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Study on sustainability in family businesses 2021

Embracing Sustainability – From Challenge to Change

Sustainability as a business factor

Sustainability is gaining importance in all areas of life. That is why today’s companies are also increasingly recognizing the need for sustainable business practices. For a long time, large corporations in particular viewed themselves as being sustainable if they got involved in classic “CSR projects” alongside their own core businesses – whether through the construction of solar parks in developing countries or the reforestation of disappearing forests. There is no doubt that such projects themselves provide great added value for the (local) community. However, they can also indicate that the company has not yet developed a willingness to examine its own work in the context of sustainability. 

In the meantime, in many companies and industries there has been a rethink, also as a result of public and political pressure. Today’s consumers demand transparency – employees demand a clear stance. Greenwashing is being exposed as such. Doing business responsibly therefore means knowing exactly what the negative impacts of one’s own entrepreneurial actions are, minimizing and compensating for them, taking responsibility for one’s own supply chain and establishing fair operating and business practices, also with subcontractors. In short, sustainability has become a relevant business factor – and not just for large corporations. 

Family businesses are a decisive fact in the overall economy. In the German-speaking world, people often like to talk about the formative power of small and medium-sized enterprises as providing the “backbone of the economy”. Around 90 percent of all businesses are family-owned, and these businesses together account for around half of all jobs. Sustainable, entrepreneurial action by family businesses thus has a certain formative character for entire industries. But how sustainable really are family businesses in Germany, Austria and Switzerland?

The study

In a study, Egon Zehnder investigated the issue of what role sustainability plays for family businesses. Sixty-four family businesses in Germany, Austria and Switzerland took part, which can be considered representative. Nine out of the ten companies surveyed employ at least 1,000 people. A good fifth each belong to the consumer goods industry and the mechanical and plant engineering sector. The IT sector and the automotive industry and related sectors are each represented by just under 11 percent. Companies from the chemical and process industries, as well as mining and metallurgy, also took part. The survey respondents were largely family shareholders, as well as occasional board members, managing directors and board members.

The results in brief

Sustainability has a high priority for all companies. More than 80 percent of respondents state that the topic is also very close to their hearts. Although the focus varies from company to company, more than 60 percent of family businesses have anchored sustainability in their own corporate values, and around 50 percent define an explicit sustainability strategy. 

It’s clear that family shareholders are increasingly personally involved in shaping sustainability strategies and, through dedicated budgets, create space for the economic consideration of their sustainability goals. Their approach to the topic is clearly value-driven. Sustainability is primarily understood in terms of one’s own generational responsibility. Today, business should be conducted in such a way that existing scope for entrepreneurial action can be maintained for future generations. Accordingly, the motives for sustainable management revolve primarily around questions of social continuity and future competitiveness. Sustainability is seen as a chance to open new fields of business. It is perceived as an opportunity to further develop the company and individual products and to become more attractive to potential specialists and managers. 

Many family businesses have therefore fundamentally recognized the need for sustainable management. However, very few measure themselves against this. Less than half of the family businesses surveyed anchor sustainability in their managers’ agreed targets. Furthermore, according to the study, only 40 percent of family businesses link their strategy to concrete projects. Only one third have completed a sustainability certification. And four out of ten companies even refrain from reporting publicly about progress.

 

Hidden sustainability – an assessment of the results

The figures illustrate that most family businesses do not yet seem to be fully aware that sustainability is already an essential business factor. Yet many family businesses are already further ahead in their thinking than the figures show. They show a genuine interest in many aspects of sustainability, from energy efficiency and biodiversity to fair working conditions and transparency in communication. Quite a few of their sustainability activities already go beyond the regulatory requirements. 

The reason behind the reluctance to use measurable values is the fear of public pressure to justify itself and the fear of turning non-governmental organizations against them. Public discourse on sustainability issues can sometimes be very aggressive and undifferentiated. In this environment, many family businesses, whose structure is designed for harmony and fairness, assume that they will not be able to find any productive opportunities for participation. Sustainability plays a role in all business processes, especially in research and development, in the supply chain and in public relations. The time for CSR projects that were only marginally related to company’s own activities is over. To a lesser extent, sustainability aspects have so far been incorporated into back-office processes, e.g., IT and financial planning.

However, there are also challenges outside of the company in this area. There are very different standards and certification procedures, and in the context of family businesses, no industry standards or certificate has yet been established. Overall, family businesses are on the right track and have the right intentions, despite all the transformative challenges. If family businesses succeed in breaking free from their value-driven mindset, then sustainability can be an opportunity and drive future development. 

Egon Zehnder's
six recommendations

Against the background of discussions related to this study,

Egon Zehnder has drawn up six key recommendations for family businesses:

Strong anchoring of sustainability in value system & culture

A clearly defined sustainability
goal is often missing

Target agreement systems
so far hardly linked to sustainability

No uniform reporting or certification has yet been established

What are the main sustainability challenges for organizations?

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