Can business sustain itself without being environmentally sustainable? Can business sustain itself without being environmentally sustainable?

Authors
Marcie Merriman

EY Americas Cultural Insights & Customer Strategy Leader

Student of human behavior, lover of transformative design. Living at the intersection of culture, commerce and technology to build human-centered experiences. Catalyst. Entrepreneur. Mom.

Helena Robertsson

EY Global and EMEIA Family Enterprise Leader

Leader in helping family-owned businesses realize their ambitions. Trusted tax advisor. Excited and proud to collaborate with professionals around the globe.

6 minute read 21 Oct 2020

Family enterprises are well placed to respond to the buying and work preferences of environmentally conscious Gen Z and millennials.

Three questions to ask
  • What are the business implications of environmental sustainability, particularly in a COVID-19 impacted world?
  • Have you started pivoting your business to the more sustainability-aware next generation?
  • What makes family enterprises more suitable for the long-term sustainability agenda?

Environmental sustainability has become an increasingly important priority for the CEO agenda over the past few years, largely driven by the increased frequency of extreme climate events1. COVID-19 has further amplified the need for all companies to prioritize sustainability, especially to remain relevant to the younger generation. EY’s Future Consumer Index indicates that at least 50% of consumers will pay more attention to the societal impact of what they consume as a result of the pandemic. Younger generations including Gen Zand millennials are more likely to gravitate to products and companies that authentically demonstrate sustainability.

Clearly reflecting this changed sentiment, investment funds that focus on environmental, social and governance (ESG) principles received more than US$70 billion in funds during April and June 2020, taking the total assets under management (AuM) in such funds to over US$1 trillion3.

Companies that set an agenda for climate-resilient growth are seen as attractive investment prospects, both in terms of near-term opportunities such as job creation as well as their long-term ability to withstand systemic shocks.

Family Enterprises (FEs) are particularly well-suited to focusing on sustainability and thereby appealing to the next generations of consumers and employees. This is because:

  1. They often have as their core purpose a desire to build and protect the name and reputation of the family and leave behind a positive intergenerational legacy.
  2. The time they remain invested in a company is the highest among all investor groups, due to their often-longer-term thinking and the relatively stable tenure of their leadership.
  3. The wealth of entrepreneurial families includes an abundance of “dry powder” – in terms of assets available for investment - which can enable FEs to fund multi-year, sustainable initiatives.
  4. Decision-making in FEs is not typically driven by pressures of quarterly reporting to shareholders and stock markets. (Such long-term thinking doesn’t necessarily come so easily to non-family enterprises. For example, the former Unilever CEO had to dare shareholders to quit if they didn’t align to the long-term sustainability measures he envisioned.)

In fact, many family-driven or family-funded companies have already demonstrated how to build businesses on sustainable grounds and/or pivot to sustainable practices.

  • Picnic, an online grocery retailer in The Netherlands, has ingrained sustainability into its business model and was funded to the tune of 350 million euros in series B and series C by four Dutch family funds. In order to reduce carbon emissions, Picnic deployed 1,000+ customized electric vans for grocery delivery, while relying extensively on local sourcing.
  • Canvest Environmental Protection Groupan WEOY Hong Kong winner led by Loretta Lee and controlled by the Lai Family4, owns and operates 32 waste-to-energy plants across China.
  • American, family-owned, carpet company Interface focuses its efforts on developing carbon-neutral flooring and has managed to convert its entire product portfolio, including carpet tiles and luxury-vinyl tiles, into carbon-neutral products across their entire lifecycle. It has also led programs to take back used vinyl carpets for recycling, thereby preventing them from going to landfills.

How can family enterprises take their sustainability journey to the next stage and create an authentic and sustainable image that is appealing to younger generations?

