Keeping ESG in the family

08 September 2021

Family-owned businesses are being told they risk falling behind when it comes to meeting the needs of society and the environment.

Yet they can play a key role in the adoption of Environmental, Social and Governance (ESG) practices, and in making the world a more sustainable place.

The mantra ‘Profit Planet People’ has become a battle cry for many companies. ESG centred compliance is naturally important to large global corporations who have been the first to consider and apply ESG best practices but the wider trend of introducing ESG strategies inevitably trickles down to all businesses.

Family businesses have been identified by the United Nations as being ideally placed to introduce measures quickly and with relative ease, future-proofing their operations.

But while many appreciate the value of ESG, only a third appear to have a strategy in place to achieve it, according to a global survey of 2,801 family business owners.

More than half those who took part in PwC’s survey saw the potential for their business to lead on sustainability, yet only 37% have a defined strategy in place.

ESG – philanthropy versus strategy

While 79% of respondents in mainland China and 78% in Japan said they were ‘putting sustainability at the heart of everything’ they did, only 23% of US and 39% of UK family-owned enterprises concurred.

Family-owned businesses may prefer to use philanthropy to avoid taking a strategic approach to ESG; however they could be creating a potential business risk by not thinking strategically about ESG. Setting meaningful targets and demonstrating a clear sense of values and purpose is an important aspect of planning for family-owned businesses which should not be overlooked.

Becoming a sustainable business

A sustainable business is one which can carry on doing what it does over and over and over – forever. With two-thirds of businesses worldwide owned or managed by families, understanding how to create a sustainable legacy is vital to family-owned businesses.

The UN hopes to unlock this potential by setting up the Family Business for Sustainable Development (FBSD).

The FBSD is a joint project between the United Nations Conference on Trade and Development (UNCTAD) and the Family Business Network (FBN). It will bring together 4,000 families with 16,000 firms from 65 countries.

James Zhan, UNCTAD’s director of investment and enterprise, said: “Family firms can make a huge difference in global efforts towards sustainable development. They need to be empowered to maximise their potential and seize the untapped opportunities associated with embracing the sustainability agenda.”

Why family-owned businesses have the power to spearhead change

Quick action

According to the UN, family firms tend to invest their own resources and have the ability to take quick action to put their businesses and investments on a sustainable track.

This means any ESG strategy and ESG compliance can be adopted quickly and fed through to employees and partners.

An eye on the bigger picture

Family businesses are tend to think in generations, so they have the potential to think more long term.

This also means that any ESG strategy will be a pragmatic one which takes into account employees, partners and clients or customers.

Close community ties

Close local ties allows family-owned businesses to better understand why the Sustainable Development Goals matter and where they can make an impact, while allowing them to benchmark their sustainability performance against other similar businesses.

How ZEDRA can help

ZEDRA is particularly well positioned to support family-owned businesses with their governance, compliance and regulatory affairs, being itself highly regulated across various jurisdictions.

Recent events linked to changes in climate and the environment have further compounded desires to build strong companies with solid leadership, sound processes and policies, appropriate oversight and in accordance with rules and regulations.

Whether it is Europe or Asia, we’re seeing that ESG best practice and ESG centred compliance has become more crucial than ever and clients are looking to us as a service provider to guide them through all the complexities. Often, they are looking for assistance from an expert firm who can facilitate some of the finer points and have extensive knowledge of relevant legal and regulatory requirements and best practices.

For more information on how ZEDRA can guide you through ESG, please contact Wim Ritz, Global Head of Funds.

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