Importance of ESG in Manufacturing: 18 Statistics That Can Help Drive Value
In today’s global economy, manufacturers must adopt more sustainable and ethical business practices if they want to remain profitable. The importance of ESG and sustainability initiatives have reached a tipping point, particularly for manufacturing companies.
Whether you’re a small specialized firm or a large multinational manufacturer, there’s no hiding from investors, regulators and consumers that are growing increasingly vocal about companies’ environmental, social and governance (ESG) practices.
There are mounting pressures on multiple fronts from legislators, investors, consumers and the media. This includes consumers being more aware of sustainable goods, business to business (B2B) purchases putting more pressure on supply chains and their ESG practices, and the rise in C-suite and boards paying more attention to these concerns.
If you haven’t already started implementing ESG initiatives or begun thinking about it, you’re already behind. It’s easy for companies to be focused on making immediate business decisions. However, ESG is about meeting the needs of the present without compromising the needs of the future.
What is Environmental, Social and Governance (ESG)?
Environmental, social and governance (ESG) are standards for a company’s operations that help guide an organization to do better and be more accountable about their environmental impact, social responsibility and organizational governance. The term ESG was coined in a 2005 study, “Who Cares Wins,” developed by the world’s largest banks and institutional investors.
Environmental: The production of goods with regards to climate impact, energy and resource and material use. This includes carbon/greenhouse gas (GHG) accounting and audits, energy assessments, carbon tax, water usage, environmental certifications, energy transitions and environmental impact analysis.
Social: Talent attraction and retention, employee and community engagement, health and safety, human rights, diversity and inclusion, supply chain advisory and due diligence and conflict minerals audits.
Governance: Non-financial reporting, assurance of those reports, responsible tax, board composition, remuneration and executive compensation, shareholder rights, ethics, bribery and corruption, and corporate investigations, ethics and compliance, supply chain management, product quality, cybersecurity and data protection.
The Importance of ESG Today
The importance of ESG has even greater significance in light of recent events, like the COVID-19 pandemic and the increasingly dire climate conditions. The most common hurdles that organizations face today are high carbon emissions, water scarcity, finite fossil fuel availability, severe weather conditions causing service disruptions, inefficiency and waste management.
The manufacturing industry is a driver for economic growth, but there’s no question that it’s also one of the largest contributors to greenhouse gas (GHG) emissions across the globe. According to the U.S. Environmental Protection Agency (EPA), 23% of greenhouse gas emissions come from burning fossil fuels for industrial purposes. The situation isn’t any better in Europe, where the manufacturing industry emits 880 million tons of carbon dioxide annually.
The importance of ESG remains clear. Companies have a responsibility to take action toward positive climate action and build more sustainable manufacturing practices – because the future of our planet depends on it.
Here are 18 ESG statistics to keep in mind as you build out your ESG strategy:
What’s Driving ESG in Manufacturing Initiatives?
- 71% of CEOs believe it’s their personal responsibility to ensure that the organization’s ESG policies reflect the values of their customers (KPMG)
- 50% of ESG leaders report they’re making strategic changes to their business portfolio to become more sustainable vs. 7% focus on risk mitigation and cost effective voluntary spending (Verdantix)
- Climate change policy developments are the #1 most influential driver in increasing companies’ engagement with sustainability issues (32%), followed by ESG ratings impacting investor discussions (16%) and COVID-19 pandemic (14%) (Verdantix)
- 33% of ESG leaders say that EHS plays the “most significant” role in implementing the company’s ESG strategy, followed by Production & Operations (20%) (Verdantix)
- 44% of the companies surveyed identified business and growth opportunities as the impetus for starting their sustainability programs (McKinsey)
- A strong ESG proposition can help companies attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase productivity overall. Employees with a sense not just of satisfaction but also of connection perform better (McKinsey)
- 64% of manufacturers plan to transition to more renewable sources of energy in the next couple years (Deloitte)
What’s Impacting ESG Spending and Decision Making?
- 55% of CEOs believe their organizations must look beyond purely financial growth if they are to achieve long-term, sustainable success (KPMG)
- Sustainability spending is expected to increase dramatically in 2022 vs. 2021. 57% of companies are expecting double digit increases. Industries forecasting the highest spend increases are: oil & gas, construction, mining and utilities (Verdantix)
- Sustainability spending will focus primarily on supply chain and climate risk. Priority initiatives to receive funding are, “Improving supply chain sustainability metrics” (25% said this is #1 priority), followed by analysis of climate change risk to physical assets (22%) (Verdantix)
- Digital projects that will be most important over the next 2 years are: greenhouse gas emissions (26% say #1 priority) and social performance (22%), improving IT systems for environmental performance and metrics (12%), software for sustainability voluntary reporting (9%) (Verdantix)
What Are the Benefits of ESG Programs?
- Executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which research has found can affect operating profits by as much as 60% (McKinsey)
- A major water utility, achieved cost savings of almost $180 million per year thanks to lean initiatives aimed at improving preventive maintenance, refining spare-part inventory management, and tackling energy consumption and recovery from sludge (McKinsey)
- Two-thirds of survey respondents said that a sustainable supply chain is a competitive differentiator (SAP)
- More than 75% of consumers and employees said they’re more likely to buy from or work for a company that stands up for ESG principles (PWC)
- There have been more than 2,000 academic studies and around 70% of them find a positive relationship between ESG scores on the one hand and financial returns on the other, whether measured by equity returns or profitability or valuation multiples (McKinsey)
- 83% of C-suite leaders and investment professionals say they expect that ESG programs will contribute more shareholder value in five years than today (McKinsey)
- ESG programs that add value are now nearly unanimous in perceiving long-term value from environmental programs. Social and governance programs approach the same levels, with 93% saying social programs make a positive long-term contribution, compared with 77% in 2009 (McKinsey)
The Importance of ESG in Manufacturing and the Role of Technology
Environmental and social changes continue to impact manufacturing operations. It’s the organizations that are able to adapt in light of this changing landscape that will be better positioned and will come out ahead in the long run.
Connected Worker® by Parsable closes the gap by connecting your ESG corporate goals, which are typically set at the executive level, with jobs completed across your plants. Your frontline workers can now leverage digital operating procedures on the factory floor, not only providing them with access to real-time information, but allowing them to collect data in support of your ESG initiatives. This can include things like: collecting information at each step of the way for energy and resource efficiency, paper reduction, safety inspections and audits, quality control, material and process waste management, tracking incidents and near misses, and many more.
The importance of ESG can’t be considered without the right tools and technology in place to help you achieve your ESG goals. And one of the many benefits of connected worker technology is that it can help you achieve your sustainability goals, without compromising profitability or productivity.