Good ESG practice is good business. Manufacturers taking the lead on environmental sustainability can capitalize now and in the future.
If leaders of manufacturing organizations harbored any doubts regarding the relevance of Environmental, Social and Governance (ESG) principles in the strategies, operations and management of their companies, recent devastating fires, floods, storms, and long-running droughts – together with the COVID-19 pandemic – will have brought sustainability issues into sharp focus and crystallized their importance.
Sustainable solutions must be integrated into the strategies, plans and operations of all businesses. They generate improvements in the short, medium or longer term – but they also translate into clear-cut, immediate gains. The key benefits of Environmental Sustainability (ES), can be grouped into three areas:
- Environmental risk management
In its recent, 2021 report, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) warns that the scale of human-induced climate change could imminently trigger permanent consequences worse than initially projected. In this context, while the manufacturing industry spurs innovation and economic growth, it is also responsible for significant greenhouse gas (GHG) discharges: the U.S. Environmental Protection Agency (EPA) calculates that 23% of GHG emissions come from fossil fuels used in industry. Almost universally, stakeholders expect companies to participate, transparently, in what has become one of mankind’s most important, all-time challenges.
Progressive and proactive environmental policies also buffer manufacturers against palpable, immediate risks. Minimizing emissions, reducing and treating waste, incorporating recyclable materials, licensing and regulatory compliance: these are important aspects of corporate risk reduction. Consider the costs involved when suboptimal environmental and safety practices infiltrate operations: as one example, BP’s Deepwater Horizon oil spill in 2010 cost the company years in clean-up activities, legal actions, and the forfeit of exploration licenses – and $65 billion in compensation payments.
- Marketplace positioning
Worldwide, consumers increasingly prefer products made under environmentally sustainable conditions, and ESG principles in general. Almost 80% of Americans, for instance, are more likely to purchase a product labeled as environmentally friendly, and two-thirds will actually pay a premium for environmentally sustainable brands. And, in a recent opinion piece, global investment bank Morgan Stanley is unequivocal: “Company management teams and boards are embracing positive environmental and social impact as an opportunity to drive growth and higher public-market valuations,” it says.
- Operational improvements
The consistent availability of quality raw material inputs is fundamental to operations and supply chain resilience. Yet climate change is severely cutting many agricultural crop yields; plastic pollution and overfishing is threatening the oceans; many of the mines for the 17 rare earth elements – ironically, core to green energy technologies as well as myriad manufacturing processes – adopt environmentally irresponsible methods. Manufacturers insisting on sustainable resource stewardship will be rewarded with smoother supplies and better managed input costs.
Moreover, immediate, direct savings are achievable through ES practices in operations. Diligent energy usage, watchful water consumption, recycling and reusing process and packaging materials: these translate to cost reductions. Consumer packed goods giant Procter & Gamble, for instance, calculates that the company’s efforts on energy conservation programs have generated hundreds of millions of dollars in cost savings since 2010. The company has embedded multiple sustainability targets in its ‘Ambition 2030 Environmental Sustainability Goals’ manifesto, designed to integrate sustainability into all business strategies, not least because they improve operating margins.
It is an incorrect perception that improvements in productivity, and better profitability, can be achieved in parallel with ES programs. The evidence shows that ES objectives and measures actually contribute to manufacturers’ top and bottom lines, and often drive them.
Links between ES, culture, and productivity
Sustainability can be an organizational culture catalyst. Leaders promoting the sustainability agenda understand that setting goals is not enough. They drive their fulfillment by connecting objectives to process efficiencies and by motivating employees to engage with sustainability. In this way ES becomes embedded within the culture of the organization, and comprehensive results start to flow.
For instance, the need for different insights and alternative KPI monitoring is often a prompt for new technology adoption. And rigorous environmental compliance audits and reporting systemizes new dimensions of continuous improvements throughout the company.
Other benefits, although tangible, are harder to measure. For example, by demonstrating concern for ESG issues, manufacturers foster alignment with communities and their values. The company also gains through its concern being an attribute contributing to recruitment and retention, and filtering into improved employee engagement and productivity.
The ES agenda needs leadership and commitment
It should be acknowledged that there may be a delay between consumer awareness and support, or recognition from regulatory bodies, and measurable returns tied to the company’s ES programs.
In 2019 Hong-Kong listed company Mengniu Dairy, one of China’s largest food manufacturers and one of the top 10 dairy producers in the world, adopted an integrated strategy to embed environmental sustainability into its operations and supply chain. Mengniu was responding to clear signals – in the context of the United Nations’ Sustainable Development Goals (SDGs) towards greater prosperity and a better environment for all by 2030 – that stakeholder and consumer expectations were changing. To date the program has earned Mengniu several China’s top environmental sustainability awards. Boosted financial rewards have already followed.
Unilever’s ‘Full Year 2020 Results & Strategic Refresh’ report specifies a cumulative $1.5 billion in cost reductions, since 2008, through a deliberate strategy of more sustainable sourcing. The pattern is evident: actioning a sustainability plan rejuvenates operations, re-tunes the organization’s culture, and aligns the company with stakeholders.
ESG practices drive competitive advantage
Support for social and environmental proposals at the shareholder meetings of US companies rose to 32% in 2021, up from 21% in 2017, according to the Sustainable Investments Institute, and in 2020 85% of investors considered ESG factors in their investments. As such, a holistic ES strategy, and ESG broadly, will bolster revenues, cut costs, minimize regulatory and business risks, and strengthen access to capital markets.
Ultimately, organizations adopting sustainability best practices create positive impacts on communities, the economy, and the environment. A sustainability strategy is a manufacturer’s lifeline to the future.
Contact CCi to find out how the ES TRACC codifies and accelerates your organization’s improvements in Environmental Sustainability practices.
CCi is a privately held global company that enables organizations to deliver sustainable results across the value chain through TRACC, a solution for integrated continuous improvement.