Partner Content: Family Businesses and Sustainability – More Needs to be Done

By their very nature, family businesses should be good at sustainability, as most are committed to long-term objectives rather than short-term market pressures. Surveys suggest they are trusted more than any other type of business or institution and are agile in adapting to sustainable goals. 

For many, that is the case, but no family business can rely on these factors alone to ensure the planet has a more sustainable future. They need to be intentional in their efforts when it comes to helping guarantee a sustainable future for all. And that is not always the case.

“If they don’t act now, family businesses risk losing their licence to operate,” said Peter Englisch, Global Family Business Leader, Partner, PwC Germany. “They have to turn from a silent force for good into a vocal force for good.”

Many want to become a vocal force for good. According to PwC’s 10th Global Family Business Survey 2021, 55% of respondents to the survey said they are ready to lead in this respect. At the moment, though, sustainability is not high up on the list (see chart 1).

There is a risk that established approaches and ways of thinking, particularly regarding what sustainability means and how family businesses are governed, could hold them back. For now, they are not prioritising ESG or sustainable practices.

Chart 1: Family businesses say that diversification and improving digital capabilities, not sustainability, are their top priorities

The chart shows family businesses are prioritising diversification and improving digital capabilities, not sustainability. This is probably because many private family businesses aren’t feeling the same pressures as listed businesses regarding ESG. On the other hand, many listed companies have been nudged into ESG practices and policies through stakeholder and investor pressure. They have no choice but to respond, and in doing so, they are visibly leading the way. 

But sustainability needs to be central to family businesses operations. “Family businesses have to prove that they are committed to sustainability,” said Englisch. “Currently, they aren’t making it the number one priority.” 

For family businesses, legacy matters—it’s top of mind for two-thirds (64%) of the respondents in the PwC survey. And it would appear COVID-19 has increased family business owners’ desire to protect their business and create a legacy. This will help them become more committed to sustainable goals. 

Chart 2: Long-term personal goals for the business

PwC’s family business panel representatives, convened for the survey, agree that there is an undeniable blind spot when it comes to translating family core values into concrete actions that demonstrate their commitment to ESG. However, they regard closing that gap as critical, not only to create new opportunities but also to secure the business’s long-term future. 

But they also agreed that family businesses are behind the curve on understanding how to measure ESG impact. For the most part, they need more guidance on achieving net-zero in carbon emissions or communicating progress and commitment once achieved. 

Moreover, the panel believes that the next generation’s interest in sustainability is vital in encouraging family businesses to embrace ESG and attracting younger family members into the business. 

“If you don’t embed sustainability in everything you do, you will find yourself out of business, whatever sector you are in,” said Jakob Haldor Topsøe, chairman, Haldor Topsøe Holding, a family business founded in 1940 during the panel discussion with PwC. “It’s just a matter of when.” 

The panel recommends family businesses follow these fundamental principles when it comes to committing more to sustainability 

Embed ESG in your business and operating model

The family business leaders on the panel agree: ESG has gone from a nice feature for a company to have to an imperative for success. “In the past, ESG was thought about as something we do when everything else was OK,” said Sara Hughes, president of Lwart Group, an industrial conglomerate in Brazil during the PwC panel discussion. “Now we’re incorporating it into every decision we make.” 

Ask for help in measuring and meeting ESG targets

ESG measurement is a nascent discipline, and there is no internationally consistent system for reporting ESG progress. Thus, drawing on outside expertise is seen as an important element of developing a coherent sustainability strategy. 

Communicate, communicate, communicate 

All panellists stressed the importance of publicly talking about both the goals and achievements of the business.

Involve the NextGen 

Younger generations are the driving force behind sustainability, and in family businesses, they are looking for greater responsibility. ESG is a natural fit.

Encourage board diversity 

The panel said that a lack of pressure from capital markets could be a handicap for family businesses when it comes to ESG. They feel that a diverse board with independent input could act as a good proxy and challenge thinking around sustainability.

Measurement of family business sustainability

As part of the importance of measuring sustainability at family businesses, Family Capital, in association with PwC, will release late this year a major ranking of the most sustainable listed family businesses in the world. 

The analysis is based on a PwC sustainability analysis of the listed family businesses on Family Capital’s annual Top 750 Family Businesses in the World. In addition, the research will provide an ESG Score for each of the biggest listed family businesses in the world. 

It will be the first detailed analysis of its type and will help to evaluate the progress family businesses have made with their sustainability efforts.