Generation gap divides families in the race to go green

This can create skills and experience gaps that leave firms worse off and less equipped to address critical and complex business challenges such as sustainability, as well as resulting in low motivation and productivity among non-family employees.

At the same time, if a family firm suffers from some of the agency-related problems listed above, it may struggle to attract adequate financial resources, in turn limiting the funds available for environmental activities. There can even be an additional condition – agency costs – attached to any financing arrangements, with lenders requiring the monitoring of borrowers and overseeing of collection systems.

How can families earn better green credentials?

While the picture is nuanced and complex, we see several ways in which families can implement more impactful environmental practices.

1. Know when to seek help

Family businesses tend to have impact investment at their core. Their owners are often ideals driven: not only do they want to run a successful business, but they wish to do so in ways that do good for all their stakeholders. Assuming their core business operates profitably, the question becomes how to organize available resources to incorporate green goals as part of their ethos.

Given the significant challenge that comes with realizing a high level of environmental performance, and the transformation necessary to do so, it makes sense to seek external, professional help. This can be a tough call for older family members who believe in their own managerial abilities, and also for younger members whose benefits might stem from their status as family insiders. However, successful sustainable transformations require competencies and perspectives that do not readily exist in most businesses.

Assuming a firm’s general willingness to improve environmental performance, its owners can then turn to using the traditional strengths of family firms to advantage.

2. Overhaul your family business values or culture

One possible starting point is seeing whether environmental goals can be incorporated into the ideas of longevity and the legacy and traditions held dear by many family firms, perhaps through a revision or creation of the family’s values or constitution.

Firms could also encourage management and staff to think of the influence they have beyond financial performance, especially in terms of the personal emotional impact that comes with knowing the business is either damaging or protecting the environment.

Other non-financial forms of wealth that stem from doing business, such as purpose and pride, could also be emphasized to show how all stakeholders might gain from the pursuit of non-economic goals.

Many family firms also tend to foster stronger ties with their workforces and communities. Can these relationships and a sense of common purpose be harnessed to promote and improve the impact of environmental practices?

3. Don’t greenwash

Our research showed that the way family firms communicate about their environmental performance does not often reflect reality: actual performance in terms of environmental operational practices falls short of the impression created by their communications.

Alongside putting in place plans to improve their environmental practices, firms should look at the role that communication has to play in allowing them to manage and meet the expectations of external stakeholders such as customers, suppliers, regulators, and communities, leading to an improvement in the firm’s legitimacy and reputation.

Moving from agency to stewardship

Our research challenges assumptions that give greater credit to family businesses for their environmental performance, due in part to the idea that such firms are run in a sustainable and responsible way to create value over generations.

While the picture is nuanced, some family firms clearly do better than others – especially those that do not both own and run the business, but rather have various governance or operational practices and structures in place involving non-family professionals.

At the same time, internal and external financial constraints, coupled with talent shortages and classic family business dynamics such as tensions between generations, diverse interests, non-corporate goals, and nepotism can make it harder for family firms to excel in sustainability, given the resources, decision-making agility and expertise required.

Nonetheless, family firms do tend to be long-term oriented – seeking to transfer the business or its value across generations – and this can be leveraged in different ways to boost environmental performance.

Incorporating more environmental values into a business’s culture or values and becoming the kind of actor other businesses, employees, and stakeholders want to work with should be a relatively straightforward task. Somewhat harder will be matching those aspirations with execution.

For family firms and their advisers, the priority should be to move from agency to stewardship, doubling down on their reputation for responsible longevity to put measures in place to improve their environmental performance.