ESG: Benefits of integrating environmental, social and governance (ESG) considerations into Family Office investment strategies

That climate-related risks can directly affect a company’s financial performance has been recognised by investors for some time. In 2015, the Task Force on Climate-related Financial Disclosures (TCFD) was created to design a corporate reporting framework that would be useful to investors, lenders and insurance underwriters in understanding a company’s material financial risks related to climate change. The TCFD is the foundation on which the new global baseline standard for corporate climate risk reporting designed by the International Sustainability Standards Board (ISSB) has been built, a standard that is on track to be adopted by more than 30 jurisdictions, including the United Kingdom.

The same recognition of people-related risks and the impacts they can have on a company’s financials is gaining momentum, with the formation in 2024 of the Taskforce on Inequality and Social-related Financial Disclosures (TISFD) charged with developing a similar corporate reporting framework for social risks. A global baseline standard for the reporting of financially material social risks will also be developed in due course by the ISSB. What both the TCFD, TISFD and ISSB standards make clear is that investors increasingly want and need credible, comparable and decision-useful financial information on the climate and people-related risks associated with their portfolios.

Beyond identifying and mitigating their climate and people-related financial risks, forward-thinking investors are increasingly thinking about corporate performance on climate and people-related issues as a strategy for value creation, through increased efficiencies, enhanced business resilience, stronger brand reputation, access to new markets, new sources of investment and lower costs of capital. 

In this piece, we unpack the business case for integrating climate and people-related considerations into family office investment strategies – through both risk mitigation and value creation lenses – and make some practical recommendations for family offices seeking to refine their approach to these issues.

Risk mitigation

There is a growing understanding among investors of all shapes and sizes that climate and people-risks have the potential to hit the bottom line – and therefore return on investment – very significantly. 

Risk to asset value

Increasingly frequent and severe weather events and longer-term shifts in climate patterns already present serious risks of physical damage to property and wider business disruption, with significant potential for negative impacts on corporate asset values. According to data from Climate X, in the US in 2022, 15 climate disasters with losses over $1 billion each occurred. Of firms surveyed by the European Investment Bank over 2018–2020, 9.3% reported a monetary loss from extreme weather in the three years preceding the interview. Findings from the US Federal Reserve’s climate scenario analysis show the potential for significant financial losses due to the impacts of such extreme weather events on real estate portfolios. Not all of these losses will be insurable going forward, as insurance markets are demanding increasingly higher premiums or pulling out of riskier geographies entirely. The projected impact on corporate asset values as a result is very significant – global investment group GIC projected that the real estate market, for instance, could lose up to $559 billion (or 28% of real estate asset value) from physical climate risks by 2050.

Operational risk

On the people side, adverse labour-related impacts within a company’s operations or supply chain can cause significant issues with business continuity. This may take the form of industrial action, as we saw in 2024 when Starbucks baristas went on strike to highlight alleged unfair labour practices and demand increased pay. It might also take the form of goods suspected of association with forced labour being detained, confiscated and/or destroyed under one of a growing number of forced labour import/export bans (read more here about the EU’s Forced Labour Regulation). Extreme weather events also pose significant risks to business operations and to the efficient functioning of value chains, in the form of disruptions to power supply and the availability of fuel, interruptions to the supply of key commodities, damage to transport networks and logistics and worker availability. As a result of Hurricane Ian in the Caribbean and the US in 2022, there was a 75% drop in shipments and an increase in shipping time by 2.5 days. 

Litigation risk

There has been an increase in lawsuits around the world targeting companies for their role in climate-related change. Civil litigation and regulatory investigations in connection with alleged corporate greenwashing are also on the increase. On the people side, a recent line of cases points toward a material increase in litigation risk for UK-headquartered companies in connection with adverse impacts on people overseas, whether they occurred in their own group operations or are caused by an upstream supplier. These cases highlight the potential for civil liability for companies that do not carefully evaluate people-related risks in their value chains, especially for those operating in sectors that are high risk for adverse human-rights impacts or jurisdictions where labour standards are lower or not rigorously enforced – with all the significant costs and drain on management time that dealing with litigation (or threatened litigation) entails.

Reputational risk

As consumers and the public have become more environmentally and socially conscious, as well as vocal on social media, companies that neglect environmental and people risks face backlash that can negatively affect their market position, brand trust and profitability. Poor environmental practices and labour-related abuses are increasingly coming to light through the work of investigative journalists and NGOs – a very high-profile example of which is the Sunday Times investigation alleging exploitative working practices in Boohoo’s UK-based supply chain, leading to its largest shareholder selling almost all of its stock. 

Commercial risk

Large companies are increasingly required by law and regulation to make ESG-related disclosures and/or to carry out human rights and environmental due diligence or are doing so on a voluntary basis. As a result, they are increasingly seeking information from, or imposing certain requirements on, companies in their supply chain as a condition of doing business. It follows that companies that are unable to meet these requirements will lose business or have business delayed in the time it takes to bring their processes, policies and procedures up to the required standard. 

Transition risk

The global shift towards a lower carbon economy brings with it transition risks. These include the increased costs of compliance with new sustainability and human rights-related laws and regulations – the need to hire additional compliance personnel for example or to buy tech solutions to monitor carbon emissions or capture other ESG-related data. Transition risks also include changes in demand for certain products and services (for example, a move away from traditional vehicles to hybrid or electric), or changes in resource or input prices including water or energy, which could result in higher costs. Companies that fail to anticipate and price-in these costs may represent a riskier investment proposition than they first appear.

