The clamor for sustainable business is growing, with a recent Gartner survey1 revealing that four out of five leaders recognize sustainability as a catalyst for optimizing and reducing costs. 86 percent view sustainability as an investment shield against disruption, and 83 percent affirm their sustainability program yields both short and long-term value.
Understandably, future-forward enterprises are accelerating on the Environmental, Social and Governance (ESG) frontiers. A Swiss consumer goods giant, for example, has prioritized environment-friendly practices – from achieving net zero goals by 2050 to optimizing water and paper use – across its value chain and locations2; while an American athletic footwear and apparel company has enacted a strict policy around forced / child labor, overtime and compensation practices, and freedom of association among other supplier-side requirements3.
ESG Avenues Driving Competitive Gains
Manufacturing companies are proactively embracing ESG principles as part of their effort to drive long-term success, resilience and stakeholder trust. ESG is now a component in the list of “key monitorables” along with inflation. What factors have led to the remarkable rise in the significance of ESG?
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Finance and Compliance Shift
Regulatory requirements have intensified, prompting companies to re-evaluate their ESG impact internally and across supply and fulfillment networks. This has led to increased scrutiny in corporate boardrooms, as non-compliance carries heavy financial and non-financial consequences. Furthermore, investors now demand specific and actionable ESG goals, including supply chain due diligence and tangible carbon reduction targets.
Just before the pandemic, a Morgan Stanley report4 on retail and consumer business showed that 84 percent of investors were actively considering incorporating ESG criteria into their investment decisions. Media mention of ESG data, ratings and scores has since skyrocketed – by more than 300 percent year-on-year in 20205 – with notable credit-rating agencies and most banks and insurers monitoring ESG metrics.
Periodic disclosures on executive remuneration, political lobbying, human rights and the like have become investor priorities, directly impacting a company's ability to manage risks and reputation.
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Talent Acquisition and Brand Awareness
The proactive integration of ESG principles also offers an advantage in attracting the right talent. A Deloitte survey6 showed how millennials and Gen Z are factoring ethical workplace policies – around diversity, mental health and climate action, to name a few pertinent issues – into their employment decisions.
These tech-savvy generations are not only indispensable to the digital-era industry but also form an increasing slice of the consumer pie. In a 2021 KPMG survey7, 90 percent of consumers said they would pay more to an ethical retailer or brand that gives back to society.
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Optimized Operations
Top ESG performers are likely to enjoy faster growth and higher valuations by a margin of 10 to 20 percent over other players in their sectors, according to McKinsey.8 By focusing on operational efficiency and waste reduction, strong ESG implementation can drive down costs by 5 to 10 percent, opening doors to new markets and opportunities.
One of the key motivations for businesses to walk the ESG path can be the impressive financial performance of ESG-focused companies. JUST 100’s list of ESG-focused companies prioritizing stakeholder capitalism while demonstrating strong market performance mentions one US multi-national retailer that increased hourly wages and hazard pays, and offered bonuses to store managers in 2020; the company posted a 44.87 percent return, exemplifying the financial benefits of its strategies.9
ESG Transformation across the Manufacturing Value Chain
A manufacturing enterprise comprises multiple nodes, each holding immense potential as an ESG hotspot for the overall transformational journey
Manufacturing production has faced challenges due to raw material sourcing, labor costs and complexities exacerbated by the recent global disruptions. Amid this, ESG priorities necessitate advanced analytics and data-driven decision-making to power responsible raw material sourcing, environmental impact reduction, waste minimization and adoption of eco-friendly technologies. Adopting industry 4.0 innovations such as smart manufacturing paves the way for an end-to-end digitalized production floor, streamlining systems and responses with data-driven insights
Such digital transformation is also necessary for optimal inventory management to maintain ideal shrinkage rates. Abnormal wastage occurs from many variables, including unreliable supply chains, supplier monopolies, not understanding demand, non-alignment between production areas, product defects and even theft, all of which cause substantial losses. A strong ESG framework can help arrest many of these inefficiencies by integrating accurate what-if forecasts, ethical supplier and staff action, an integrated work environment and hybrid systems
Distribution, a key operational requirement, entails optimizing transportation, reducing packaging waste and promoting responsible consumption, among other necessities. A comprehensive Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis can help companies chart a roadmap for compliance, ensuring transparency and preventing greenwashing.
