This article was first published by The Prime Directory 2025, Prime Database Group, September 2025; Co-author: Ramachandran, Kavil. https://www.primedatabase.com/article/2025/Article-Nupur_Pavan_Bang.pdf
Environmental, Social and Governance (ESG) integration has evolved from a compliance checkbox into a strategic imperative for firms seeking durable access to global capital. In India, family-owned enterprises account for over 90 percent of listed companies and wield enormous influence on economic growth and social development. Their inherent strengths, multigenerational stewardship, deep community bonds and a long-term orientation, should position them as natural champions of sustainability. Yet empirical evidence shows that, on average, family firms lag their non-family peers in environmental performance and disclosure. This article explores six interlinked dimensions: performance gaps, intrinsic motivations, intra-family heterogeneity, investor dynamics, organisational readiness and regulatory levers, to show how India’s family businesses can translate their unique assets into world-class ESG outcomes.
ESG Performance: The first dimension concerns the measurable performance gap on ESG metrics. A comparative analysis of CRISIL ESG scores for 225 leading Indian firms (Bang & Ramachandran, 2025) reveals that family enterprises perform below non-family counterparts on environmental criteria, despite enjoying comparable governance ratings. This shortfall has tangible financial consequences: companies with stronger environmental scores benefit from lower borrowing costs and superior total shareholder returns over medium and long horizons (Antoncic et al., 2020). Tata Steel’s recent foray into green hydrogen and Mahindra & Mahindra’s adoption of zero-waste manufacturing lines demonstrate how environmental leadership can catalyse both market differentiation and cost efficiencies. Family principals must recognise that effective resource-efficiency initiatives and carbon-reduction roadmaps are not discretionary but critical to sustaining competitiveness.
Intrinsic Motivations: Second, family firms’ dynastic ethos and socio-emotional wealth (SEW) should predispose them towards sustainability, yet a persistent awareness deficit hampers action. Many business groups and family enterprises have long traditions of philanthropy and community engagement (Bhatnagar et al., 2020), yet these social commitments rarely translate into structured ESG programmes. A lack of familiarity with frameworks such as the Task Force on Climate-related Financial Disclosures or the GRI Standards means that many promoters regard sustainability investments as non-core. To bridge this gap, professional advisors must develop bespoke capacity-building modules, combining case studies of companies like HUL’s water-conservation efforts with hands-on workshops on materiality assessments, to equip boards and senior management with the tools to formulate and implement coherent ESG strategies.
Intra-family Heterogeneity: Third, the family-firm landscape is far from homogeneous. Business-group-affiliated family firms (FBGFs) such as the Reliance and Adani groups benefit from scale economies, organised CSR departments and external scrutiny, which drive superior social performance. In contrast, standalone family firms (SFFs) often operate lean structures with limited access to expert networks, resulting in sporadic or volunteer-driven ESG activities (Bang & Ramachandran, 2025). Policymakers and industry bodies should therefore calibrate support. SFFs would benefit from subsidised sustainability audits and peer-mentoring platforms, while FBGFs can be enlisted to share best practices through cluster-based labs in regions such as Coimbatore and Vadodara. Such tailored interventions will foster an inclusive uplift in ESG standards across the family-firm spectrum.
Investor Dynamics: Fourth, capital-market actors play a catalytic role, but inconsistent data quality and rating methodologies undermine their influence. Foreign institutional investors (FIIs) have demonstrably lifted ESG performance through active stewardship and engagement (Fang et al., 2015). However, divergent scoring approaches by CRISIL, Sustainalytics and MSCI create “rating arbitrage,” eroding investor confidence. A concerted industry effort to support a national ESG data repository, would harmonise core metrics, mandate audit-assured disclosures and enable investors to benchmark performance with rigour. Such metrics could also be linked to executive compensation with verified sustainability milestones.
Organisational Readiness: Fifth, organisational transformation is indispensable. Family boards must move beyond ad hoc committees and embed ESG into governance architecture through dedicated sustainability committees with clear charters, budgets and reporting lines. Executive performance indicators should incorporate time-bound environmental targets such as reducing specific energy consumption by x percent per annum and succession planning must account for ESG leadership capabilities. Advisors should collaborate to design internal controls and audit protocols, ensuring that disclosures meet the exacting standards of global investors and rating agencies. The case of Bajaj Auto, which integrated sustainability goals into its operations through various initiatives, offers a blueprint for aligning financial and non-financial performance metrics.
Regulatory Levers: Sixth, regulatory levers under Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) can accelerate progress. SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework should be refined with sector-specific disclosure templates and a phased rollout that eases compliance for smaller listed family firms. The MCA, for its part, could mandate third-party assurance for climate-related disclosures above defined materiality thresholds, deterring greenwashing and reinforcing market discipline. A joint SEBI-MCA task force might establish an accreditation scheme for ESG rating providers, curbing methodological divergence and signalling quality to global investors.
Conclusion
India’s family enterprises stand at a crossroads. Their generational legacy, community anchorage and long-term view equip them to lead on ESG, yet realising this promise requires purpose, precision and partnership. By acknowledging performance gaps, mobilising intrinsic motivations, tailoring interventions to firm typologies, championing data integrity, embedding governance reforms and leveraging regulatory support, family firms can cement their role as architects of India’s sustainable future. The time for incremental tinkering has passed: family businesses must marshal their unique strengths and forge an unbreakable covenant with sustainable development. Let every boardroom in India’s family business landscape rise to the challenge. Because, when family firms lead on ESG, the nation wins.
References
- Antoncic, M., Bekaert, G., Rothenberg, R. V., & Noguer, M. (2020). Sustainable investment—Exploring the linkage between alpha, ESG, and SDG’s. Available at SSRN: https://ssrn.com/abstract=3623459 or http://dx.doi. org/10.2139/ssrn.3623459.
- Bang, N. P., & Ramachandran, K. (2025). Inaction is Not an Option: ESG and Family Firms. Vikalpa, 50(1), 21-36. https://doi.org/10.1177/02560909241309521
- Bhatnagar, N., Sharma, P., & Ramachandran, K. (2020). Spirituality and corporate philanthropy in Indian family firms: An exploratory study. Journal of Business Ethics, 163, 715–728.
- Fang, V. W., Maffett, M., & Zhang, B. (2015). Foreign institutional ownership and the global convergence of financial reporting practices. Journal of Accounting Research, 53(3), 593–631.
