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Family businesses strongly positioned for ESG transformation

By Ian Beaumont

The escalation in social awareness wrought by COVID-19 has energised businesses to reflect on their purpose and values and their capability to deliver what really matters.

They want to achieve this in a financially, environmentally and socially responsible way.

Environmental, social and governance (ESG) is a reflection of who we are and how we choose to do business.

Given the increased media attention ESG has garnered in recent months, we've seen a number of cases where a lack of governance and social impact have caused issues with wages, conditions, supply chains, executive bonuses and repayment of government COVID-19 support – Northern businesses have not been exempt from this challenge.

Here, I explore why family businesses have the potential to thrive in a new ESG-influenced competitive reality and share the goals and investment areas businesses consider most critical to their ESG agenda. A recent Credit Suisse Family 1000 report concluded that family businesses with strong ESG credentials perform better over the longer term. 

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The rise of purpose-driven leadership

The importance of your company’s purpose and its role in the world has been thrown into stark relief. Increasingly businesses are looking at themselves through an ESG lens, seeking a deeper understanding of the impact of their actions across their spectrum of stakeholders.

Of course, when it comes to your family businesses, a long-term mindset, sense of purpose and the importance of creating and sustaining a legacy are already central to how you define success. It is built into the DNA of every generation and has guided how you have conducted business and addressed the needs of their stakeholders for decades.

One family business leader recently explained: “ESG is a reflection of who we are and how we choose to do business.”

The evolution of ESG in family businesses

In addition to your purpose-driven mindset, social concerns have historically been important to family businesses as a result of the family values and reputation as it is often the family name above the door. In response to COVID-19, your philanthropic activities and stakeholder commitments have heightened further.

Similarly, governance has long been high on the agenda for family businesses balancing the needs and actions of both the business and the family. 

Those with the strongest governance practices generally performed better throughout the pandemic because they already had the mechanisms in place to identify and manage unexpected risks. 

Even so, when put to the test on the scale of a global pandemic many were found to be inadequate.

COVID-19 has accelerated the evolution of the ESG agenda in family businesses like yours. 

The revolution in digital technologies, combined with the need to adopt more robust environmental, social and governance practices has motivated more business families to begin reimagining the future.

This is due, in part, to the increasing influence of next-generation family members who are embracing ESG because it fits with their values. They can see the role that it can play in transforming their businesses and making their success more sustainable.

They also understand the value of technology that can advance the collecting and analysing of data for anticipating risks, gauging the success of their company’s business strategy and measuring the impact of ESG initiatives.

With these capabilities, I expect to see changes in the priorities and actions of family businesses and an increased focus on the environmental impact of operations.

Not only are these the right things to do, but business families like yours also recognise the new ESG influenced commercial reality.

Strategies and actions around environmental, social and business oversight concerns are fast becoming competitive factors affecting the ability to win new business, raise finance and recruit talent.

Business priorities for advancing the ESG agenda

When focusing on ESG-related change, there are two important questions to be considered and we’ve begun exploring businesses’ objectives and requirements.

Our poll found that, of a variety of key ESG goals, decarbonisation and satisfying customer choice are considered most critical, securing a third of the votes, followed closely by creating an ethical supply chain, named as the top objective by just over a quarter of businesses.

When asked what they need to invest in to support their ESG strategy, the appetite for technology and data is clear, cited by more than four in ten, followed by local communities and partnerships with just under 30% of the vote, while people and pay were referenced as the lead requirement by nearly one in five.

There is no question in my mind that the pandemic has been transformational on many different levels. 

It has also highlighted the fact that family businesses like yours are resilient and strongly positioned for a business environment that considers the impact companies have on the world and what they are leaving behind for future generations.

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