Important Lessons for Family Businesses on Sustainability

The pressure is on for businesses to make decisions that influence the way the world thinks and acts towards addressing the climate crisis. And those companies that fail to adapt, may struggle to compete in a new, low-carbon world.

It’s an important agenda, but it’s an extremely broad one, so how should you set your priorities?

Perhaps it’s family businesses that have the answers?

Exploring the sustainability journeys of family businesses, as part of a collaboration between KPMG and the STEP Project Global Consortium, it’s clear that investing in technology and operating in a sustainable way is not only the right thing to do, but it’s an engine of growth and competitive advantage.

The approach to addressing the sustainability agenda differs from family businesses to family business, but there are a number of lessons we can learn from, and use as a guide when setting out on the path to sustainability.

1. Being ‘green’ is no longer good enough

Sustainability is essential for long-term viability, which means that just ‘doing the right thing’ as a responsible corporate citizen is no longer enough.

Many family businesses have a system-wide perspective on what sustainability means inside their business as well as the impact it has on the world around it. It’s how families in business typically think and act as they balance the need for achieving long-term financial success with the assurance that their purpose and values are reflected consistently in their actions.

Many have concluded that investing in sustainability is an essential vehicle for growth and innovation that will contribute to the long-term survival and success of their business.

However, that is only achieved through strong governance. Where many businesses fall short with ESG is that it’s often deployed by a single siloed team. Within family businesses today, it’s more commonly governed from the very top, and aligned across all key stake holders as a North Star goal.

2. Bring people along on the sustainability journey

One of the lasting impacts of the pandemic has been the heightened awareness of the necessity to nurture both a healthy planet, and a healthy society. Businesses increasingly have a duty to create and preserve a diverse and resilient world.

This responsibility is contributing to a rise in the concept of stakeholder capitalism. There’s an expectation that companies will serve society as a whole – not only their owners and shareholders.

This concept isn’t new for family businesses; in fact, one of the key operating principles of family businesses is their focus on creating shared value – the foundation of stakeholder capitalism.

Ultimately, it should be viewed as a sustainability journey for all – customers, employees, suppliers, and members of the community – in order to achieve the best results.

3. Re-enforcing sustainability as a business imperative

Among family businesses, sustainability doesn’t run parallel to the business. And it isn’t seen simply as a complement to the company’s business model either.

It’s a long-term goal for changing the outlook of the business, and it’s a reflection on the family itself – as well as how it does business. Often for business families, a shared purpose, or North Star goal, is supported by an unrelenting commitment to the future.

The benefits of this type of approach are clear:

• Value creation – while some companies regard sustainability through a compliance lens, most family businesses embrace it as an opportunity for significant value creation and competitive advantages.

• Increased customer loyalty – customers expect companies to show that they care about their social and environmental impact, and they do business with companies that demonstrate a strong commitment to people and the planet.

• Environmental and social progress – long-term stewardship is a core value in many family businesses, and they believe they have an obligation to make the world better.

• Financial benefits – due to increases in customer attraction and retention.

• Growing human capital – as advocates for social and environmental progress, they’re able to attract and retain top-performing employees.

• Reducing costs – by using their own resources sustainably, family businesses have the potential to reduce their operating costs by cutting waste, reducing pollution and improving the long-term viability of their businesses.

• Access to limited sources of capital – a strong sustainability record can make companies more attractive to future business partners, investors and bankers.

• Mitigating risks – one environmental misstep can ruin years of dedication, hard work, good will and reputation. Environmental and societal stewardship can be an important risk mitigation step.

4. Make your goals practical, measurable, and shareable

It sounds obvious, but all too often ESG goals are broad and intangible. Many companies have been guilty of setting off on a path towards sustainability that seems promising, only to find that it isn’t as achievable as originally thought.

Setting targets that are both practical and measurable is the first step. For family businesses, that also means building on the family’s entrepreneurial mindset to incorporate the diverse, fresh thinking of next-generation family members, as well as others outside the business.

When setting your goals, it’s also crucial that you are able to obtain the relevant data to actually measure them. Without which, it’s almost impossible to track sustainability performance.
Another key point raised within the family business community is that businesses should be vocal about their successes along the path to sustainability. An organisation can only be a leader in this field, if it tells the world what it’s doing.

Take away

With the next generation waiting in the wings, sustainability is an organisational imperative for family businesses. Could they hold the key to addressing the climate crisis?

Author Creagh Sudding
Director, Family Business,
KPMG Private Enterprise