Family first for ESG? It’s complicated

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??This week: Should family-owned businesses lead the way in sustainability?

Chavalit Frederick Tsao certainly thinks so. Tsao is the fourth-generation head of Tsao Pao Chee (TPC), the Singapore-headquartered shipping and logistics giant previously known as IMC Pan Asia alliance.

Tsao has been pivoting his family business towards sustainability and social impact, and argues that family-owned enterprises are well-positioned to drive sustainable change by virtue of their long-term horizon and their ability to move quickly.

It’s not clear that family-owned businesses in Asia are up to that task yet. Crazy rich Asians may not always value the common good as much as their private wealth, and their businesses are still catching up on the environmental front.

There is no doubt that there is tremendous potential for family-owned businesses to be at the forefront of sustainable impact.

A McKinsey study found that family-owned businesses tend to deliver better shareholder returns than non-family businesses. The firm attributed the outperformance to a long-term perspective, financial and operational conservatism, and efficient decision-making.

Tsao has cited a PwC report that found family businesses contributed about 70 per cent of global GDP and employed about 60 per cent of the global workforce. This means that if family businesses pull together, they would be a force to reckon with.

Just because family businesses are able to think of the long term, however, doesn’t mean they all want the same thing in the long term.

One of the largest family-owned businesses in the world is Koch Industries, whose controlling family has used its wealth and influence to push a right-wing agenda in the US – including climate change denial and opposition to social support programmes.

All the aspects of family-owned businesses that put them in good stead to lead climate action could just as easily be used – and have been used – to fight against climate action.

The risk of greenwashing also exists with family businesses. A 2014 paper in the Journal of Business Ethics found a positive correlation in Chinese family-owned enterprises between corporate environmental misconduct and corporate philanthropic giving, suggesting that public acts of kindness may have been meant as a way to divert attention from bad behaviour.

It’s important to consider the entirety of a family business’s impact, not just the parts that are being paraded.

Furthermore, family-owned businesses in South-east Asia do not appear to be strong leaders at the moment on environmental issues.

There are 17 South-east Asian companies on the Family Business Index of the world’s largest family-owned businesses, a list maintained by EY and the University of St Gallen. Of those companies, 12 have received ESG scores by S&P Global Ratings.

Three-quarters of those dozen companies – a solid majority – scored higher than their respective industry averages on social and governance matters. Just slightly more than half – seven of 12 – outperformed for their environmental scores. The remaining five underperformed.

Those numbers might reflect a still-emerging level of proficiency in environmental issues in South-east Asia.

Take IMC Pelita Logistik, for instance. Formerly known as Pelita Samudera Shipping, Pelita is an Indonesia-listed shipping and logistics company that is part of TPC’s industrial arm.

If Tsao means for TPC to “co-create the well-being economy”, it will have to help Pelita transition to a more sustainable footing. But Pelita’s 2023 sustainability report suggests there is much to do to green its business.

Pelita’s business remains mostly dependent on transporting coal, for example, and the company has been diversifying and growing its non-coal business as part of its sustainability strategy.

Pelita’s sustainability report does not state any targets and timelines for that diversification. The company also doesn’t have clear targets for reducing emissions.

Sustainability and ESG performance also do not appear to be integrated into the remuneration structure for Pelita’s board and management.

There is an opportunity here for TPC. Improving sustainability reporting and disclosures at Pelita could help TPC better measure the impact of its various units, and to plan and execute credible transition plans.

??Top ESG reads:

1. Shell Singapore is selling its entire interest in Singapore’s Energy and Chemicals Park to Glencore and Chandra Asri as part of its decarbonisation strategy.
2. Server operator Princeton Digital Group has taken a US$280 million green loan to help build a US$1.5 billion data centre in Malaysia.
3. Buy palm oil from Malaysia , get a free orangutan.
4. ESG screening hampered by poor data and a focus on financed emissions makes it harder for emerging markets to attract much-needed transition investments, says experts from Robeco.
5. The wave of used cooking oil from China entering the US has raised concerns that the supply is tainted.

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