ESG: What Is It and Why Should Manufacturers Care?

ESG: What Is It and Why Should Manufacturers Care?

Manufacturers must embrace more environmentally and ethically sound approaches if they are to remain competitive in today’s global market. The importance of environmental, social, and governance (ESG) and sustainability programs has reached a tipping point for industrial organizations.

You’re already behind if you haven’t started adopting ESG measures or even started thinking about it. Businesses can easily become absorbed with the here and now. ESG, on the other hand, seeks to meet current demands without jeopardizing future ones.

What is Environmental, Social, and Governance (ESG)?

According to Manufacturers Alliance, “ESG is a set of frameworks used to assess the impact of a company’s sustainable and ethical practices on its financial performance and operations. It groups specific company actions into three categories to provide a structure to measure and report progress.”

Let’s take a closer look at the E, S, and G…

  • Environmental: Environmental factors may include a company’s usage of energy, waste, pollution, natural resource conservation, and supply chain and sourcing. Energy efficiency, preventing natural capital depletion, and better waste management will be key — from shopfloor to headquarters.
  • Social: Societal criteria consider the company’s business relationships. This includes supporting gender and diversity, fair labor practices, health and safety, combating discrimination, and impact on local communities. More specifically, it requires manufacturers to actively protect workers’ rights throughout their whole operation and supply chain.
  • Governance: The governance principles emphasize ethics, openness, and transparency in decision-making at the board and C-suite levels. Furthermore, it is dependent on each location having the proper escalation procedures, risk tolerances, and compensation policies in place.

The criteria are broad guidelines for an organization to do better and be accountable like the term sustainability. To learn more about how these factors are influencing manufacturing sustainability, read Manufacturing Alliance’s publication “Intersecting Sustainability: ESG and Smart Manufacturing Trends.”

Why Is ESG Important to Manufacturers?

Recent events, such as the COVID-19 epidemic and the harsher environment, have increased the demand for ESG. Globally, overproduction of CO2 emissions, water scarcity, waste management, a finite fossil fuel supply, and severe weather-related service disruptions are major issues for businesses.

Additionally, the Sustainability Magazine identified four key ESG factors driving manufacturing for the coming year. Here’s an overview:

1 – Rising purchaser and consumer demands

Buyers want more information about ESG goals than ever before, and not just from a sustainability standpoint. Companies demanding suppliers to report substantial environmental impacts have increased dramatically in recent years.

When compared to 2019, there was a 24 percent increase in large-scale purchasers requesting environmental data from their suppliers in 2020. Among the world’s top buyers, Nike, Walmart, and Microsoft are motivated by a better knowledge of environmental risks and the desire to please discerning customers. According to PWC data, younger customers aged 18 to 38 are nearly twice as likely as those aged over 38 to consider ESG issues when making purchasing decisions.

Transparency in ESG practices now goes hand-in-hand with businesses giving consumers basic product and manufacturing information. The desire for ESG data will only grow from here.

2 – Hefty regulatory fines and government monitoring

Companies that fail to comply with ESG initiatives are expected to face significant regulatory penalties. Legislation mandating due diligence for companies operating in the European Union (EU) is currently being explored. For example, more than 70 countries have enacted plastics-reduction legislation, and 170 countries have pledged to “significantly reduce” their use of plastics by 2030.

Furthermore, the Securities and Exchange Commission (SEC) announced last year the formation of a Climate and ESG Task Force inside the Division of Enforcement to create strategies to proactively uncover ESG-related misconduct. The task force will also investigate disclosure and compliance issues related to the ESG strategies of investment advisers and funds.

With high regulatory fines and the implementation of various ESG efforts and laws, manufacturers and other organizations will soon face a requirement to satisfy sustainability targets to avoid severe penalties.

3 – Boardroom and C-suite executives are under pressure

Boardroom directors and c-suite executives are under pressure to make sustainable investments as global sustainable investment exceeds $30 trillion, up 68% since 2014 and tenfold since 2004. Since 2020, 57% of CFOs have emphasized ESG initiatives, with 23% saying they’re more important now than before 2020.

Companies are increasingly linking executive pay to ESG objectives and key performance indicators (KPIs). This stresses the importance of developing and implementing ESG initiatives. According to PWC, 45% of FTSE 100 businesses include an ESG measure in CEO compensation, meaning leaders are rewarded with financial incentives for advancing the company’s ESG goal.

4 – Changes in the labor force

Due to the “great resignation” and “grey tsunami,” the labor force is shifting. The “gray tsunami” will increase the number of retirees, resulting in a skills gap that could leave 2.1 million manufacturing jobs vacant by 2030.

When it comes to employment, younger generations strongly prefer companies that have a strong focus on sustainability and ESG goals in place. In fact, roughly 76% of millennials consider ESG commitments when deciding where to work. Millennials and Generation Z presently make up 46% of the full-time workforce in the United States, with that figure predicted to rise to 74% by 2030.

Technology’s Role in the Implementation of ESG Initiatives for Manufacturers

Manufacturers must embrace new technologies to gain the visibility, traceability, and data required to build and manage ESG programs. Connected workforce, artificial intelligence (AI), IoT, connectivity, blockchain, and 5G digital solutions are supporting manufacturers in providing key information about their supplier chains, environmental impact, and frontline worker safety.

In addition to the four reasons stated above, using technology that can grow quickly will be critical. In order to better understand how their ESG goals are being met, manufacturers can benefit from digitizing their day-to-day production SOPs. Moreover, businesses can utilize real-time data updates to monitor material utilization and safety procedures.

ESG Initiatives for Aluminum Can Manufacturers

Due to ESG’s desire for transparency, can-making producers use Acumence to provide real-time data and line monitoring dashboards and KPIs. Manufacturers of food cans, primarily three-piece cans, use Regenerative Thermal Oxidizers (RTOs) to remove hazardous air pollutants (HAPs), volatile organic compounds (VOCs), and odorous emissions. This frequently necessitates a mechanism to track and display VOC emissions, destructive efficiency, and gas consumption, which Acumence can provide. Another option available is to track factory energy consumption. A client, for example, requested that Acumence be linked to Rockwell’s PowerMonitor 1000 so that it could visually display and measure power factor, usage, demand, and quality.

Recycled aluminum cans have the lowest environmental impact among single-use beverage containers, which is excellent for ESG. In fact, a number of these companies, such as Ball and Crown, have already obtained high ESG scores. However, tracking coil performance with Acumence could help understand the production impacts of ESG initiatives.

Final Take

Today, corporations are offering consumers easy-to-understand information about their products and manufacturing processes. The demand for ESG data is only going to rise from here.

ESG has become a hot topic and a potentially revolutionary concept for both sectors and societies.ESG is undoubtedly significant. Corporations must contribute to the fight against climate change and the development of more ecologically friendly industrial practices. Why? Our planet’s survival depends on it.