Our Global Elite Breakfast Briefing on the 4th March 2020 at Home House, London was kindly hosted by Nicholas Harries, Partner at Macfarlanes, who also heads up the charity and probate practices. In conjunction with this, Harries posed the topic 'philanthropy and the next generation – innovation and impact.'

The topic, as introduced, encapsulates a lot. It is not just the consideration of philanthropy by clients, but more about the differences in attitudes between generations towards philanthropy . When the younger generations gain wealth it is becoming the norm for them to agonise over how to steward it responsibly. The topic also begs the question, of what philanthropy is in a wider sense; with elements like ESG and responsible investing; does it in fact challenge what private clients have been trained to handle, as legal advisors ?

First, why are shifts occurring in inter-generational wealth planning?

  1. We are in an era of unprecedented scrutiny and transparency – with CRS, and the assumption that authorities are now omniscient, wealth is under a much greater scrutiny. More often than not clients want to be 'seen' to care about how their wealth can help, at least to a certain degree.
  2. The increase in holistic approaches, moving from the traditional grants and so on, towards careful investment as a result of previously unimagined factors.
  3. The 'Greta Thunberg' effect. Environmental responsibility is in vogue, alongside the public assumption that wealth should be used where possible to 'fight the fight'.

The floor opened with the 'new generation' as a key subject. The conflict between generations, is generally viewed as a good thing – particularly within a wealthy family. It means that often there are two parallel strategies that work together towards a whole, with the driving force an urgency to 'keep with the times'. One member noted that 'philanthropy' is the work of older generations, while the young are much more focused on 'sustainability.'

The greater transparency that is being driven by CRS and authorities can help with this discrepancy, as a tool to teach the younger generations about their wealth and how it was accumulated. As life-spans increase, it is becoming more and more important to empower younger generations to understand their wealth and how it was accumulated, despite the baton passing slower. Philanthropy can be a key instrument; by making these younger generations part their board, the familial generations can learn from one another, and learn their interests and priorities.

However, a key theme that is emerging with younger generations now is the drive to 'erase the taint' of their inherited wealth; i.e. trying to put it to good use now, in apology of how it was made in the first place. "Can we convince them that bad money can be used for good?" one member asked.

This genuine concern for sustainability and retribution is a step away from the traditional format of philanthropy of the older generations, with whom often trusts and grants were tied up in ego and naming rights. As time moves on, in much of the world it is becoming crass. We can attribute this back to the 'Greta Thunberg' effect, as younger generations enamoured with David Attenborough have a much more clarified view of their own place in a big world and want to make a difference where they can.

This can tie into older generation policies well, however. Philanthropy and sustainability still work in the family's favour in regard to self-promotion and reputation control. "Philanthropy is just having a bit of a makeover," one member points out.

This 'makeover' is often linked back to changes in investing. ESG is crawling higher and higher up the agenda as more often people pose the question: should investment have a moral basis, or should the focus solely be on good returns? Often advice leans towards balancing both, but the pendulum is increasingly swinging towards morality over returns. As such, investment portfolio managers are falling over themselves to assure clients that they can still make good returns from ESG investing. The members agree that it will always be higher-risk, but if it can, investments should tie into the 17 UN principles (gender equality, climate action, etc.,) wherever possible.

It is worth noting that ESG isn't just environmental – but rather means different things to different people; and it can be anything from diversity, to modern slavery, to female health. Sometimes what the client thinks is ESG is almost a moving target; it could be a white, Eton-educated man wanting to support others like him. Alternatively, it could be that investment in a petroleum company works well because they invest so much in renewables. What is "good" and "bad" and how can advice reflect those grey areas?

One way is through Impact Investing. If there is a capped amount that the client accepts won't make money, it can be invested into high-risk institutions. This would need clear wish letters so that the money is almost accepted as defunct, which necessitates getting the clients' family on side.

Many of our members agree that client-vetting is something that needs to happen more, as a matter of risk management for reputational damage (were that client keen on investing in 'problematic' projects) with regards to their own firms' philanthropic goals.

There is an increasing trend of firms having to reflect this shift in purpose, as clients have begun vetting firms based on their sustainability, diversity and so on; with General Counsel increasingly using their buying power to drive these changes.

The conclusion is that, as time moves on, people are more preoccupied with actually making a difference, rather than the more traditional grants and lip-service. Advice needs to change to reflect this in cross-generational cases for wealthy clients.