By Erika Karp, Executive Managing Director, Chief Impact Officer, Pathstone
It has been said that one’s legacy is not merely leaving something for people, but rather leaving something in people. This seems even more apropos and urgent than ever given the extraordinary challenges presented to our society.
At this moment in time, we face numerous global crises including climate change, access to healthcare and education, wealth and income inequality, persistent racial and gender discrimination, the sixth great extinction in the animal kingdom, and many more daunting imperatives. Asset owners have the power to address these challenges through thoughtful investment activity. Of course, a healthy financial system is necessary in order to fund this work.
The legacy of our current system of capitalism is deeply tarnished, however. While capitalism has fueled more prosperity than any other financial system the world has seen, that prosperity has been based to a great degree on extractive endeavors. Our current form of capitalism has produced negative externalities that have caused great harm to people and planet.
That said, this legacy can be redressed and repaired. With great attention, consciousness and care, we can reverse the course of capitalism and transform our economy into one that is truly regenerative and inclusive. We can lay the foundations for a new legacy, one based on a more holistic form of capitalism. We can empower the next generations to expand on that legacy. This endeavor — the adoption of regenerative and inclusive approaches to wealth creation and deployment — can take us to from strength to strength, and from generation to generation.
Empowering the next generation of our families requires the stewardship of knowledge as well as wealth. In other words, we must educate the next generation about business practices of the past and of the future. That knowledge, whether from experience, or literature, or families, friends, and colleagues, should not go unchanged or unchallenged. In fact, quite the opposite. As we reread, analyze and reinterpret past business practices, it becomes clearer what we have accomplished and where we may have erred. And to achieve better outcomes in the future, we need to be honest about those lessons. In fact, Shakespeare once wrote that “No legacy is so rich as honesty.”
As stewards of wealth, protecting and preserving capital while navigating 21st century challenges, we need honesty about the true cost of business as usual. We need honesty as we move towards a world of nine billion people. We need honesty about the magnitude of human capital and financial capital required to meet the daunting challenges of our day…healthcare and education, infrastructure, climate change, economic inclusion. We need the honesty to admit that neither the public nor private sectors can meet those challenges alone. Neither has the capacity to manage the mobilization of the trillions of dollars required to reshape society without relying on the other. We need a new social contract led by honesty, transparency, collaboration, entrepreneurship, and strong corporate governance.
We can let the complexity of these challenges paralyze us — or ignite us. Multigenerational families of wealth can send powerful signals to business. As asset owners, we can use our voices to transform the companies of the future (large or small, public or private) into creative, productive, entrepreneurial juggernauts, whether through engagement with public companies or targeted investments in private innovators. We can establish a legacy of corporate entrepreneurship, where entities continually challenge themselves to pursue sustainable policies that consider all forms of capital (financial, human, natural) in defining success. That’s how we can turn on the economic engine on for the private sector — not just by easy monetary policy but by capital formation and job creation.
There are a dozen factors converging right now to shift the dynamics of the capital markets. Change for good is now possible. While a small number of our mightiest corporations account for a huge percentage of the jobs in the world, and the revenues of the world, we have unprecedented regulatory scrutiny. We have unprecedented transparency thanks to social media. We have big data that allows us to turn noise into predictive insight. And on a more somber note, Covid-19 has revealed the fragility of our physical, economic and social infrastructure.
All the pieces and players are in motion to forge a sustainable, inclusive and regenerative form of capitalism. There is a sizeable and growing movement to transform capitalism with the participation of asset owners, asset managers, investment banks, exchanges, accountants, lawyers, academics, and now the standards setting bodies. Among these private stakeholders in reshaping capitalism, families with significant multigenerational wealth possess tremendous power to make change that endures.
Which brings us back to education. I would argue that stewards of great wealth must educate themselves about their role in shaping the future. Intergenerational dialogue about the power and obligation of such wealth is a critical component of that education.
As for legacy: One can leave money. One can also create a legacy of thoughtful, intentional investments designed for long-term sustainability across generations. The latter choice is harder. It requires effort. It requires stewards of wealth who embrace the challenge and opportunity to fund the future.
Erika Karp is Executive Managing Director, Chief Impact Officer at Pathstone. Previously she was Founder and CEO of Cornerstone Capital Group, which merged with Pathstone in March 2021. Erika’s passion is to bring the disciplines of finance, economics, and sustainability to bear in pursuit of a more regenerative and inclusive form of capitalism. Over the course of her 25-plus years on Wall Street, she developed a deep belief in environmental, social, and governance (“ESG”) analysis as a critical input to investment decision-making, culminating in her role as Head of Global Sector Research at UBS Investment Bank, where she spearheaded the firm’s ESG research efforts before leaving to form Cornerstone. Erika is a Board member of Conscious Capitalism. She speaks and writes on sustainable investing and finance themes for a broad range of audiences
Pathstone is an independently operated and partner owned advisory firm, overseeing ~$28 B in advisory assets across 13 locations. We provide family office services including customized investment management, financial planning, and wealth management services to family offices, families, and select institutions. Inclusive of Pathstone’s legacy organizations, the firm has been providing advisory services for over 35 years. Pathstone adheres to the fiduciary standard of always putting the client’s interests first. The firm’s culture of innovation is built on the timeless foundation of family office service, which includes manager research, asset allocation, solution development, tax, estate, risk management, and overall firm management. Truly smart in a way that matters for our clients.
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