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Family businesses risk future without ESG emphasis: report

Focus on environmental, social and governance principles key to private business resilience in disrupted times, says new PwC Canada survey

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Family businesses in Canada are finding that they have some catching up to do when it comes to environmental, social and governance (ESG) principles, a new survey reports.

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The Family Business Survey 2023—Canadian insights, released today by PwC Canada, found that family businesses grow faster and are more trusted by customers and employees when those who run the businesses agree on their ESG strategy.

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“While many Canadian family businesses have long relied on the trust they’ve built with key stakeholders, our survey showed [that] many organizations have been slow to adapt to the changing nature of what it means to be trusted today,” the report said.

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“A new formula is emerging that requires Canadian family businesses to deepen relationships with a broader range of stakeholders — notably their employees and the general public,” the survey added.

ESG is not just for public companies

“ESG is a thing of the future for family businesses, not just public companies. Family businesses should pay attention to the stories they want to tell about themselves,” says Sabrina Fitzgerald, national leader for private clients at PwC Canada.

“It’s not just about dollars and cents,” she says. ESG practices can be communicated not only by publishing data, but also by day-to-day actions.

“One young worker I know started at a company and was issued a laptop and a set of cutlery. That may sound unusual, but she thought this was the greatest thing,” Fitzgerald says.

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“She was told the knife, fork and spoon were because the company does not use disposable utensils. This was extremely important to her.”

PwC’s research, which surveyed 2,043 family businesses in 82 countries, including Canada, found that many companies have a long way to go when it comes to codifying and communicating ESG. For example, 79 per cent of worldwide family businesses say they have a clear company purpose, but far fewer actually write it down.

Only 37 per cent communicate how they’re succeeding at reaching non-financial goals and targets, such as environmental performance and workplace diversity. The survey was conducted between October, 2022, and January, 2023.

Family disagreements on how much effort to put into ESG

A lack of transparency about ESG can lead to disagreements among family members about these goals and what they should be, says Eric Gilboord, chief executive officer of Warren BDC, a consultancy that works extensively with family businesses and family offices.

“In my work with family businesses, I find that usually nearly everyone in the family wants to do good for the world, but there are often members of the family who don’t know how or what that means,” he says.

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There can also be differences of opinion among family members, particularly between generations, about how much effort to put into ESG, Gilboord adds.

“Some younger family members can be quick to want to do a lot of socially relevant things, but they may not focus on how much it will cost the company. The older family members, meanwhile, might focus more on how much money and effort went into building the family business,” he says.

Family business owners should actually be eager to adopt and solidify ESG strategies and practices because doing so may help ensure the future of the business, Fitzgerald says.

“All of us in the world have been through a lot of disruptions in the last few years, which leaves organizations uncertain about the future. Another survey by PwC found that 25 per cent of Canadian CEOs question whether their organizations will be viable in a decade,” she says.

Next generation leadership on ESG a strategy to help businesses survive

“That means that they feel their businesses aren’t well prepared. It points to looking to the next generation for direction about what to do and how to do business,” Fitzgerald adds.

“To meet employees’ rising expectations, family businesses need to make sure their disclosures are credible and backed by rigorous controls around the data,” the new PwC survey notes.

An additional PwC survey, The Global Workforce Hopes and Fears survey, conducted last year among 52,000 workers, including 2,086 participants in Canada, found that more than half of younger employees believe that transparency about workplace diversity and inclusion is important and nearly half (48 per cent) want their workplace to be open about its environmental and climate record.

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The just-released survey focused on Canadian family businesses says, “This requires family businesses to not only say what they are going to do, take the actions required and provide regular updates to staff and the public, but also to be forthcoming about where their progress falls short.”

“There’s no doubt that younger people have more conviction about those values, particularly on environmental and social equity issues,” says Eileen Fischer, professor of marketing and associate dean at York University’s Schulich School of Business in Toronto.

Greenwashing versus ESG as ‘a real thing’

There is always a danger that ESG plans will be perceived as “greenwashing” — shallow or fake efforts to meet environmental, social or governance goals. “But greenwashing isn’t any more likely to happen in a family business than it is in any other business,” Fischer says.

It’s important for family businesses to get going on beefing up their ESG policies and practices, PwC’s Fitzgerald says. “I think a lot of family businesses are lagging in this area because firming up these practices is not mandated the way it is with publicly traded companies,” she explains.

The survey suggests though, that “family businesses do recognize that ESG is a real thing, and they’re going to need to put more effort into this area,” she says.

“Families can lean on the next generation to do more about ESG. They’re the ones who are most passionate about it, and they’re the future,” Fitzgerald says.

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