Three little words – environment, social and governance — will grow in prominence over the next few years, so manufacturers need to get a grip on ESG.
In today’s business climate, simply producing impressive sales figures is not enough. Business owners now need to demonstrate that they are addressing ESG objectives, such as their carbon footprint.
There are plenty of good, ethical reasons to take action – is anything more important than protecting people, the environment and the long-term sustainability of our planet?
However, addressing ESG also makes good business sense as it can contribute to attracting top talent, winning major contracts and accessing external investment.
“Some people still think that defining your ESG ambitions is only for larger, often publicly listed companies, but this isn’t the case,” says management trainer and procurement expert Martin John.
For manufacturers, the most challenging element of ESG has to be the environment. For example, a small machine parts manufacturer is part of a complex supply chain which ends with a large corporate business (the buyer). As a major player in the industry, this company has made public ESG commitments to deliver on climate change goals. The business aim is to gain the confidence of consumers and investors (who could inflict financial penalties for poor performance).
Part of the corporation’s strategy is to estimate and then lower the amount of greenhouse gases produced by its supply chain — known as Scope 3 emissions. The smaller manufacturers will be firmly on the radar, and the worst polluters will need to reduce their emissions.
“The price of non-compliance can be pretty high,” adds Martin. “If a company fails to develop and enact a plan to tackle greenhouse gas emissions, it could find itself hampered or even prohibited from bidding for work.
“From April 2023, the NHS requires all suppliers bidding for contracts of more than £5 million per year to provide a carbon reduction plan. Ten per cent of the award criteria will be based on net zero and social value. This approach is likely to be adopted by other public bodies.”
Given that manufacturers already find it challenging to attract and retain staff, a recent study by KPMG showed that one third of Gen Z job applicants actually turned down roles with companies that failed to demonstrate ESG values that aligned with their beliefs.
Finally, access to affordable finance could become more difficult unless firms can demonstrate their commitment to tackling climate change.
So where do manufacturers begin to take action on addressing ESG?
“While ESG presents a challenge for manufacturers, it’s also a huge opportunity,” says Martin. “Having a plan in place is a positive step for your reputation, staff attraction and retention, the long-term viability of your business and your bottom line.
“Wanting to reduce emissions forces you to consider innovative options that you may never have given a second thought. Renewable energy generation, product redesigns, efficient manufacturing processes and more recyclable content are all areas for potential.
“However, while there’s plenty of information out there, there is very little in the way of practical guidance. Fortunately, I’ve been working with a number of industry practitioners in this area and have defined step-by-step practical actions for manufacturers in a short course. This way businesses can cut through the scientific jargon and actually start making progress.”
For more information, contact Martin