This series provides an overview of the concept of sustainability, why family businesses need to think differently about it, the powerful benefits of corporate sustainability, and some concrete steps that family businesses and rising generation leaders can take.
Sustainability, a value-increasing strategy for business,[1] involves certain short-term costs but has long-term benefits. Next gens are drawn to leading purpose-driven organizations and no longer view corporate sustainability as separate from business performance.
Traditionally, a business was measured by standard financial indicators (profits, return on investment, shareholder value, etc.). In the mid-1990s, John Elkington devised the accounting framework “triple bottom line” (TBL), which encourages companies to focus not only on profits but also on social and environmental dimensions.
In addition to financial reports, companies now also published annual sustainability reports, which provide an overview of the economic, environmental, and social impacts caused by a company’s everyday activities. Sustainability reports present the organization’s values and governance model and demonstrates the link between its strategy and commitment to a sustainable, global economy. It is an intrinsic element of integrated reporting, which combines the analysis of financial and non-financial performance. Some companies also account for the risk they face by climate change in their annual financial statements.
When integrating sustainability practices within a family-controlled company, a family business should consider the quadruple bottom line—economic success, social responsibility, environmental sustainability, and generational continuity. Family-controlled companies have long-term views of business—regarding investments, people, ownership, innovation, stakeholder relationships, financial stability—in their DNA.[2] This perspective goes hand in hand with the notion of sustainability, which, when implemented at the core of business strategy, can stimulate business value creation for both shareholders and stakeholders. Corporate sustainability can further contribute to family businesses’ legacies as being some of the most innovative (and responsible) leaders in business.
What are the benefits of corporate sustainability?
For family businesses, there are myriad benefits to implementing a corporate sustainability strategy. Family-controlled companies think in generations, not financial quarters. This long-term view of business can further contribute to both a positive legacy and an enduring business. In times of global disruption, the importance of finding a balance between the social and environmental impact of companies and economic growth and profit has never been greater.
By following the quadruple bottom line concept, family businesses can work towards the following motivating, potential outcomes (economic success, social responsibility, environmental sustainability, and generational continuity) in a corporate sustainability strategy.
Economic Success
- Creates shareholder value and competitive advantage
- Mitigates environmental risk and negative externalities, which can increase a company’s costs of capital and insurance (risk mitigation)
- Builds customer, supplier, and investor loyalty
- Fosters innovation, enhancement and development of new products/services, value creation, and resilience; attracts investors, develops new partnerships and access to different markets
- Improves financial performance; reduces operating expenses in both buildings and supply chain through a systems approach; promoting sustainable products can lead to increased revenues
- Builds new business models or diversifies current model with additional products and services
- If a company has strong partnerships with social or environmental non-governmental organizations (NGOs), its market value may increase 40% higher than its competition.[3]
Social Responsibility
- Strengthens public image, branding, community relations and stakeholder engagement
- Unites and motivates employees; improves morale, productivity, and retention; attracts talent
- Builds transparency, trust, and collaboration with stakeholders, local communities, investors, and employees to continuously improve operations
- Becomes necessary to comply with regulations and to be an acceptable supplier to other businesses or directly to the consumer
Environmental Sustainability
- Conserves natural resources through a systems approach
- Improves waste management to minimize the environmental effects of waste
- Decreases pollution with energy efficiency practices and the use of renewable energy sources
- Generates partnerships with local NGOs and community organizations to collaborate on joint environmental projects and programs, which can lead to innovations in the business
- Reduces the company’s carbon footprint, decreasing its negative impact on climate change
- Lowers costs associated with water, energy, waste, operations, and logistics
Generational Continuity
- Drives growth and family engagement with the family enterprise
- Provides pathways for leadership, entrepreneurship, and talent development in each generation
- Reinforces family owners’ values and long-term stewardship with a focus on purpose and adding societal value
[1]“Sustainability Report 2012,” Firmenich, 2012, p.9, https://www.firmenich.com/uploads/files/sustainability_reports/Firmenich_Sustainability_Report_2012.pdf.
[2] John A. Davis, “What Makes a Family Business Last,” Harvard Business Review, February 05, 2020, https://hbr.org/2020/02/what-makes-a-family-business-last.
[3] Richard Summerfield, “Creating change through corporate social responsibility,” Financier Worldwide Magazine, June 2020, https://www.financierworldwide.com/creating-change-through-corporate-social-responsibility#.XsWoXxNKhTY.
An international champion of a low-carbon future and a net zero economy, Ana Tavares Leary is a published expert in climate change, international business, and sustainable development. For over 10 years, she has made a significant impact as a consultant managing over 60+ international projects for family-owned businesses, biotech, and environmental sciences.
