Industry Surveys

ESG Goals Increasingly Take Priority For Some Business Owners - Study

Robbie Lawther, Reporter, 12 June 2018

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HSBC PB surveyed 3,725 respondents all of whom were major shareholders and active decision-makers in privately owned businesses and had an average wealth of $2.52 million.

Around one in five entrepreneurs globally consider social or environmental responsibility as their top priority as a business owner, even more so than maximising shareholder value, according to a new HSBC Private Banking report.

The Essence of Enterprise report, which was created in conjunction with Scorpio Partnership, took responses from 3,725 people, all of whom were major shareholders and active decision-makers in privately owned businesses, with an average wealth of $2.52 million. The research covered mainland China, Hong Kong, Singapore, the UK, Germany, France, the US, Switzerland, Australia, and the United Arab Emirates and Saudi Arabia.

The report said there was an age divide in the mind set of entrepreneurs globally, with 24 per cent of entrepreneurs aged under 35 being motivated by social impact, compared with 11 per cent of those aged over 55. 

Those who prioritise social impact have a greater propensity to engage in angel investing, (55 per cent of impact-focused entrepreneurs versus 44 per cent of entrepreneurs who prioritise commercial factors), and report a stronger willingness to rely on mentors for advice and support (75 per cent of impact-focused entrepreneurs versus 66 per cent of entrepreneurs who prioritise commercial factors). The report also said  there was a strong relationship between an emphasis on social impact and entrepreneurial ambition. 

The popularity of ESG-themed approaches to running firms and investing has been a notable trend in recent years. Debate continues around whether investing to bring about certain social or environmental outcomes is merely smart investing anyway, or might involve trade-offs against profits and shareholder value. It has been argued that ESG-themed approaches haven't yet been seriously tested by a recession and major market downturn.

Among other points in the HSBC report were that 33 per cent of the entrepreneurs projecting high growth ambitions stated that they started their ventures with the intention of creating positive social impact, compared with 28 per cent of those projecting the lowest growth. 

New investment style
Almost half of the respondents (47 per cent) had invested in other private, non-listed businesses, funnelling both capital and expertise back to the entrepreneurial community. However, the research said that a new younger generation of entrepreneurs is investing at a much higher rate than their older peers, with 57 per cent of entrepreneurs under 35 undertaking angel investing compared with 29 per cent of entrepreneurs aged over 55.

Differences also exist between the generations in how they perceive and approach angel investing. Over half of younger entrepreneurs (57 per cent) view angel investing as a way to connect and collaborate with peers. Entrepreneurs of an older generation view angel investing as a way to diversify and grow their investment portfolio, approaching angel investing in a more informal style through their network of personal contacts. 

Around 43 per cent of those over 55 view friends as the best route to new business, while 44 per cent of those under 35 turn instead to professional advisors to source new investment opportunities.

Global differences
The report also found differences in the entrepreneurial mind-set in markets around the globe. Entrepreneurs in the Middle East (66 per cent) are the most active angel investors, with the US (54 per cent) and Mainland China (53 per cent) next in line. By contrast, 45 per cent of UK entrepreneurs are angel investors, along with 35 per cent in Germany and 33 per cent in Switzerland.

It also found that the US and the Middle East had different ideas of how to source new investment ideas. Around 51 per cent of business owners in the US use financial advisors, compared with 38 per cent in the Middle East. And some 53 per cent of entrepreneurs in the Middle East were more likely to use their friends to source a new investment opportunity.

In relation to social impact, entrepreneurs in the US and China show a greater emphasis on environmental concerns – 81 per cent prioritise environmental issues in their business planning compared with 67 per cent in the UK, Singapore, Switzerland and Australia. 

When asked about their desire to contribute to communities, entrepreneurs from the Saudi Arabia (64 per cent) and the UAE (62 per cent) were most likely to reference being active in the community and civil society as important to their business operations compared with the global average of 44 per cent.

“It’s clear younger entrepreneurs want to do good, and we would be wrong to dismiss this as youthful idealism that will act as a brake on financial success,” said HSBC Private Banking global chief investment officer Stuart Parkinson. “They know that their business cannot have the impact they want without sustainable growth, and they are focussed on achieving both. They see a similar virtuous circle when it comes to angel investing; they are happy to invest in the wider business community, to contribute to each other’s successes and to learn from one another.”

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