Why private businesses need to get serious – and strategic – about sustainability

There’s a widespread perception that the sustainability agenda isn’t especially relevant to private businesses. But if you think that’s the case, you need to think again. To explain why, here are three real-world stories from private businesses that I work with, all operating in very different sectors.

• The first is a privately-owned technology company. Having weighed up the market opportunity presented by sustainability, it decided to set up a separate arm focused on developing technology solutions to support other businesses’ sustainability efforts, ranging from meeting new reporting requirements to reducing their carbon footprint. Guess what? That subsidiary is now one of their fastest-growing business units.
• The second is a property development company with access to a wealth of data about land usage. It took a fresh look at its data assets to work out new ways to sell and monetise them. The chosen solution? Offer the data to companies to help them quantify and report their own sustainability performance. Again, that idea proved to be a winner with customers.
• Last but not least, a family-owned consumer goods business wanted to get more prominent placing for its products in supermarkets. What it needed was a clear point of differentiation from its competitors. It decided to achieve this through boosting and promoting its products’ sustainability credentials. The result: its brands are now seen on a lot more top shelves.

Innovating for sustainable value…

The common threads? Private companies spotting a strategic opportunity in the marketplace – and then innovating around sustainability to seize it, thereby gaining a competitive advantage and generating higher long-term value. And as the sustainability agenda continues to expand and broaden, with companies’ societal contribution joining environmental impacts in the spotlight, the opportunity for similar innovations will only grow.

However, it’s an opportunity whose existence many private companies across the world have yet to recognise. PwC’s 27th Annual Global CEO Survey shows that private businesses are lagging behind public companies in their commitment and actions related to sustainability. Asked why, it emerges that they often see it as a reporting burden rather than an opportunity to do things differently.

…and adopting a new mindset

It isn’t difficult to see how this perception has come about. For many years, sustainability was seen largely as a reporting exercise, mainly driven by regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD). Since many private businesses are not all immediately impacted by sustainability regulations – including the CSRD – which often focus initially on listed companies, there was a sense that they didn’t really need to do anything in response.

This mindset must now change, for a few reasons. One is that private companies of all sizes are invariably downstream in the value chains of listed corporations, meaning they’re increasingly caught by the effects of the ever-expanding ESG regulations imposed on their corporate customers. Increasingly, too, regulations largely related to imports do apply directly to them in certain jurisdictions. Another – more important – reason, as highlighted above, is that sustainability now offers private businesses major opportunities that they really can’t afford to miss out on.

Building on their strengths

This is why private businesses shouldn’t regard sustainability just as a burden to be borne, but as a powerful strategic asset. And it’s an asset that they’re especially well-placed to leverage. Unlike listed corporations, the family ownership, legacy and culture of many private businesses have brought them a deeply-held purpose, set of values and long-standing commitment to society, often including charitable and philanthropic activities.

This means the values that underpin sustainability are already embedded, providing a solid base to build on when investing in sustainability. And the task of doing this will mostly fall to the next generation of family business leaders. These individuals have grown up in a world of rising societal and environmental awareness – and are committed to making a positive difference for people and planet, hand-in-hand with driving value and growth for the business.

What’s more, the strategic opportunities that sustainability presents for private companies go beyond gaining an edge in the market. Being perceived as a sustainable business also helps to attract the best young talent who share the same values. And when it comes to securing external capital, a company’s sustainability profile is an increasingly important factor in investors’ decision-making – and will play a pivotal role if a private business decides to go public via an IPO.

Stay tuned

My overall message? Now is the time for private businesses to take sustainability seriously and actively seek out the opportunities it offers.

As they do this, they’ll increasingly find themselves impacted by regulations such as CSRD, either indirectly through their listed customers or – increasingly – directly by the regulations themselves, as they extend to include larger private companies. In our next blog, we’ll take a closer look at the evolving global landscape of ESG regulations and their implications for private and family-owned companies. Watch this space!