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Covid-19 changing the face of philanthropy as a vehicle for wealth inheritance

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This is a sponsored article from HSBC Private Banking.

The Covid-19 pandemic has created unprecedented challenges for our society and economy, resulting in a spike in unemployment and the misery that travels with it, and affecting the physical and mental wellbeing of hundreds of millions of people. These emerging issues have inspired Asian philanthropists to explore new ways of giving to new causes.

In the past few decades, the rapid development of globalisation has not only helped promote economic growth and increased trading between nations, it has also created significant wealth accumulation. The global High Net Worth Individual (HNWI) population and wealth expansion are still growing at a relatively steady pace. According to Capgemini’s 2020 World Wealth Report, the global HNWI population reached 19.6 million, and their total worth grew 8.6 per cent to US$74 trillion in 2019. The ranks of Asia-Pacific HNWIs rose by 7.6 per cent to 6.5 million and their combined wealth increased by 7.9 per cent to US$22 trillion. 1

As the pandemic has had a devastating impact on the health of the global economy, it has forced us to reconsider the purpose of wealth. In Asia, HNWIs no longer solely focus on accumulating wealth, but are using investment as a viable way of bringing positive impact to the world. This has prompted a noticeable shift towards sustainable and impact investing, in particular for Environmental, Social and Corporate Governance (ESG) products. Philanthropy has become a new vehicle for HNWIs to preserve their family’s legacy, values and wealth, but that legacy and values have increasingly environmental and social dimensions.

Asian HNWIs have traditionally treated donations similarly to investment projects, basing their decisions on a data-driven evaluation. However, the pandemic has encouraged them to change their approach. They are deploying capital faster and more flexibly, meeting targeted needs and adapting to the times. For example, they would take the initiative to contact relevant agencies to establish emergency economic support plans when they learn that low-income families with children with special needs are facing difficulties due to the pandemic. They extend their assistance to parents, teachers, social workers and other groups that have an impact on children, to help such families through these difficult times.

They are becoming more strategic in their giving and looking for new ways to evaluate the impact of their philanthropy. They seek to establish more efficient and credible charitable structures using family funds and charitable trusts, and they are shifting away from one-off giving to more structured philanthropic activities that generate generational impact.

In Asia, HNWIs are set to pass an unprecedented amount of wealth to the next generation in the form of businesses and personal assets in the coming years. Finding ways to effectively transfer wealth and core family values has become increasingly important and pressing. A study by the Chinese University of Hong Kong on 200 cases of family business inheritance in Hong Kong, Taiwan and Singapore in the past two decades shows that family businesses faced immense wealth loss during the inheritance process. Among them, the abnormal stock price loss of Hong Kong family businesses during the generation handover was as high as 120 per cent. But monetary wealth is only one dimension of Asian legacies: intangible assets such as the family’s ethics and core values are playing a much more prominent role in shaping legacies. We are seeing more Asian HNWIs using philanthropy as an effective vehicle for wealth inheritance. Families could use their philanthropy as a tool to educate the next generation about successful wealth-handling and to ensure their values are preserved for generations to come. And by engaging the grandchildren in the philanthropic process, the younger generation will acquire skills that are critical to their success as responsible, caring adults — with communication, openness, trust, responsibility and sharing common values and family missions.

The new generation of family business leaders are generally more educated, have a stronger global vision and social awareness, and are making choices that favour global and environmental causes over local or more traditional ones, by giving to climate change, mental health, gender equality, water issues and emerging technologies. This will undoubtedly help to promote greater diversification in philanthropy.

Faced with the growing demands of high-net-worth customers for wealth inheritance and philanthropy, the role of private banks has become increasingly important to help wealthy individuals and families find the right charity or NGO to pursue the social causes that are important to them.

”Mind Matters: A Hackathon for Social Impact”, an initiative recently launched by HSBC Private Banking in partnership with Asian Charity Services, is designed to help re energise Hong Kong by strengthening the mental wellbeing of the local community and narrowing the communication gap between generations. The campaign is unique in that younger generation leaders serve as volunteers to assist NGOs to strengthen their project plans and seek funding from HSBC Private Banking clients. In the process, the older generation can have a sense of the efforts and achievements of the younger generation in philanthropy.

Opportunities are often accompanied by challenges. The total amount of charitable donations in Asia is still far smaller than in many Western countries, and the charity mechanism in Asia is still in its infancy. In Hong Kong, for example, local charitable organisations have not yet formulated a comprehensive registration and supervision plan, and the government’s tax relief for charitable donations and its supervision of information transparency and the flow of donations still need to be improved.

The relationship between philanthropy and economic benefits is not a zero-sum game. Philanthropy, sustainable investment and impact investment by HNWIs in Asia are expected to grow substantially. This will not only help reduce poverty, protect the environment, and enhance social resilience in the post-pandemic world, but also bring immeasurable intangible wealth and influence to HNWIs.

Cynthia Lee, Regional Head of Wealth Planning and Advisory, Asia Pacific, HSBC Private Banking

Source(1): https://www.capgemini.com/nl-nl/wp-content/uploads/sites/7/2020/07/World-Wealth-Report-WWR-2020.pdf

This is a sponsored article from HSBC Private Banking.

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