PORTUGAL Trends and Developments Contributed by: Miguel Durham Agrellos, Paulo da Rocha Pichel, Ricardo Pereira Amaro and Francisco Duque Lima, Durham Agrellos
to the company’s own operations but extends across their “chain of activities”, encompassing upstream business partners and, to some extent, downstream activities, requiring companies to integrate due dili - gence into all their relevant corporate policies and to have in place a due diligence policy which must be updated annually, and mandating the identifica - tion and assessment of actual and potential adverse impacts. Consequently, a family-owned SME, even if not directly subject to the CSRD, becomes indirectly bound by its requirements if, for instance, it supplies a CSDDD-compliant entity. The larger entity’s legal obli - gation to report on its value chain transforms the ESG data provision from a voluntary act to a commercial necessity for the family business. The SFDR obligates financial market participants to disclose the integration of sustainability risks within their investment processes. It creates a classification system for financial products that integrate sustain - ability risks, promote environmental or social char - acteristics, and have sustainable investment as their core objective. To substantiate such claims, asset managers must gather extensive ESG data from their portfolio companies. Furthermore, larger financial firms must publish a Principal Adverse Impact (PAI) statement, disclosing how their investment decisions result in negative effects on sustainability factors, such as greenhouse gas emissions, biodiversity loss or violations of labour rights. As a result, financial advisers and family offices that work closely with entrepreneurial families are facing growing scrutiny of their ESG performance, satisfying not only regulatory duties but reputational concerns. Underpinning this entire architecture is the EU Taxon - omy Regulation, which acts as a classification system or “dictionary” for sustainable economic activities. To be considered “Taxonomy-aligned”, an economic activity must: (i) make a substantial contribution to at least one of six environmental objectives (eg, climate change mitigation, transition to a circular economy); (ii) “do no significant harm” (DNSH) to any of the other five objectives; and (iii) meet minimum social safe - guards.
The Taxonomy provides the common language that links corporate disclosures under the CSRD with financial product disclosures under the SFDR, creat - ing a cohesive regulatory ecosystem. The cumulative effect of these interconnected regulations ensures that ESG compliance becomes a matter of strategic and operational necessity for entrepreneurial families irrespective of a direct regulatory mandate. Stewardship in the family business The characteristic behaviour of the family business is theoretically grounded in the concept of stewardship. Stewardship theory posits that managers, particularly within a family context, are motivated to function as responsible stewards of the organisation’s assets. Their behaviour is driven by higher-order needs such as achievement and self-actualisation, and they derive utility from organisational success. This contrasts sharply with agency theory, which assumes a funda - mental conflict of interest between principals (own - ers) and agents (managers) rooted in self-interest and requiring costly monitoring and incentive structures to align behaviours. In the family business, where owner - ship, management and family roles are often fused, the stewardship orientation fosters a commitment to passing a healthy enterprise to subsequent genera - tions, aligning with the long-term sustainability objec - tives inherent in the ESG Framework. This stewardship concept is intrinsically linked to the pursuit of socio-emotional wealth (SEW). SEW is defined as the stock of non-financial affective-related value that the entrepreneurial family derives from the business. The protection of SEW often serves as a primary reference point for strategic decision-making, frequently taking precedence over pure financial con - siderations. The social dimension of ESG, for instance, is often manifested in an entrepreneurial family business commitment to its employees and local community. This is not merely altruistic but is driven by a desire to uphold the family’s reputation and social standing, a critical component of SEW’s binding social ties. This can translate into superior employee retention rates, investment in local community projects, and a reluctance to engage in mass layoffs during economic
488 CHAMBERS.COM
Powered by FlippingBook