ESG in Family Firms
This Research and Policy Briefing, ESG in Family Firms, provides a summary of findings and recommendations from a new report from the Family Business Research Foundation in the UK. Family business researchers at the Universities of Leicester, Lancaster and Loughborough undertook a review of the existing evidence base on ESG practices in family firms and undertook a comprehensive analysis of UK and EU regulations, voluntary standards, and best practice relating to ESG. The report highlights the key role that ESG can play in driving sustainable growth, fostering innovation, and building long-term stakeholder trust. This research and policy briefing will be of interest to owners of family businesses in the UK and their advisers, policymakers, and those working in the ESG field. It seeks to make the key concepts and recent developments in ESG accessible to UK family businesses and their advisers while also offering practical recommendations and suggestions for how they can improve their own practices in this area.
FBRF Research and Policy Briefing #5
January 2025
By Martin Kemp and Mat Hughes
Introduction
This briefing provides key insights from a study led by Mat Hughes (Leicester University) and commissioned by the FBRF on ESG in Family Businesses. The study sought to survey and review the evidence base on environmental, social, and governance (ESG) in family firms with the aim of identifying new avenues for research in this area. The project also involved an analysis of ESG policies, regulations, and frameworks relevant to UK businesses and sought to identify UK family firms with good ESG practices. The report by Hughes et al. (2025) highlights the distinctive characteristics, motivations, challenges, and impacts of ESG activities within family firms. It also identifies research gaps and offers practical recommendations for policymakers, researchers, family business owners, and advisers.
This briefing will interest owners of family businesses in the UK and their advisers, policymakers, and those working in the ESG field. It seeks to make the key concepts and recent developments in ESG accessible to UK family businesses and their advisers while also offering practical recommendations and suggestions for how they can improve their own practices in this area.
ESG policies and regulations in the UK
Hughes et al. (2025) point out that, whilst family firms in the UK are not currently subject to ESG mandates, it is important that they prepare for likely future requirements. Current regulations in the UK include:
(a) UK ESG Regulations
Task Force on Climate-related Financial Disclosures (TCFD)
Introduced in 2022, this framework requires large firms to disclose climate-related risks. The UK will transition to the International Sustainability Standards Board (ISSB) standards (IFRS S1 and S2) by 2026 (IFRS Foundation, 2024).
Sustainability Disclosure and Labelling Regime
This initiative combats greenwashing by scrutinising sustainability claims made by financial products. Though primarily aimed at FCA-regulated firms, its principles influence broader corporate practices (Financial Conduct Authority, 2024).
(b) EU ESG Regulations
Corporate Sustainability Reporting Directive (CSRD)
Effective from January 2023, the CSRD mandates detailed sustainability reporting for all large EU firms and listed SMEs, affecting UK firms generating over €150 million in EU revenues (European Union, 2023).
European Sustainability Reporting Standards (ESRS)
These Standards provide a comprehensive framework covering climate, biodiversity, and human rights reporting (European Union, 2023).
Key Insights from a review of evidence on ESG in family firms
Here, we summarise key insights from the literature review. For a full account of the methodology used in the review and a more detailed discussion of the findings, please refer to the full report available here.
(a) The ESG Landscape in Family Businesses
Family businesses have a unique potential to integrate ESG into their strategies and activities due to their emphasis on legacy and long-term sustainability. Unlike non-family firms, family businesses often balance financial success with non-financial goals, such as community wellbeing and ethical practices (Chrisman et al., 2012; Kotlar et al., 2020).
However, ESG adoption is inconsistent. Family priorities, generational involvement, and governance structures can influence commitment to ESG (Strike et al., 2015). And larger family businesses tend to lead in ESG adoption, whereas smaller firms face resource constraints that make it more difficult for them to engage with ESG (Ma et al., 2023; Glover & Trehan, 2020).
(b) Motivations for ESG in Family Firms
The report discusses evidence on the motivations that drive family businesses toward ESG. These include, for example:
Enhanced Reputation: Demonstrating ethical leadership to improve public perception (Gjergji et al., 2021).
Stakeholder Alignment: Meeting growing demands from customers, regulators, and investors (PwC, 2021).
Legacy and Values: Reflecting family heritage and ethical commitments through sustainable practices (Kotlar et al., 2020).
(c) Challenges to ESG Adoption
The report summarises some evidence relating to the challenges that family firms can face when seeking to engage with ESG. For example:
Transparency Issues: Concerns over governance and disclosure, especially in smaller firms (Wu et al., 2023).
Generational Dynamics: Divergent views among family members on the importance of ESG (Huang & Chen, 2024).
Cost and Resource Constraints: Financial limitations and operational challenges hinder small family firms (Espinosa-Méndez et al., 2023).
