How green are family businesses? – I by IMD

Family businesses encounter unique challenges but also have potential in adopting environmentally friendly practices. This article explores how their management decisions impact environmental strategies and global variability.

The accelerating pace of technological advancements, coupled with the gradual shift towards a more sustainable economy, have prompted companies worldwide to respond by proposing and developing various environmental management practices. As a result, many corporations have made promises to behave in more planet-friendly ways.

As the most ubiquitous form of business in every world economy, family businesses are not exempt from the need to manage the escalating demand for greener business practices. Adopting environmental management practices poses unique challenges for family business owners who face uncertainty and complexity on their way to sustainable development. However, what — if any — impact does a family firm structure have on how organizations respond to these challenges? Moreover, are family businesses, with their concentrated management structures, any better at navigating the demands of environmental regulations and eco-conscious consumers than their peers?

An international study of the internal and external environmental management practices of 1,690 family and nonfamily firms from 29 countries and 19 industrial sectors between 2007 and 2014 revealed that pollution prevention, green supply chain management, and green product development practices vary greatly across different types of family firms.

Historically, research at the intersection of family business and environmental management has tended to address the topic mainly from a socioemotional wealth perspective (Mariani et al., 2023), with a focus on average effects (Dekker & Hasso, 2016; Dou et al., 2017; Memili et al., 2018), based on the assumption that the “family effect” remains the same across different environmental management practice intensities.

One of the more surprising findings of the longitudinal study mentioned above is that the “family effect,” cited in many historical studies of family businesses, is not a constant across family firms, but ranges from extremely negative to no effect at all. As a class, the heterogeneity of family firms exceeds that of their nonfamily counterparts across the spectrum, showing equivalence among the most positive exemplars, but inferiority among the poorer corporate citizens.

Against a list of criteria, including pollution prevention, green supply chain management, and green product development practices among the companies included in the longitudinal sample, the negative effect of family influence on environmental management practices was reduced for older and smaller family firms and those with more independent and institutional investors. In addition, the magnitude of the effect depends on the type of firm, the industrial context, the type of economy, and the stages of the business cycle.