  1. Treat sustainability as a key competitive advantage and not as a compliance exercise. FEs have already started to prioritize sustainable investments. However, their current focus is typically more on exclusion-basedinvestments and less on impact investingand ESG-driven investments7 .
  2. Develop a stewardship vision focused on sustainability that attracts younger generations that might not traditionally have been drawn to a family business. This vision should be mutually agreed between family members and binding across generations.
  3. Aspire to accreditation around environmental friendliness and sustainability, such as “B Corporation8” certification. Go beyond compliance requirements and volunteer for ESG reporting and disclosure to authentically demonstrate the value of sustainability.
  4. Induct younger family members into business decision-making early on to bring about a sustainability-friendly culture change in a natural and gradual way. Insights from the next generation, comprising millennials and Gen Z, often remain unused by FE leaders who may still view age as an indicator of wisdom. An empowered and enabled next generation can successfully lead this transformation.
  5. Invest in new and alternative business models and ecosystems that are more sustainable. District Capital, a family office wing in Hong Kong, invests in synthetic alternatives to palm oil in order to combat deforestation and it has also invested in an ESG data-analytics company. Meanwhile, Treehouse Investments LLC, the single family office for a family from Puerto Rico, focuses its investments on wind farms and green energy.
  6. Designate a sustainability officer to champion the cause at the leadership table, to track progress against sustainability goals (including the UN SDGs), and to be the public spokesperson on sustainability matters.
  7. Introduce sustainable measures into existing business activities and set clear targets for initiatives around decarbonization and sustainable supply chains. Family-run snacks confectionery, and pet care company Mars, Inc. committed to spend US$1 billion from 2018 under the program “Sustainable in a Generation Plan”. The plan aims to reduce total greenhouse gas emissions across its value chain by 27% by 2025 and by 67% by 2050, and to reduce unsustainable water use by 50% by 2025. 

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“For most organizations, it makes sense to work towards a planned pathway towards decarbonization, with incremental milestones along the way. At EY, for example, we will hit carbon neutral emissions by the end of the year—but in order to get there, we'll have to purchase some carbon offsets. Then our next target will be getting to "real carbon zero"—i.e. reducing our carbon footprint without having to offset.” Steve Varley, EY’s Global Vice Chair of Sustainability.

The authors would like to thank Steven Shultz, Lauri Oinaala, Desmond Teo, Poonam Makkar, Dom Kelleher, Ashish Gambhir, Joanne V Warrin, Warren Rappleyea and Maciej Wylezek for their contributions to this article.

  • Show article references#Hide article references

    1. EY Megatrends 2020.
    2. Typically representing those born in 1997-2008 EY.
    3. ESG funds attract record inflows during crisis, FT, 2020.
    4. Holdings of Lai family, Market Screener.
    5. “Exclusion-based investments or negative list: managers exclude companies engaged in activities considered unethical or that are contrary to international conventions or agreements. Some of the most frequently excluded products and practices are alcohol, tobacco, pornography, weapons, nuclear power, gross violations of human rights, or companies doing business in or with sanctioned countries.” Triodos Investment Management.
    6. “Impact investing or positive list: investing in companies that demonstrate successful commercial solutions to urgent global sustainability challenges". Triodos Investment Management.
    7. UBS family Office Report 2020
    8. “B Corporation certification of "social and environmental performance" is a private certification of for-profit companies, distinct from the legal designation as a Benefit corporation”.

Summary

As environmental sustainability becomes a key decision criterion for younger generations, family enterprises have an opportunity to accelerate adoption of sustainable business practices and authentically demonstrate it to attract future customers, talent and investors. This journey will be much easier for those FEs that are already attuned to thinking and investing from a long-term perspective.

About this article

Authors
Marcie Merriman

EY Americas Cultural Insights & Customer Strategy Leader

Student of human behavior, lover of transformative design. Living at the intersection of culture, commerce and technology to build human-centered experiences. Catalyst. Entrepreneur. Mom.

Helena Robertsson

EY Global and EMEIA Family Enterprise Leader

Leader in helping family-owned businesses realize their ambitions. Trusted tax advisor. Excited and proud to collaborate with professionals around the globe.