Actions Speak Louder Than Words

In today’s world, climate change is at the forefront of global concerns. Companies are being pushed to adopt environmentally sustainable practices, but do family-controlled businesses respond in the same way as public companies with wide ownership? In a study with I. J. Alexander Dyck, Karl V. Lins, Lukas Roth and Mitch Towner, we examine this important question by analyzing the environmental performance of 3,832 firms across 35 countries, focusing particularly on carbon emissions as a key measure of sustainability.

Family-controlled companies play a major role in the global economy, and their approach to environmental sustainability is significant. The general assumption has been that family-owned businesses are less committed to environmental goals compared to their publicly held counterparts. However, our findings paint a more nuanced picture.

One of the most important metrics of environmental performance is carbon emissions, given their direct link to climate change. We found that family-controlled firms perform at least as well, and in some cases even better, than widely held companies when it comes to managing carbon emissions. This is especially evident in countries where the threat of future regulatory tightening on emissions is high. These firms seem to be keenly aware of the long-term risks posed by climate change to their business and act accordingly, especially in industries where carbon emissions are a material risk.

In fact, in countries with weak climate regulations, family firms are often ahead of the curve, emitting up to 20% less carbon than widely held firms. This suggests that family businesses, which often plan with future generations in mind, are particularly sensitive to existential risks like climate change. They are proactive in reducing their emissions to avoid potential future penalties, indicating a strong commitment to long-term environmental sustainability.

While family firms take real action on the ground, they are notably less focused on disclosing environmental policies and metrics. Compared to public companies, family-controlled firms are less likely to publicly declare their environmental policies or set qualitative targets. This is in line with the “low-disclosure” approach taken by prominent family-controlled firms like Berkshire Hathaway, where Warren Buffett famously noted that while they act sustainably, they don’t waste time preparing extensive reports for public scrutiny.

This may explain why family firms often perform poorly on qualitative environmental metrics, which focus more on disclosure and commitments rather than actual performance. In the broader Environmental, Social, and Governance (ESG) ratings, family firms tend to underperform because these ratings often give significant weight to public statements regarding a company’s environmental policy—an area where family companies tend to remain silent.

The discrepancy between actual performance and public disclosure could be due to the unique structure of family firms. With families often having significant control over the business and holding key management positions, they don’t face the same external pressures from investors that widely traded companies have to publicize their environmental strategies. Unlike public companies, where management may feel the need to respond to investor demands for transparency, family firms often prioritize actions over words. Their focus is on managing real risks—like carbon emissions—rather than engaging in what could be perceived as a public relations exercise.

Our study offers a new interpretation of the environmental sustainability of family-controlled companies. Contrary to previous research suggesting that family firms lag in environmental performance, we find that they manage critical sustainability risks, particularly carbon emissions, very well. What they lack in public disclosure, they make up for with real and impactful actions. For family firms, reducing carbon emissions is not just good business—it’s a way to ensure the longevity of their enterprise for future generations.

As global warming continues to pose challenges to global businesses, the role of family firms in mitigating environmental risk will likely grow in importance. Their ability to act decisively, without the constraints of quarterly reporting or external investors’ pressures, may give them a unique advantage in navigating the long-term challenges posed by climate change.