Upholding robust ESG reporting and accountability enables departments like marketing and sales to convey the company's efforts to today's conscious consumers, reinforcing trust and credibility.
How Can Businesses Successfully Drive ESG Transformation?
ESG policies represent a fundamental shift in how businesses operate and engage with stakeholders. ESG administration and reporting are elaborate processes that consume substantial time, money and skill, which companies may otherwise have invested in core activities.
Deploying ESG measures through a strategic partner makes the transition cost-effective and efficient. A recent report10 states that nearly one in eight Chief Financial Officers (CFO) at private capital funds in Western Europe (excluding the UK) expect to outsource more functionality to meet the increasing demands for information. Joining hands with a comprehensive ESG solution provider with differentiated offerings is an optimal way for businesses to initiate and continue the journey.
The demand for supply chain and procurement strategies is also rising, with emissions benchmarking, net-zero and decarbonization strategies, IT sustainability and circularity taking a front seat in discussions. By tapping into their wide network of ESG-compliant suppliers adhering to standards like ISO 14001 (environmental management), ISO 26000 (social responsibility) or B Corp (benefit corporation), and through their customized solutions at different stages of the company’s ESG journey, strategic partners help businesses navigate the complexities and actively seek to earn the trust of investors and consumers.
Manufacturing businesses relying on legacy technology are at a heightened risk of falling behind. Strategic partners can provide such companies with contemporary technologies, including artificial intelligence, machine learning, and big data and analytics, to make them ‘connected’ from within and act as a hub of information in a user-friendly format. Deploying the suite of technologies can optimize a host of activities – measuring, monitoring, reporting, visualization, analysis and decision-making support – to enable companies to embed intelligence into operations, deploy new business models, increase agility and drive innovation.
Structured Global Business Services (GBS) teams have access to their clients’ data and processes in several ESG-critical areas, including supply chain, fleet management and global travel. They are, hence, well-placed to design and enforce enterprise-level policies. They can help streamline and standardize ESG reporting across the enterprise, ensuring consistency, accuracy and transparency of ESG data and metrics. They can also help develop new service offerings to support ESG initiatives, such as tracking and reporting ESG performance and optimizing ESG-related costs and investments. By leveraging data, digital and analytical capabilities, they can foster a culture of sustainability and social responsibility in the organization and align its processes, policies and practices with ESG goals and values.
Organizations with a Corporate Social Responsibility (CSR) mandate can leverage the capabilities of their GBS partners to fulfill ESG goals. A GBS system can facilitate collaboration with local and national agencies to support social causes, such as education, health, and diversity and inclusion, relevant to their local communities. Creating a talent base with sound digital skills and cyber knowledge, a key requirement for the future of work, is another critical area that businesses can explore through such strategic collaborations, in addition to supporting local authorities in disaster management or building awareness on cybersecurity.
GBS companies are becoming the “change agents” in helping companies meet increasingly stringent stakeholder expectations around ESG. Their cutting-edge technologies aid corporate governance and bolster overall corporate accountability.
Selecting the right partner is paramount – a partner that shares your ESG values and is committed to sustainability and social responsibility. Through collaboration and integration, the strategic partner can co-create a plan aligned with your ESG ethos.
Click here to explore how a strategic partnership can make your business ESG-ready.
References:
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https://www.gartner.com/en/insights/sustainable-business
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https://www.nestle.com/investors/environmental-social-governance-sustainability
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https://media.business-humanrights.org/media/documents/NIKE_Inc._snapshot_2021-01-11_165220.0670870000.pdf
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https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2020/12/esg-retail-consumer-proposition-november-2020.pdf
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https://www.gartner.com/smarterwithgartner/the-esg-imperative-7-factors-for-finance-leaders-to-consider
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https://www.deloitte.com/global/en/issues/work/content/genzmillennialsurvey.html
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https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2021/02/me-my-life-my-wallet.pdf
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https://www.mckinsey.com/capabilities/operations/our-insights/buying-into-a-more-sustainable-value-chain
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https://justcapital.com/news/esg-chart-of-the-week-2021-just-companies-outperform-the-market/
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https://www.intertrustgroup.com/insights/outsourcing-offers-solution-to-meet-growing-esg-demands/