(d) ESG Performance and Competitive Advantage
The research reviewed in the report points to a positive correlation between ESG activities and business performance:
Lower capital costs due to reduced investor risk perception (Wang et al., 2024).
Improved employee retention and enhanced customer loyalty (Ma et al., 2023; Gjergji et al., 2021).
Innovative ecological strategies offer long-term financial and environmental benefits (Ma et al., 2023).
Frameworks to support ESG practices in family firms
Hughes et al.’s study sought to identify the most important sources of guidance and frameworks relating to ESG and where these are relevant to and potentially useful for UK family businesses.
Voluntary Standards and Certifications
ISO 26000
Provides guidance for integrating social responsibility into business practices but is non-certifiable (ISO, 2010, 2024).
B Corp Certification
Offers a structured approach to embedding ESG into governance frameworks. Achieving certification requires measurable ESG performance and amending Articles of Association to include ESG commitments (B Lab UK, 2024).
Frameworks for family firms
Wates Corporate Governance Principles
Designed for large private companies but increasingly used by family firms to guide stakeholder engagement and governance (Wates, 2018; Kemp et al., 2024).
Family Business for Sustainable Development Pledge
Promotes alignment with the UN Sustainable Development Goals, with over 450 global signatories, including 14 UK firms (Family Business for Sustainable Development, 2024).
Implications for policy and practice
Recommendations for family-business owners and managers:
Embed ESG into strategy and align family values with corporate goals to build a coherent ESG narrative.
Leverage Voluntary Standards; for example, consider using frameworks like ISO 26000 and pursue certifications like B Corp to demonstrate commitment (see ISO, 2024; and B Lab UK, 2024).
Take the long view: focus on embedding sustainable practices that align with family values and regulatory expectations and seek to integrate ESG into long-term strategies to leverage competitive advantage.
Foster and encourage the involvement of the next generation and seek to engage younger family members in sustainability initiatives to encourage fresh thinking and new perspectives. The Family Business Research Foundation offers practical guidance on engaging the next generation here.
Prepare for regulatory changes: develop robust frameworks and systems for tracking, monitoring, and measuring ESG activities and outcomes.
Begin ESG data collection and invest in and build robust data systems to help to streamline ESG reporting.
Risk Mitigation: Proactively address ESG issues to avoid reputational damage and regulatory penalties.
Explore ways of improving communication about your ESG commitments and activities; for example, create compelling ESG narratives or stories to engage stakeholders and differentiate the family business.
For family-business advisers:
Offer sector-specific advice to help family firms navigate ESG regulations.
Equip family businesses with knowledge and tools for ESG integration by providing training and learning opportunities relating to ESG to members of business families and employees.
For policymakers:
Provide additional support, incentives, and resources to smaller family firms to adopt ESG practices.
Provide clear ESG regulatory guidance for SMEs and family businesses.
Ensure clarity and applicability of ESG policies for family-owned firms of varying sizes.
Examine the market for ESG certification and pledges to evaluate their effectiveness at steering firms toward positive ESG practices.
Monitor the cost of compliance with ESG regulations to ensure family businesses can continue to invest and support the UK economy and society.
Consider ways of incentivising ESG investments and practices through tax breaks or grants.
Recommendations for future research
The learning from the study will inform new research on ESG in family firms and the development of new guidance tailored to UK family businesses. In this section, we draw out some of the main avenues for new research that the new report points to. To advance understanding of ESG in family businesses, Hughes et al.’s report recommends that research should focus on the following areas:
Qualitative research: Investigating the cultural, ethical, and personal drivers behind ESG adoption.
Intergenerational dynamics: exploring how generational succession impacts ESG priorities.
Decision-making processes: Studying how family businesses make choices and arrive at decisions about ESG activities in ways that are compatible with family and business goals.
Policy analysis and evaluation: Assessing and evaluating the role of ESG frameworks and regulations in fostering family firm compliance.
Comparative studies: Examining cross-cultural ESG practices in family businesses and learning from how ESG has been implemented across different countries or contexts.
For an account of the methodology used in this study and a more detailed discussion of the findings, please refer to the full report: Hughes et al. (2024), ESG in Family Firms: A Review of Research, Regulations and Practice Guidance, available to download here: https://www.fbrf.org.uk/reports/esg-in-family-firms
References and ESG Practice Resources
Acree, J. (2023). ESG: The Popular Corporate Buzzword and Why Leaders Should Care. Available at: https://www.forbes.com/councils/forbesbusinesscouncil/2023/03/15/esg-the-popular-corporate-buzzword-and-why-leaders-should-care/
B Lab UK (2024). The B Corp Certification Process. Available at: https://pardot.bcorporation.net/l/39792/2023-02-07/9rblgc/39792/1675785775pOkvYjFy/Guide_to_the_B_Corp_Certification_Process.pdf
Chrisman, J.J., Chua, J.H. & Pearson, A.W. (2012). Family involvement, family influence, and family-centered non-economic goals in small firms. Entrepreneurship Theory and Practice, 36(2), pp. 267–293.
