Family-run companies are a good fit for sustainable investing and conduct - and the practices involved are also important for giving family businesses an edge over other enterprise models. That's the contention of HSBC's private bank.

By weaving responsible business practices into their purpose, values and corporate DNA, family businesses will maintain their competitive edge well into the future, HSBC Private Banking has argued.

Family businesses know all about long-term stewardship. While family businesses often view sustainability through the lens of creating an enduring legacy - they want the business to thrive from one generation to the next. Sustainability in family businesses is increasingly being discussed in the context of doing well by doing good.

Whether it is taking action to reduce their carbon footprint, setting net zero targets or examining their supply chains, family businesses are incorporating environmental, social and governance (ESG) considerations into their business practices. By creating value for stakeholders as well as shareholders, they are keeping pace with our changing world - meeting consumer expectations and innovating to stay competitive, senior figures at HSBC Private Banking said in a commentary. 

Estimated to contribute more than half of global GDP and two-thirds of employment (1), family businesses are well placed to put sustainability at the core of their strategy and operations, given their inherent focus on the long term. They also often benefit from a shorter chain of command, which enables them to be agile and make key decisions quickly. 

“For family businesses, the principles of sustainability have been in place for a long time,” Dorothy Chan, head of philanthropy advisory, Asia-Pacific at HSBC Private Banking, said. “They think about their business in terms of decades and even centuries, and ensure their children and grandchildren can sustain it.”

Business resilience through sustainable practices
Much as the inherent focus on a long-term legacy can promote resilience in a family business, so too can the prioritisation of ESG considerations. 

A company’s impact on the environment, its workers and its community is relevant to all businesses, particularly as governments, regulators, consumers and investors have higher expectations of transparency and quality of information.

It is also important for business performance: climate change could bring about massive disruptions; as could poor labour practices, which will harm a business’s reputation and competitiveness. By taking action and future-proofing their operations against such risks, family businesses can perform even better from a financial returns’ standpoint and contribute to better societal outcomes.

“The most successful family businesses have always had elements of ESG at the core of what they do, even if those elements haven't always been labelled as such,” Chan said. “Not all companies get it right, but in terms of heritage and culture, there is often a mind-set of taking care of their employees and their communities.”

Revisiting vision and values 
How can family businesses use sustainability principles as a source of innovation for new revenue streams? A good starting point is to use one or more of the many reporting frameworks available for assessing the impact of a company’s sustainability practices, Chan said. 

The process may also involve creating a dedicated cross-functional taskforce to identify and implement solutions for the business, as well as setting targets that can be built into business plans and monitoring progress to understand what’s working, and what needs adjustments.

One family-owned consumer goods company in the US, for example, hired a chief sustainability officer to oversee the expansion of the business into new, sustainable products, as well as formalising a corporate philanthropy agenda. They also joined a consortium committed to developing science-based solutions for global supply chains.

“It’s really important to ensure that all these efforts are communicated internally and externally, so everyone in the family enterprise understands the vision, strategy and performance with regards to sustainability, and it is clear to the market what the business stands for,” Sophie Blyth, wealth planner at HSBC Private Banking, said.  

Engaging the next generation 
The push to embed sustainability can have the additional benefit of bringing the next generation into the conversation, giving them a valuable role to play, Blyth noted. 

Chan shared the example of a family-owned hospitality business in Asia where the next generation convinced their parents of the need to implement sustainability initiatives – including the introduction of more plant-based foods. The next generation successfully used their own portfolio of businesses in a pilot study to demonstrate the business case for making it a company-wide initiative.

Another family business took advantage of the experience that a younger generation family member had gained while working in the sustainability department of a multi-national corporation. With the younger generation eager to make their own mark in the family business, senior and younger generations came together to discuss and identify their shared goals; they developed parameters for sustainability and implemented a plan.

“Whenever we have conversations with family business owners about stewardship, we talk about the building, nurturing and renewing of family resources,” Blyth said. “There’s significant interplay between sustainability and the stewardship of family businesses.”

Footnote:

PwC Family Business Survey 2021.