Amid all the rah-rah talks about practising sustainable finance by large organisations, Atul K Shah, a thought leader and a lecturer with a PhD from the London School of Economics, believes that family-owned small and medium-sized businesses are key to achieving a sustainable ecosystem. This, he adds, is because the family business model is based on organic finance.
Explaining what organic finance means, Shah says, “Organic finance is finance, which essentially comes from the owner or the family who owns the business and, therefore, they have a direct stake in the business. They want to build good relationships with customers and suppliers. They want to care for the reputation of the business.”
“They would like to honour the contract that they signed or the transactions that they make, and they want to pass the business on to the next generation. So, sustainability and long-term nature are built into the business.”
The World Bank defines sustainable finance as the process of taking due account of environmental, social and governance (ESG) considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects (European Commission).
To deliver on the UN Sustainable Development Goals (SDGs) by 2030, an ambitious global effort is required over the next decade to accelerate sustainable solutions to the world’s economic, environmental, social and governance challenges.
In 2021, the United Nation Conference of Trade and Development (UNCTAD), and the Family Business Network (FBN) joined forces to mobilise and support family firms to embrace sustainability in their business strategies.
The joint Family Business for Sustainable Development (FBSD) initiative is a first-of-its-kind partnership between the UN and the global family business community.
“Family firms can make a huge difference in global efforts towards sustainable development,” said James Zhan, UNCTAD's director of investment and enterprise. He said family businesses need to be empowered to maximise their potential and seize the untapped opportunities associated with embracing the sustainability agenda.
Shah notes that India has the largest family-business sector in the world and many leaders contribute actively to community development alongside the business.
A 2021 report by leading consulting firm EY also noted that India is among the top five nations with the most number of family businesses in the world, only after the US.
This, according to Shah, goes back to the Dharmic traditions followed in the country for thousands of years.
“The fact that all living beings are interdependent was recognised by the Dharmic traditions before it was accepted and acknowledged by the rest of the world, right? The whole world is my family, including all living beings. Vasudev Kutumbakam. So, that recognition was already enshrined in the scriptures, the practices, the vegetarian diet or the animals as Gods, like Ganesha or Hanuman. All that was recognised a long time before the human species was under threat,” he says.
“Family and interdependence are instinctive to Indians. This is a great asset. India is the largest predominantly vegetarian country on the planet. That speaks volumes. It knows about kindness and compassion and equality. That culture is what is sorely needed for our future.”
Asked about why he prefers small and medium-sized enterprises (SMEs) over larger corporations, Shah notes that larger firms usually forget the practice of compassion and kindness and start relying on borrowing billions from the market.
“I don't like large corporations and a lot of research shows that large corporations are a big part of the problem. Just take the example of factory farming, you can kill hundreds of millions of animals within a month just because you can finance large factories and large-scale farms, and put them into cages and chop and slaughter them, right? So, you know, in a way, we need to be very careful when we build large corporations. And when we do that, ensure that we control their power and scale, such that it does not exploit nature or society.”
Shah recently launched a book, Inclusive and Sustainable Finance: Leadership, Ethics and Culture, which he calls a blueprint for his ideas on sustainability and finance.
In 2019, his research paper won the Best Paper Award for the Nordic Tax Journal. Between 1995 and 1998, he published a series of papers predicting the global financial crisis, focusing, in particular, on derivatives and systemic risk and regulatory arbitrage.
He is working on a series of projects around financial risk management, diverse ethics and regulation.
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