Espinosa-Méndez, C., Maquieira, C.P. & Arias, J.T. (2023). The impact of ESG performance on the value of family firms: The moderating role of financial constraints and agency problems. Sustainability, 15, 6176. https://doi.org/10.3390/su15076176
European Union (2023). Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards. Available at: https://eur-lex.europa.eu/legalcontent/en/TXT/?uri=CELEX:32023R2772
Family Business for Sustainable Development (2024). The Sustainability Indicators for Family Business (SIFB). Available at: https://fbsd.unctad.org/indicators/
Financial Conduct Authority (2024). Sustainability disclosure and labelling regime. Available at: https://www.fca.org.uk/firms/climate-change-and-sustainable-finance/sustainabilitydisclosure-and-labelling-regime
Financial Reporting Council (2018). The Wates Corporate Governance Principles for Large Private Companies. London: The Financial Reporting Council. Available at: https://media.frc.org.uk/documents/The_Wates_Corporate_Governance_Principles_for_Large_Private_Companies.pdf
Gjergji, R., Vena, L., Sciascia, S. & Cortesi, A. (2021). The effects of environmental, social and governance disclosure on the cost of capital in small and medium enterprises: The role of family business status. Business Strategy and the Environment, 30, pp. 683–693.
Glover, J. & Trehan, K. (2020). Family Businesses and Community Engagement. London: IFB Research Foundation. Available at: Family Business and Community Engagement — Family Business Research Foundation
Huang, L. & Chen, A. (2024). Family business succession and corporate ESG behaviour. Finance Research Letters, Vol. 60, 104901. https://doi.org/10.1016/j.frl.2023.104901.
Hughes, M., Hu, Q., Simeonova, B., Ge, B., Issah, B.W., Jack, S., Hughes, P. & Dai, S. (2024). ESG in Family Firms: A Review of Research, Regulations and Practice Guidance. London: Family Business Research Foundation. Available at: https://www.fbrf.org.uk/reports/esg-in-family-firms
IFB Research Foundation (2019). Engaging the Next Generation. Family Business Challenges No.4. London: IFB Research Foundation. Available at: engaging-the-next-generation-web.pdf
IFRS Foundation (2024). IFRS Sustainability Standards Navigator. Available at: https://www.ifrs.org/issued-standards/ifrssustainability-standards-navigator/#sustainability-standards
ISO (2010). ISO 26000 Guidance on social responsibility – Discovering ISO 26000. Available at: https://www.iso.org/files/live/sites/isoorg/files/store/en/PUB100258.pdf
ISO (2024). ISO 26000 – Social Responsibility. Available at: https://www.iso.org/iso-26000-social-responsibility.html
Kemp, M., Cuomo, F., Gaia, S., Baboukardos, D., Michelon, G. and Soobaroyen, T. (2024). Adoption of the Wates Principles among UK Family Businesses. London: Family Business Research Foundation. Available at: https://www.fbrf.org.uk/s/Wates-Principles-and-Family-Business-Report-Final.pdf
Kotlar, J., De Massis, A., Frattini, F. & Kammerlander, N. (2020). Motivation gaps and implementation traps: The paradoxical and time-varying effects of family ownership on firm absorptive capacity. Journal of Product Innovation Management, 37(1), pp. 2–25.
Ma, R., Pan, X. & Suardi, S. (2023). Shareholder value maximization via corporate ESG performance: Evidence from mergers and acquisitions in China. Applied Economics, pp.1–17.
PwC (2021). 10th Global Family Business Survey: Building ESG into family business strategies. Available at: https://www.pwc.com/gx/en/services/family-business/family-business-survey-2021.html
Strike, V.M., Berrone, P., Sapp, S.G. & Congiu, L. (2015). A socioemotional wealth approach to CEO career horizons in family firms. Journal of Management Studies, 52(4), pp. 555–583.
Wang, X., Ren, K., Li, L., Qiao, Y. & Wu, B. (2024). How does ESG performance impact corporate outward foreign direct investment? Journal of International Financial Management & Accounting, 35, pp. 534–583.
Wu, M., Zhu, Y. & Zhang, F. (2023). Second-generation involvement, ESG performance and family firm value. Applied Economics Letters, pp. 1–4.