Impact of ESG Practices on Financial and Risk Performance in Family Businesses

Abstract

The study of the relationship between Environmental, Social, and Governance (ESG) practices and financial performance in family firms (FFs) is still in its early stages. This study focuses on 509 Spanish companies, examining how ESG influences their financial and risk performance. It differentiates among FFs, specifically between those with a single owner and those with multiple owners, and non-family businesses. The composition of our ESG index consists of 63 variables. To analyze the impact of ESG, we employed propensity score matching (PSM) to compare FFs and non-FFs and regression models to examine the effect of ESG commitment on future performance. The findings reveal that FFs with boards of directors demonstrate a strong commitment to ESG practices, particularly in environmental and labor subdimensions, which positively impact their financial performance. Conversely, social initiatives have a negative effect. Moreover, FFs—especially those with multiple family members involved—achieve more positive results from ESG engagement than non-FFs. Notably, FFs, except those with a single owner, with higher ESG scores performed better financially during the COVID-19 crisis, although not better than non-FFs. However, the presence of sustainability reports is positive but without differences between FF and non-FFs.