Windmills against blue background

Family Businesses are Transforming ESG

Family Businesses are Transforming ESG

Family Businesses are Transforming ESG

Tom McGinness | Partner,

The founder of a family business recently told me how he and his family have responded to the impact of COVID-19 on his business, family and the wider communities in which they operate. “It’s important for me to believe that what I’m doing during is meaningful. Not just for the well-being of my business and family, but to the broader communities where we live and work, to our employees, customers and suppliers.”

As the report “ESG Strategy and the Long View"1 (PDF 2.1 MB) , published by the KPMG member firm in the US, points out, companies of all sizes and sectors are beginning to apply as much focus and discipline to evironmental, social and governance (ESG) as other strategic initiatives aimed at creating long-term value.

The unique advantage of family businesses

However, I believe the family business sector has a unique advantage when it comes to ESG. It’s no secret that one of their key differentiators is the close connection that family members have with the financial and non-financial goals of their businesses.

As highlighted in the recent Successful Transgenerational Entrepreneurship Practices (STEP) 2019 Global Family Business Survey2 (developed through a strategic alliance with KPMG Private Enterprise), this connection between business and family goals is often reflected in what is known as the family’s ‘socio-emotional wealth’… the important emotional value that the family receives as a direct result of owning and managing their business.3

Socio-emotional wealth underpins many family businesses that have been on the ESG page for some time as they build environmental and social goals directly into their business strategies.

What can we learn from family businesses?

There are lessons to be learned from this mindset. For one, it isn’t the ‘corporate social responsibility’ of old, which focused on fixing the mistakes of the past. It also doesn’t compartmentalize ESG in a ‘triple bottom line’ type of measurement. Instead, it reflects a commitment to the success of their businesses and families, while also making a positive contribution to the social and economic environments in which they live and work.

Refreshing our thinking

I believe there’s a unique generational viewpoint that affects the family ESG mindset as well. I have observed a new generation of family members who are successfully injecting fresh thinking to rejuvenate their businesses in response to the new reality created by COVID-19. In some cases this has led family leaders to accelerate their succession plans to allow the next generation to take on more immediate and substantial roles.

For these regenerative leaders, issues such as sustainability, climate risk, and poverty are higher on the agenda than they might have been for previous generations, leading to more open discussions within families and bringing together the views and values of all generations.

What lies ahead?

I foresee a rise in family offices or charitable foundations led by this next generation that put their family resources to work on issues of high importance for the entire family value chain.

A new generation of customers is applying pressure as well, dictating the kinds of products and services they want to buy… and who they want to buy them from. Likewise, funders are looking at the degree to which target companies have implemented a responsible approach to ESG issues, and making it an increasingly critical decision point.

There’s a transformation happening with reporting as well, with new guidelines developed by business for business introduced at the World Economic Forum in Davos this year. Family businesses are beginning to incorporate ESG goals into family members’ and senior management’s individual goals. All of this makes sense to me in a family business environment where the achievement of an ESG strategy is woven into the very fiber of the family business. I believe non-family businesses have an opportunity to adopt similar models.

Adopting a new ESG mindset

As business families review their business plans in the broad daylight of disruptive change, there are a few questions that I believe are worth considering:

  • Do you consider ESG goals to be important?
  • Do you consider ESG achievements to be a strategic priority for your business, family, customers, suppliers and communities?
  • How might ESG considerations reshape your thinking about your business and family purpose, values, and operations?
  • How might you embed a wider social purpose in your business operations and culture?
  • Why wouldn’t you choose to focus on a strategy that brings you closer as a family and also helps to galvanize the trusted relationship you have with your customers, suppliers, funders, and the community in which you operate?

There is no question in my mind that a long-term strategic approach must be taken for ESG to be successful, and the family business model is a worthy one to follow.

I encourage you to follow our regular KPMG Private Enterprise series of blog posts as we share insights from across our global network on how to embrace the new reality of a post COVID-19 world and to reach out to KPMG Private Enterprise advisers in your country or territory for their guidance.

Footnotes

  1. ESG, strategy and the long view (PDF 2.1 MB)
  2. Millennial CEOs are ready to take over, according to STEP 2019 Global Family Business Survey released today.
  3. Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly52(1), 106-137.