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 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, with the Middle East (investing 3.5%), Europe and Asia (both investing 3.4%) leading this trend.
Meanwhile, the majority of family business owners and managers 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.
Peter Englisch, EY Global Family Business Leader, 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 family business philanthropy is increasingly regarded as a social investment, with a clear value base and a desire to perpetuate those values through the generations.”
Who manages family business philanthropy?
How family businesses organize their philanthropy varies. Seventy percent of family business owners organize 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 organized directly through the family business. The people involved in managing the family’s philanthropy tend also 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. Despite this level of control, 59% of owner-managers wish to further enhance their ability to evaluate philanthropic projects.
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. Perceived governmental support for philanthropy varies greatly between countries. While the vast majority of respondents in Germany and France (92% and 90%, respectively) believe that they receive tax relief for their philanthropic giving, only 33% of family business owners in Australia feel the same.
“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.
“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.”