanced Water Fund which has been recognised as a landmark transaction intended to provide attractive returns to all by aligning the interests and objectives of  a diverse group of investors across the alternative investment, agriculture and natural capital space, including high net worth and family office investors, while also delivering significant environmental outcomes and developing the market for water in the basin for the benefit of all stakeholders,” Mr Thorn says.

Who manages family business philanthropy?

How family businesses organise their philanthropy varies. Seventy percent of family business owners organise their philanthropy through a family-specific vehicle, with 40% having a family foundation or trust and 30% operating through a family office. However, 50% of our respondents state that philanthropy is also organised directly through the family business.

The people involved in managing the family’s philanthropy also tend to be active in the business, notably as CEO (40%) or as board members (40%). Only 15% of our respondents state that family members not active in the business are involved in family philanthropy.

“When it comes to evaluating success, more than half (56%) of all family business owners personally oversee the progress and effectiveness of their philanthropic projects. Very small and very large family businesses exert more family control than midsized family businesses,” Mr Thorn says.

“Despite this level of control, 59% of owner-managers wish to further enhance their ability to evaluate philanthropic outcomes against the objectives of the family, by putting frameworks in place to measure the social and environmental returns of their philanthropic activities.”

Does government help or hinder philanthropy?

Respondents say that the role of government incentives and regulation are seen as a key enabler of family business philanthropy. In most countries, taxation seems to be viewed as a key factor for both philanthropy and social impact investing. In countries where laws promote tax benefits for giving, family businesses are more likely to engage in philanthropy. However, perceived governmental support for philanthropy varies greatly between countries.

At just one-third, Australian family business owners were the least likely of all countries surveyed to say they received tax relief for their philanthropic giving. This is well behind the global average of 61%, and well behind Germany and France which topped the list at 92% and 90%, respectively. 

Mr Burgess suggests one possible reason for this difference could be that many other countries included in the survey have had longstanding  inheritance and gift taxes.

“Families and advisers in those countries therefore have more experience in managing their charitable giving to mitigate the impact of  those taxes, in ways that are not available in Australia –  such as through Charitable Remainder Unit Trust structures. Tax relief in Australia is more specifically focused. For example, it does not provide tax relief for charitable giving related to offshore projects,” Mr Burgess says.

“However perhaps the most significant reason for the gap is that structured philanthropy in Australia is still a much newer phenomenon than in many of the other jurisdictions surveyed, and advisers and philanthropic structures here are not yet as well understood or developed.” 

“It is clear that families are highly invested in their philanthropic activities, both financially and through a desire to be centrally involved in managing the activity and evaluating its success. As companies grow in size their commitment to philanthropy rises, which is why it is crucial that governments harness this desire of family business to give back and make a difference,” Mr Burgess says.

“While this report illustrates that family business philanthropy is a varied and constantly evolving area, our work with family businesses shows that most feel  philanthropy is a key element in keeping family bonds strong through generations. A focus on philanthropy tangibly demonstrates the family’s core values, allows them to give back to the communities they call home and helps engage younger generations in the business.”


Notes to Editors

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About the survey

This report is based upon the data from a large-scale international survey of family business owners and managers, which encompasses 525 responses from 21 countries. The survey was dedicated exclusively to family business philanthropy and was conducted by EY in collaboration with the Center for Family Business at the University of St. Gallen between January and February 2016. The study sheds new light on those central themes in order to enhance our understanding of the increasingly important field of family business philanthropy and its global contribution to society.