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The manufacturing industry, a key player in the global economy, holds a significant position in both emissions and energy usage. As a sector responsible for about 20%of greenhouse gases and consuming roughly 50% of the planet's energy, it is uniquely positioned to lead impactful sustainability initiatives. This presents manufacturers with a remarkable opportunity to pioneer sustainable practices and make a positive environmental difference.
To maintain resilience and achieve their green targets, manufacturing processes, from the ground up, must undergo a critical review. With pressure mounting from consumers, regulatory bodies, and investors for more eco-friendly products and procedures, and with the financial upside that sustainable practices promise, manufacturers are encouraged to confront their environmental and social footprint.
The following article addresses how ESG factors are shaping the manufacturing world, examining the risks and opportunities, and suggests strategic actions for advancing sustainability initiatives.
In the manufacturing realm, where environmental and societal impact is huge, the adoption of ESG principles is crucial. By incorporating energy-saving technologies and green energy sources, manufacturers can achieve substantial financial benefits and safeguard against a surge in energy costs.
Equally important is the commitment to sustainably redesigning products and finding ethical and sustainable supply chains, which serves to positively impact brand reputation and ensure the continuous supply of materials.
Strategic ESG commitments, like the ones above, are integral for manufacturers to address potential environmental and social risks and leverage emerging opportunities.
Manufacturing's vast consumption of resources places it at the epicenter of global sustainability efforts. Here are the three key ESG elements shaping the manufacturing sector:
1. Climate Action through Energy Management: The manufacturing sector's intensive energy use positions it as a significant player in climate change. Transitioning to on-site renewable energy, prioritizing recycled over virgin materials, and developing energy-efficient innovations can reduce environmental footprints and save money. An accurate accounting of existing energy and emission levels would lay the groundwork for manufacturers' decarbonization journey. New electric automotive vehicle manufacturers, like Rivian, are taking a huge market share by selling low-carbon cars. This phenomenon of low-carbon manufacturers obtaining a competitive advantage over traditional players is becoming more commonplace.
2. Material Efficiency and Waste Reduction: Manufacturers have much to gain from introducing a circular economy as top consumers and wasters of materials. The shift to a circular economy could bring the global economy $4.5 trillion by 2030, cutting global emissions by 45%. Manufacturers are encouraged to forge partnerships with supply chain partners to overhaul the design of their products from cradle to grave and consider where sustainable innovations can be made at every stage. Companies like flooring manufacturer Interface differentiate their products by putting circularity at the center of everything they do. Interface, for example, ensures none of their flooring goes to landfills by designing fully recyclable carpets and refurbing old carpets for charitable purposes.
3. Integrity in Supply Chain Management: Often, a manufacturer's most significant ESG impact resides within its supply chain, particularly regarding emissions and social concerns. Data shows that supply chain emissions (Scope 3) dwarf other emissions (Scope 1 and2) by more than seven times. Manufacturers can markedly advance their sustainability metrics by ensuring responsible sourcing and supply chain collaboration.
For manufacturers, acknowledging and acting upon their most important impacts is essential to understanding associated risks and exposing themselves to emerging opportunities. Manufacturers should consider the following areas, as they will have the biggest sustainability impacts:
· Compliance with Emerging Standards: The global proliferation of climate and sustainability mandates means manufacturing firms are increasingly under pressure, particularly with new reporting requirements in the US with the SEC’s climate rule and California SB 253 & 261. From a European perspective, the EU's latest battery regulations and the Carbon Border Adjustment Mechanism require manufacturers to consider their carbon footprints and product designs.
· Consumer Demand Shifts: With evidence mounting that consumers are prioritizing sustainability, one study shows a 79% shift in buying habits favoring eco-friendly products. By embedding ESG values into their offerings, manufacturers can gain a competitive edge and appeal to eco-conscious consumers.
· Sustainable Supply Chain Management: A manufacturer's impact on sustainability is often most pronounced within its supply chain. Prioritizing ethical and sustainable material sources not only preserves a brand's reputation but also enhances the supply chain's resilience in the face of disruptions and resource depletion.
· Cutting Costs Through Sustainability: Implementing ESG initiatives such as resource recycling, energy conservation, and waste management can lead to operational savings. Further, investing in renewables safeguards against future fossil fuel price surges and carbon taxation.
Initiating a robust sustainability agenda is critical for manufacturers for sustainability-related risk mitigation and opportunity exposure. Here is a five-phase approach to establishing a strong ESG program:
1. Conduct a Materiality Survey: Recognize the unique ESG issues pertinent to your business, influenced by organizational size, product type, and geographic factors, through a customized materiality assessment. Although many material issues will be similar for manufacturing companies, such as emissions, energy, and circularity, companies manufacturing different products will have a different focus. A textile manufacturer's main area of focus may be water, whereas an automotive company may focus on circularity and waste.
2. Benchmarking Competitors: Evaluate your standing and practices against industry peers and standards to set informed and attainable ESG goals and help shape both ambition and strategy. Benchmarking will allow you to gauge what it might take to become an industry leader or keep up with competitors to ensure you don’t become a laggard.
3. Collect ESG Metrics: Kickstart the collection of comprehensive ESG performance data. This empowers ongoing progress tracking, data-driven risk assessment, and the crafting of effective strategies. An ESG software tool will be vital to make this process as painless, quick, and cost-effective as possible.
4. Analyze ESG Risks: Assess the company's risk exposure comprehensively to anticipate the impact of regulatory shifts, environmental crises, and supply chain disruptions, all of which will inform ESG strategy. Plus, a risk assessment will be essential for meeting upcoming climate risk disclosure regulations, like California’s SB 261.
5. Define Goals and Strategy:
· Goal Setting: Define explicit, viable, and measurable goals steered by your company's strategic ambitions and informed by your current sustainability performance.
· Strategy Formulation and Action Implementation: Based on all of the above insights, develop and implement initiatives aimed at achieving your ESG objectives, potentially including investment in renewables, supply chain collaboration, or product redesign.
· Reporting and Continuous Improvement: Report on ESG performance following leading frameworks and regularly reassess strategies to ensure continuous improvement and responsiveness to new insights.
In today’s manufacturing sector, sustainability has transitioned from a peripheral concern to a central part of conducting a manufacturing business.
Upcoming regulations, evolving consumer preferences, and the undeniable economic advantages of sustainable operations underscore the growing significance of ESG. A proactive, well-defined sustainability strategy is crucial for manufacturers seeking to thrive. By acting now, companies can not only minimize risk and streamline costs but also enhance their market position and brand value. Our team can help. Contact us below to get started.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
