The rise of the ethical customer is not a new concept. The industry has been aware of the general customer’s increasing demands for sustainability for a number of years now, with many manufacturers making bold claims and ambitious net zero promises in direct response of this.
The notable shift in recent years, however, is the notion of accountability. Manufacturing businesses can no longer hide behind their proposed targets and proclamations of sustainable goals – customers now want to see the results.
With this, comes a corresponding demand for greater transparency, and market analysis that help customers finds new ways to measure the companies they contribute to through a sustainable lens. Take Tortoise Media, that evaluates the FTSE100 on their sustainable actions and commitments and publishes the results in its annual Responsibility100 Index.
Platforms such as these allow customers to clearly see which businesses are leading the way, and more importantly, which are lagging behind. This has caused a scramble amongst many manufacturing and product firms, who are now having to think strategically about balancing what is financially possible with the need to become more sustainable and recognise that not acting is often more problematic than deciding which action to take first.
Indeed, there is a need to ‘think-big’ on sustainability, because when you start to realise the magnitude of the problem, so too do you realise the equally magnificent opportunity for transformation. But to accelerate real change, business leaders within the industry must undergo a shift in mentality in order to be better equipped to begin to actualise their sustainability goals, unlocking new capabilities with more effective stakeholder management, while providing greater transparency and accountability.
Know your ESG requirement
With manufacturers now under closer inspection, the notion of ESG reporting has emerged – with many organisations now publishing annual reports on their progress towards greater sustainability.
While some firms have adopted this practice to great effect, others have rushed into this new reporting method with little knowledge or understanding of what’s required, instead trying to appease the growing demands for accountability without considering not only what needs to be reported, but how.
Before such a strategy is devised, business leaders need to first comprehend the basics – they must build the governance structure and capability to drive necessary changes within the business. Only once that is attained, is it possible to identify what needs to be measured and for what requirement.
This is an evolving landscape, as regulations mature by country and by industry, many with yet-to-be ratified expectations – but they will come.
However, this is quickly progressing, and it is expected that greater obligations will be mandated as the mitigation of climate change continues. It’s also worth noting that shareholder and investors are increasingly motivated by a businesses’ ESG credentials, so boosting these is becoming more important than ever before. Therefore, it is advisable that even firms currently exempt from ESG reporting consider voluntary reporting to ensure they not only mitigate long term risks of climate change to their business, but also ensure they can respond quickly to any new mandatory ESG obligations.
When it comes to understanding the scale of mitigation required, carbon calculators are one of the most common tools used by businesses to get an appreciation of the size of the challenge (and opportunity). With this insight, alongside an understanding of ESG reporting requirements, organisations can begin to forge their net zero goals and create a robust strategy to not only achieving them, but accurately demonstrating progress along the way. It is critical that a company’s reporting is accurate, reliable, and accountable. To achieve this, firms need to take a pragmatic approach, and fully analyse their processes to ensure they can truly walk the talk
Know your process
The main hurdle that many manufacturing organisations falter at is their ESG reporting being too limited in scope. For instance, some leading manufacturers associate sustainability with leaner processes and believe that’s the key to efficiency – while this may be true in some cases, it is not the sole solution. Instead, manufacturers must consider a product’s entire life cycle when truly interrogating their processes, understanding how current systems can be recalibrated for a lower emission approach at each stage of production.
A good illustration of this would be a tyre manufacturer. The resources required to create a single tyre are costly and energy intensive; from extracting raw materials from the earth, to transporting them to the factory, to processing them and creating the final product. And that’s before we’ve even considered distribution and shipping.
If you now consider this from the perspective of a car manufacturer, that is just a single tyre out of hundreds of other components – each with their own carbon cost.
There’s also the product’s life-time usage to take into account. In the example of a car, the manufacturer is supplying a hydrogen product that may be pumping fresh C02 into the air for a number of years, and could eventually end up in a scrap heap, causing further pollution throughout its existence.
From this example, it’s clear to see both the width and depth of detail needed to truly report on a firm’s ESG performance. Manufacturing leaders must think broadly and beyond their own factory walls when considering their processes. Shifting to this mentality sees carbon as a currency, providing equivalent legitimacy and integrity to that of finance.
Know your data
Once a company understands its processes and the level of detail required to accurately report on ESG performance, it’s time to consider how to obtain the data required to report progress.
The emerging urgency of climate change means firms need to quickly know how and where to extract the right data, without taking short-cuts.
As such, businesses should consider the value of the virtuous cycle, which is essentially a line-of-enquiry skill set. The virtuous cycle is an analytical mindset used to develop the skills to scrutinise specific questions (such as why a particular process within the wider production sequence has such a high carbon cost). This allows analysis to lead to scenarios and hypotheses for which controls can be applied to meet certain metrics. Data sets can be aggregated to achieve carbon accounting where a financial figure is applied to carbon equivalents to complete scenario building. Further analysis up and downstream of the firms’ processes will result in end-end transparency, and with corrective refinement, greater agility that will ultimately reduce business risks.
Armed with this new level of data, manufacturers can ensure their ESG reporting is both reliable and accurate.
ESG reporting is an essential part of business operations, providing greater accountability and transparency surrounding a business’s sustainability progress and ensuring they’re on track to achieve their goals. But its true value will only come if we evolve and move beyond seeing ESG as more than a tick box of CSR.
Currently, the responsibility of ESG strategy is often managed by a limited number of people within a business – but it needs to go deeper. Afterall, this should not simply be viewed as reporting, it should form the purpose of the business and resonate from top to bottom throughout the organisation.
Taking this approach enables firms to understand and identify their personal ESG story, how they want to tell it, and how they’re going to achieve it. By doing this, firms can narrate their ESG story to inspire the talk and lead the walk to net zero.
About the author
Philip Harker, Vice President and UK Lead for Sustainability Insights and Data, Capgemini UK