In the space of one year, social awareness has escalated and brought the world together in dealing with the health, financial and commercial impact of Covid-19. The way businesses work has changed. How they engage with other people has changed. Their expectations of the companies with whom they choose to do business have grown and intensified.
This has energised businesses of many types to reflect on their purpose and values, their capability to deliver what really matters and to do so in a financially, environmentally and socially responsible way.
The rise of purpose-driven leadership
The importance of a company’s purpose and its role in making the world a better place for today and for future generations have come into stark relief throughout the pandemic. The result is that more companies are taking a deeper look at their businesses to understand the impact of their actions across a spectrum of their stakeholders. While the acceleration of digital transformation during Covid-19 has garnered a great deal of media attention of late, I believe the transformation of many companies’ entire business operations are being accelerated through the ESG lens.
A long-term mindset, sense of purpose and the importance of creating and sustaining a legacy are already central to how family businesses define success. It is built into the DNA of every generation and has guided how they have conducted business and addressed the needs of their stakeholders for decades. For this reason, I believe that family businesses are in a prime position to influence how companies go about reshaping their business operations through purpose-driven leadership.
As one family business leader summed it up: “ESG is not a series of special projects. This is a reflection of who we are and how we choose to do business.”
The evolution of ESG in family businesses
I am beginning to see a new ESG perspective among family businesses themselves. They already have a well-established, purpose-driven mindset. Social concerns have historically been very important to family businesses as a reflection of the family’s values, and in response to Covid-19, their philanthropic activities and stakeholder commitments were heightened even further and that is unlikely to change.
Similarly, governance has always been high on the agenda for family businesses in balancing the needs and actions of both the business and the family. Family businesses with the strongest governance practices generally performed better throughout the pandemic because they already had thorough procedures and mechanisms in place to identify and manage unexpected risks. Even so, those practices were put to the test in many family businesses and found to be inadequate for anticipating the risks on the scale of a global pandemic.
As a result, Covid-19 has helped to accelerate the evolution of the ESG agenda in family businesses. The revolution in digital technologies combined with the pressing need to adopt more robust environmental, social and governance practices has motivated more business families to begin reimagining the future. I believe this self-examination is due, in part, to the increasing influence of next-generation family members who are embracing ESG because it fits so well with their values.
They see the vital role that it can play in transforming their businesses and making their success more sustainable.
They also understand the value that technology brings to their business operations by introducing advanced solutions for collecting and analysing essential data for anticipating risks, gauging the success of their company’s business strategy and measuring the impact of ESG initiatives.
With these advanced analytical capabilities, I expect to see changes ahead in the priorities and actions of family businesses and an increased focus on the environmental impact of their operations in the fight against climate change.
Not only are these some of the right things to do, but business families have also recognised the commercial imperative of ESG. Concrete strategies and actions around environmental, social and business oversight concerns are fast becoming competitive factors that are affecting many companies’ ability to win new business. This new competitive reality was reinforced to me recently by the executive of a family-owned construction firm who described how his firm had lost a tender bid to a key competitor specifically because their company had a more embedded ESG strategy.
Advancing the ESG agenda—two questions to consider
The urgent need to achieve greater sustainability in the world and in many businesses is putting ESG at the centre of the impetus for change. It is also helping to create the imperative for a new kind of leadership that focuses on the sustainability of the strategies that businesses adopt and the impact of their collective actions.
Before embarking on this important ESG journey, I believe there are two important questions that family businesses should consider:
1. What is the most important goal they want to achieve? For example:
ᴑ Creating an ethical supply chain
ᴑ Satisfying customer choice
ᴑ Decarbonisation to reverse climate change
ᴑ Accessing sustainable finance
2. Where might they need to invest to support their ESG strategy? Such as:
ᴑ Advanced technology and data
ᴑ People and pay
ᴑ Corporate reporting
ᴑ Local community relationships and partnerships
There is no question in my mind that the pandemic has been transformational on many different levels. It has also increased an appreciation for the fact that family businesses are in it together to address the impact they are having on the world and what they are leaving behind for future generations. I believe it is imperative that they get the answers right by leading with purpose and the actions they choose to take.
Interested in learning more about how KPMG Private Enterprise can help to guide and support you in developing the right ESG strategy for your family business? Contact your KPMG Private Enterprise adviser or find a KPMG Private Enterprise Family Business adviser.