Can ESG Activities Benefit Your Manufacturing Business?

By: Cheryl Lanese

July 21, 2023

Manufacturers may wish to think about implementing environmental, social, and governance (ESG) activities in today’s fiercely competitive market. While doing good may be its own reward, these ethical business procedures and sustainable manufacturing techniques may also result in financial gains.

What is ESG?

As indicated in the name, these initiatives concentrate on three basic areas: environment, social, and governance.

The environment element considers your business’s impact on the natural environment, including how much energy it uses, the amount of waste it produces, and the resources it consumes.
The social component looks at how your company interacts with individuals, groups, and organizations. Fair labor practices, worker health and safety, diversity, and inclusivity may all be included.
Governance refers to the rules, guidelines, and methods your business adopts to govern itself. It takes into account factors like business ethics, openness and transparency, legal compliance, executive compensation, supply chain management, data security, and product quality and safety.

Many people believe “good corporate citizen” is defined by how an organization’s operations affect the environment and the people it interacts with, as well as incorporating business procedures that reduce any potential negative consequences.

Are ESG Factors Important?

Pressure to adopt ESG practices may come from several fronts. Many consumers (especially younger ones) are increasingly taking ESG factors such as sustainability, environmental impact, and fair labor standards into account when making purchasing decisions.

Likewise, many investors are prioritizing ESG performance when choosing where to invest. The ESG performance of your company, as well as the performance of your suppliers and other business partners, may be of interest to key stakeholders.

Additionally, some governments are prioritizing ESG practices. Failure to abide by laws or regulations pertaining to supply chain issues (such as the use of conflict minerals and human rights violations), environmental issues (such as pollution and carbon emissions) and social issues (such as labor relations, worker health, and product safety) can result in fines or remedial costs, and they can harm a business’s reputation.

Governments may also impose ESG criteria that go beyond what is required by law, putting additional strain on businesses that depend significantly on government contracts.

The labor force is changing, which is also having a big impact. Due to a widening “skills gap,” manufacturers must compete for a limited number of talented people. ESG activities may give businesses a competitive edge because younger workers are more inclined to consider a potential employer’s ESG policies.

What Advantages Can ESG Practices Offer?

ESG adoption may provide considerable financial advantages, such as:

Increased Sales. Some customers take into account ESG practices when choosing products. Some may even be prepared to spend more on “green” goods.

Decreased Costs. By concentrating on sustainability, businesses can find ways to cut back on energy use, optimize their supply chains, get rid of waste, and work more productively. ESG activities could potentially save businesses money by reducing the risk of boycotts, product liability claims, and other liability-related expenses.

Improved Access to Capital. ESG initiatives may also give businesses access to low-cost capital. When deciding which companies to invest in, some investors take ESG factors into account. Additionally, businesses that adopt ESG practices may be seen as lower-risk investments.

Greater Capacity to Entice and Inspire Skilled Workers. Consulting firm McKinsey claims that “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.”

Communicating your ESG practices and performance to your clients, investors, business partners, and other stakeholders may provide distinct advantages. Many companies today are combining ESG information with financial performance data in an integrated report. Contact us to find out more about how ESG practices could help your manufacturing company.

@2023