Value creation

Proactively engaging with and focusing on climate and people-related risks and opportunities can be a value creation strategy for investors in multiple ways: 

Increased business and supply chain resilience

Companies that are anticipating climate-related risks to their business and supply chain, taking steps to increase their climate resilience and to manage/price in the various climate-related financial risks to their business addressed above are likely to be more resilient and profitable for the medium to long term as a result. Companies that are putting the right policies and processes in place to spot and mitigate risks to people in their operations and value chain are also likely to be more resilient generally. Such processes are likely to involve a company taking steps to map its supply chain below Tier 1 (i.e., to know more about who supplies it), to build two-way, regular channels of communication with suppliers and trusted, long-term supplier relationships. These are the sorts of supply chain dynamics that not only help to manage risks to people in the supply chain, but also build resilience to shocks, including extreme weather, civil unrest and pandemic, among others. Clients of our firm that have invested in proportionate, risk based human rights due diligence in this way reported returning to business as usual much more quickly that their competitors after the first COVID19 lockdown.

Better workforce engagement

Companies that have a focus on ESG are often better positioned to attract next gen talent. The Deloitte Gen Z and Millennial Survey 2025 found that, when asked about their career goals and the factors that cause them to change employers, Gen Z and Millennial employees are looking for a balance of money, making a meaningful contribution to society and wellbeing – two out of three factors being related to responsible business. Similarly, companies prioritising ESG can foster enhanced employee morale, as employees who feel their organisation aligns with their values can feel more engaged, productive and less likely to leave. A Harvard Business School Online study found that nearly 90% of executives believe a strong sense of collective purpose within their organisation drives employee satisfaction.

Enhanced brand reputation

Strong, transparent and evidence-based sustainability credentials are increasingly resonating with customers. Therefore, companies with a better sustainability profile may benefit from increased market share, higher price points and therefore increased revenue. According to a survey by Deloitte, nearly two-thirds of Gen Zs (65%) and millennials (63%) reported that they were willing to pay more for environmentally sustainability products or services.

Innovation and access to new markets

Some companies have also found through sustainability-led innovations, they have entered new product areas and markets, increasing and also diversifying revenue streams. For example, Unilever’s approach to sustainability-led innovation has led to create new products and brands, such as Sunlight dishwash liquid containing the renewable and biodegradable foaming ingredient called Rhamnolipid and Dirt is Good capsules, laundry capsules which feature biodegradable, plant-derived ingredients sold in plastic-free fully recyclable cardboard packaging.

Increased efficiency

Opting for less or redesigned packaging or switching to more sustainable materials can often lead to cost savings – reduced cargo weight, for example, means lower transport and logistics costs. Similarly, operating costs in general can be lowered through sustainability measures such as energy efficiency and waste reduction.

Access to cheaper debt finance

Under pressure from regulators, civil society and clients, many financial institutions have committed to reducing carbon emissions from their operations as well as those associated with their financing/investment activities; such emissions must also be mandatorily disclosed under certain regulations, including the EU Corporate Sustainability Reporting Directive (CSRD). Therefore, companies that meet or exceed agreed carbon targets, or have in place solid decarbonisation plans, may be preferred borrowers or investees and have access to “sustainability-linked” loans which typically offer a lower cost of capital to borrowers able to meet sustainability performance targets.

Access to investors and lower costs of equity

Certain investment firms will only invest in companies meeting minimum thresholds for environmental sustainability or climate resilience or which have certain human rights-related practices and procedures in place. Therefore, companies able to demonstrate strong credentials in these areas may have access to a broader pool of investors. Moreover, as equity investors increasingly look to robust sustainability and human-rights-related practices as indicators of strong governance and risk management across the board, this means that companies with higher sustainability scores often receive higher valuations.

Guidance for family offices 

Many family offices already prioritise responsible stewardship and positive environmental and social impacts and some are actively pursuing impact investment strategies. Indeed, family offices may have the freedom perhaps more so than other institutional asset owners to invest for positive impact. Whether or not having positive impact is an investment priority, this article illustrates that considering and managing climate and people-related issues is increasingly critical for investment returns.

Given the diversity of family offices – including in terms of size, structure, resources and ESG-related expertise – and therefore any impact-related goals, there is no single way to integrate ESG considerations into family office investment strategies. Each family office will need to devise its own unique way to designing and executing an approach that is appropriate to it.

Where family offices are more of a passive investor in funds, it is usually the case that they can engage in constructive dialogue with their investment managers around their ESG-related priorities and also draw hard lines or give clear mandates. At a minimum, this dialogue would be around the climate and people-related risks in their portfolios and how those risks have been evaluated. Family offices could also consider, in conjunction with investment managers, identifying certain ESG objectives, along with specific criteria and metrics to measure progress toward those objectives, which can be aligned with investment strategies. Then, on an ongoing basis, regular monitoring and reporting processes should be established to assess whether progress is being made toward the ESG objectives. 

On the other hand, where family offices are embracing direct and active investment, which may offer more control and customisation, they may be able to allocate capital more selectively. They may also take a board seat and/or have voting or veto provisions and actively engage in portfolio management. This may give the ability to directly influence governance, strategy and corporate direction, including digging into the risks and opportunities for the business of climate change and impacts on people.

For further guidance and tailored advice on anything discussed in this briefing, please get in touch with Kerry Stares or your usual Charles Russell Speechlys contact.