By: Jonathan Flack, Private, Family Enterprises Leader, PwC US and Sheri Wyatt, Trust Solutions Diversity and Inclusion Leader and ESG Partner, PwC US
When it comes to ESG, companies are under the microscope more than ever before. They’re facing increasing public focus and regulatory pressure on environmental, social and governance initiatives, and are routinely challenged to demonstrate greater transparency around reporting on the progress they’re making.
ESG concerns, whether called philanthropy or social responsibility, have long been essential to the mission and identity of family businesses, known for being built on values and purpose. ESG might even be viewed as an existential imperative: Family business owners traditionally have prioritized creating an enduring enterprise for future generations. Organizations unable to show their commitment to sustainable practices could be punished by consumers, the media and regulators.
Family businesses are ahead of the game on ESG: 93% engage in some form of social responsibility activities, according to PwC’s Family Business Survey 2021. And nearly half (45%) of survey respondents said family businesses like theirs could potentially lead the way on sustainable business practices.
Still, there’s work to be done. Family businesses have a unique opportunity to outpace competitors in the ESG arena, by taking action and then telling the story of their efforts. By doing so, they can enhance their longtime reputation for putting their community first.
How can your family business quickly and effectively respond to the ESG imperative? How can you translate your well-known company vision, values and mission into concrete policies and programs that can help you address ESG challenges? And where does your organization stand on diversity, equity and inclusion (DEI), an increasingly important part of ESG reporting? Successful multi-generational family businesses have relied on structure and formality to confirm that governance for their family enterprises allows for efficient decision-making and oversight. Meeting and exceeding expectations in this arena can make for a challenging journey. To get there, prioritize these steps:
- Strategize — There’s no one-size-size-fits-all solution. What is the business case for your particular organization around ESG?
Gaining ESG buy-in across the enterprise requires that you clearly articulate the business case for your family business and align your approach to your corporate values. Which ESG strategies are your company pursuing now, and how will they affect functional areas? By taking a holistic approach, informed by a thorough inside view of needs, and being intentional and strategic around their priorities, leaders can develop an ESG program that reflects the values of the family business while also being responsive to ongoing external pressures.
- Assess — What’s most important to your stakeholders?
Use one-on-one conversations, listening sessions, surveys and other methods to engage with stakeholders — employees, customers, vendors and family shareholders — in order to understand their priorities. Focus your questions on the ESG reporting frameworks that are likely driving inquiries from those stakeholders. It’s impossible to address every major issue, so dive deep to discover shared concerns. Look for opportunities to embed ESG objectives into your existing family business strategy. And determine which ESG reporting infrastructure is in place. Lastly, confirm you seek feedback from the future family members in order to have long-term orientation to your assessment.
- Prioritize — Which areas should you focus on that will really drive organizational change?
You can’t conquer all ESG challenges at once. Acknowledge where you are on the journey. Then prioritize the key ESG areas with short-, medium- and long-term goals. Consider which issues your stakeholders bring up most frequently: How do those align to your mission and values and overall family business strategy? Which data is available for your use to begin reporting on progress? Which resources will be needed to establish achievable goals?
- Evaluate — Which of your existing policies and priorities will help you achieve your ESG goals?
When establishing your ESG goals, evaluate your current policies and determine whether they need to be reexamined or enhanced to ensure they don’t get in the way of achieving your goals. An assessment of the family’s overall governance system for making decisions should be included in the evaluation process. As ESG challenges tend to involve major shifts in policies and practices, families need an effective and efficient decision-making system.
Family businesses also face challenges around data quality, as much data is manual, whether drawn from internal spreadsheets or pulled from external sources. And high-quality data is required in order to issue a reliable social responsibility report. Is your data accurate and trustworthy? Consider creating a data-collection process that’s as rigorous as your financial reporting process to confirm that what you’re reporting to stakeholders is investor-grade, quality data that won’t be subject to second-guessing.
Bottom line for family businesses: While you may already have governance policies and programs in place, confirm that you expand on your existing governance infrastructure to support your entire ESG journey — from designing a conceptual strategy to executing on those plans and finally being able to report on your progress toward your goals.
Relating your actions and progress might be thought of as the final stop on your initial ESG journey. How can you effectively let stakeholders know about the steps you’ve taken, and what you’ve achieved? Consider taking these actions:
Decide on your ESG strategy and metrics. Establish an overall organizational approach to ESG, supported by clear tone from the top, with leadership committed, to encourage buy-in across your family business.
Define process and governance steps to have confidence in your reporting. Efficiently managing ESG reporting requires standardized policies, procedures, controls and governance, and ensuring that your data is appropriate and your metrics are clearly defined.
Design your reporting architecture and technology. Create an architecture that includes data sourcing, aggregation, calculation, validation, reporting and analytics. Fully leverage existing financial reporting architecture, and map each ESG reporting element to the architecture. Invest in digital tools and technology to support and enhance robust reporting by increasing accuracy and reducing errors.
Tell an authentic and coherent story. Instead of just presenting a snapshot of your current state, talk about your goals and how you plan to achieve them, and how that fits into the mission and values of your family business. That positions you to take action right away, with reporting and data that you can stand behind now and in the future.