The Essentials
At a Glance
- Families may share a broad value while disagreeing about how it should influence investments.
- Exclusions, ESG analysis, engagement, and impact objectives are different approaches.
- Values-based preferences still need to be considered alongside costs, risk, and liquidity.
A family agrees that clean water matters. One person wants to avoid certain industries, another wants to support new technology, and a third wants to make charitable grants. They share a concern, but they are describing different actions.
A useful values conversation begins by making those distinctions explicit. That makes it easier to assess an investment approach without expecting one product to fulfill every financial and personal objective.
Describe the preference in practical terms
Broad words such as sustainable can cover many priorities. Is the family trying to avoid ownership in a defined activity, understand a business risk, encourage a change in corporate behavior, or help finance a particular outcome?
Write down the issue and the intended action. Also discuss what would count as a reasonable compromise if the priority narrows the available investments or increases costs. Family members can have different preferences without one person being less committed to the shared concern.
Distinguish the main approaches
An exclusion removes particular investments under stated criteria. ESG analysis considers environmental, social, or governance information as part of evaluating an investment. Shareholder engagement involves communication or voting intended to influence a company. An impact objective seeks a specified social or environmental outcome alongside financial goals.
These approaches can overlap, but they are not interchangeable. A fund's name may not reveal which it uses or how strongly it applies the criteria. The SEC's ESG fund guide recommends examining objectives, disclosures, and the actual investment process.
Test the approach against a concrete example
Suppose a hypothetical family wants to reduce exposure to a certain business activity. A fund might exclude companies above a revenue threshold, while another permits them if they have a transition plan. Both may use similar marketing language, but only a review of the rules will show which reflects the family's preference.
The same review should identify what replaces the excluded holdings. A narrower portfolio may behave differently from the broader market. A preference does not remove market risk or guarantee superior returns.
Keep giving and investing in their appropriate roles
A charitable gift is intended to support a cause and generally does not give the donor an investment return. An investment involves economic rights and the possibility of gain or loss. Calling an investment impactful does not make it a charitable contribution or establish a tax deduction.
A family may decide that some priorities are best expressed through giving, while others inform its investment policy. Separating the budgets and expectations can make both decisions clearer.
Agree on what will be reviewed
Consider holdings, costs, liquidity, overlap with other investments, and the quality of reporting. Ask whether an outcome is measured directly or estimated, whether a benchmark is appropriate, and how the approach may change over time.
A periodic review can also revisit the family's preferences. Values can remain stable while the practical ways of expressing them evolve. A written record of the reasoning helps the next generation understand the choices rather than inherit only a list of products.
Questions to Discuss With Your Advisor
- What action do we want our stated value to influence?
- Which criteria would a manager use, and where might we disagree with them?
- What financial or administrative trade-offs would we accept?
- Which goals belong in the investment policy and which belong in a giving plan?
