Listen to this story:

• Strategic ESG investing aids family enterprises in sustainable growth, wealth preservation, and establishing a legacy.
• Infrastructure investment, particularly in smart grids, offers a strong diversification option supporting ESG goals and portfolio resilience.
• Younger family members are increasingly stepping up as leaders in ESG, driving cultural shifts and innovation within their enterprises.

Family enterprises, known for their long-term investment approach, are increasingly integrating sustainability and ESG (environmental, social, and governance) factors into their strategies to enhance resilience and drive value creation. As sustainability becomes a priority, what considerations and opportunities should family enterprises focus on to ensure successful ESG integration?

This conversation features insights from Jean Chia, Global Chief Investment Officer at Bank of Singapore, and Praveen Tekchandani, Singapore Climate Change and Sustainability Services Leader at Ernst & Young LLP.

The Long-Term Perspective:

Jean Chia highlights that ESG investing is vital for long-term growth and creating a legacy. However, family enterprises must carefully evaluate which ESG investments align with their portfolios. With sustainability as a growing structural theme due to the global funding gap for climate transition (estimated at US$4 trillion annually by the UN), investors are looking beyond conventional risk-reward metrics to prioritize measurable decarbonization outcomes.

Real-world examples illustrate the importance of this shift: Patagonia, a company famously committed to environmental stewardship, not only sustains its business model with a strong ESG focus but has also seen substantial growth. The trend is clear—businesses that integrate ESG are often rewarded with increased consumer loyalty and long-term profitability.

Infrastructure as an ESG Opportunity:

Family enterprises should consider infrastructure investments as a means to diversify their portfolios while supporting the ESG agenda. According to Chia, Southeast Asia’s need for updated infrastructure, especially smart grids, offers significant investment potential. Smart grids, which optimize electricity supply and demand using technology, are essential for supporting renewable energy. Media reports suggest at least US$21.4 trillion is needed by 2050 to bolster the global net-zero path.

Infrastructure investments come with notable benefits. For instance, recent data from McKinsey & Company shows that infrastructure assets have outperformed traditional asset classes over the past decade, delivering stable, inflation-adjusted returns. Government incentives like tax credits and grants further enhance the attractiveness of these investments. Chia points out that contractual revenue streams embedded in these projects help protect against income variability, making them ideal for long-term investors.

The Role of ESG in Risk Management:

Praveen Tekchandani emphasizes that defining sustainability goes beyond environmental factors to include governance, employee well-being, and safety. Integrating ESG helps family enterprises adopt a proactive stance in risk management by addressing transition risks such as evolving regulations and carbon pricing. For example, Maersk, a global leader in logistics, has integrated ESG by committing to net-zero operations by 2040, effectively mitigating potential regulatory and market risks.

Investing with an ESG lens helps identify hidden risks and opportunities. For instance, a report by Harvard Business School found that companies with strong ESG performance faced fewer operational disruptions and were better positioned to weather economic volatility, underscoring the risk management benefits of ESG integration.

Driving Innovation Through ESG:

Integrating ESG can spark innovation within family enterprises, encouraging sustainable practices that differentiate them from competitors. The 2023 EY Future Consumer Index found that 66% of consumers prefer products that help mitigate climate impact, illustrating the rising demand for sustainable goods. B2B clients are also aligning with sustainability goals, driving suppliers to adapt their offerings.

Family enterprises can tap into digital technology such as AI, IoT, and data analytics for enhanced ESG capabilities. Walmart has successfully used IoT sensors for real-time energy management, significantly reducing operational costs and enhancing its sustainability footprint. Tekchandani notes that similar strategies can be adopted by family enterprises to drive efficiency and innovation, creating value across their business.

RELATED ARTICLE: 81% of Irish Businesses Increased Their Sustainability Focus in 2024: EY Report

The Next Generation Leading ESG:

Younger family members are stepping up as ESG leaders, fostering a culture of sustainability. Tekchandani highlights that organizations typically evolve through stages of ESG awareness, from compliance to strategic integration. The next generation often champions this evolution, ensuring that ESG becomes a fundamental aspect of business strategy.

The younger leaders’ enthusiasm is driven by both personal values and emerging market opportunities. For instance, Ford Motor Company has seen leadership shifts where younger executives prioritize EV development and sustainable practices, helping position the company for long-term growth. Family enterprises can learn from this approach, nurturing next-generation leaders to harness ESG strategies that enhance resilience and profitability.

As family enterprises continue to adapt to a rapidly changing investment landscape, integrating ESG considerations provides a pathway for sustainable growth, innovation, and risk mitigation. By focusing on strategic investments, leveraging technology, and empowering the next generation, family enterprises can achieve long-term success and contribute to a sustainable future.

See the full conversation on EY

Follow ESG News on LinkedIn