ESG as a tool for manufacturing growth

Many manufacturers are aware of the importance of having a sustainability strategy in place, but the urgency of implementation is perhaps not given top priority when there is a plethora of other business issues on the table. Economic times remain challenging and energy intensive manufacturers are met with difficult decisions, so why move ESG up the agenda?

Regulation and reporting

With the intention to move towards a green and sustainable future, the UK has committed to reaching net zero emissions by 2050. The strategy to achieve this will eventually impact businesses of all shapes and sizes. Publicly quoted companies and some large private companies and LLPs (more than 500 employees and more than £500m turnover) now need to include mandatory climate related disclosures in their annual accounts, for periods commencing after 6 April 2022.

The intention is that these disclosures will help support investment decisions as we move towards a low-carbon economy. It should become easier to compare the climate related risks and opportunities that a business is exposed to, providing business owners and other stakeholders with information upon which they can act and make informed choices. Whilst the reporting regulations only apply to selection of businesses at present, it would not be unexpected for the disclosures to be rolled out to capture a wider population in the future. Businesses that take the initiative now to implement sustainable strategies will be better prepared for prospective changes.

How does my ESG strategy affect the way I do business?

Even though the regulations may not yet apply to you, it is likely you are a component of the manufacturing supply chain to a company within scope. You may need to provide your green credentials as part of any tender process and a lack of attention to this area may render you non-competitive in such situations. Tier 1 suppliers will be reviewing all elements of their supply network and potentially enforcing greener initiatives on them. Being pro-active in this arena can differentiate you from the competition.

Similarly, investors may be looking to improve the carbon footprint of their portfolios and base decisions on non-financial KPI’s. They may impose pressure to make changes to a business’s strategy as a condition of their investment. Financiers may offer better terms on funding to support investment in green technologies or initiatives which, in turn can improve process efficiencies and profitability.

Consumers are increasingly aware of the environmental impact of their spending and manufacturers must take the opportunity to appeal to their market. Attention to product related improvements, evaluation of supply chain eco policies and steps to improve workforce satisfaction will no doubt contribute to the longevity of a business and its appeal to customers.

Can my ESG strategy help with recruitment and retention?

Recruiting and retaining skills is a key issue for the sector and it is vital that employers understand what motivates their people. Younger generations are socially aware and are looking for businesses that demonstrate a positive purpose, with ESG being a part of this. Importance is attached to working for an organisation that is doing the right thing, actively managing its carbon outputs or producing goods that are environmentally friendly. But the intention must be real, with goals being set that are achievable, and actions being demonstrably implemented. Any strategy must be set because it is considered the right thing to do and link back to the core principals of the business or it will not be believed in.