In recent years at Polestar, we have been observing the evolving landscape of Environmental, Social, and Governance (ESG) within the manufacturing sector. The diversification of operations to incorporate ESG solutions has emerged as a key differentiator, providing a competitive edge to forward-thinking manufacturing companies.
In the face of an increasingly competitive industry, the prioritisation of ESG reporting measures has become a necessity for survival. As we approach the midpoint of the decade, a distinct shift is evident. There is a growing trend of investment flowing into ESG processes, paralleled by an increased commitment to the research and development of innovative sustainable solutions.
ESG Integration
Integrating ESG processes is no longer just about compliance or corporate social responsibility. It’s a strategic move that can fuel growth. ESG initiatives often lead to improved operational efficiency. For instance, environmental efforts can reduce energy consumption and waste, leading to cost savings. These savings can then be reinvested into the business to spur growth.
ESG processes help companies anticipate and mitigate risks, such as regulatory fines or reputational damage due to environmental incidents. For example, a company might identify that its waste disposal methods are not up to regulatory standards. By identifying this risk early, the company can take proactive steps to improve its waste disposal methods and avoid potential fines or sanctions. Once potential risks have been identified, ESG processes can also help in mitigating them. This might involve implementing new policies or procedures, investing in new technologies, or improving training and education for employees. For instance, a company might invest in cleaner technologies to reduce its environmental impact, thereby mitigating the risk of environmental incidents and potential reputational damage. By managing these risks, companies can avoid costly disruptions and ensure stable growth.
Millennials and Gen Z employees actively seek out employees with a strong and diligent ESG track record, particularly when it comes to DEI training and acceptance. Companies that prioritise ESG often have more engaged employees, and those who don’t will begin to find it harder to actively employ new high-quality members of staff. A diverse workforce within a manufacturing company can lead to increased productivity, innovation, and retention, all of which contribute to business growth.
As consumers and businesses become more eco-conscious, there is growing demand for sustainable products. Manufacturers with strong ESG practices are well-positioned to tap into these new market opportunities. Not only consumers but investors are increasingly considering ESG factors in their investment decisions. By demonstrating strong ESG performance, manufacturers can attract more investment, providing capital to fuel growth.
Supply Chain Management
Supply Chain Management One clear way manufacturing companies can begin to assess their ESG credentials is through their supply chain. The supply chain holds a new dimension of significance when viewed through the lens of ESG credibility. According to the 2024 ESG Global Report, the supply chain can be broken down into five key areas for monitoring:
Environmental Stewardship: Manufacturing companies can reduce their environmental impact by working with suppliers who adhere to sustainable practices. This could include sourcing raw materials responsibly, minimising waste, and optimising logistics for lower carbon emissions. In 2024, companies are investing in technology solutions such as blockchain and AI to help them monitor their ESG performance across their entire supply chain network.
Social Responsibility: Companies can ensure fair labour practices across their supply chain, which includes adequate wages, safe working conditions, and no child or forced labour. This not only aligns with the ‘Social’ aspect of ESG but also helps in building a resilient and committed supply chain.
Governance: Transparent and ethical business practices should extend to a company’s supply chain. This includes fair procurement practices, timely payments, and respect for contracts. By fostering strong relationships with suppliers based on mutual respect and fairness, companies can ensure a more reliable and efficient supply chain.
Risk Mitigation: By integrating ESG principles into supply chain management, manufacturers can anticipate and mitigate risks. For instance, reliance on a supplier that does not adhere to environmental regulations can lead to disruptions and reputational damage if they are hit with fines or sanctions.
Competitive Advantage: A supply chain that is managed with ESG principles can be a strong selling point to environmentally and socially conscious customers and investors, leading to increased sales and investment.
Final Notes
As we move further into the decade, the importance of ESG in manufacturing will only continue to grow. Companies that proactively incorporate ESG principles into their operations will be better positioned to navigate the challenges of the future, seize new opportunities, and achieve sustainable growth.
At Polestar, we believe that ESG is not just about doing the right thing—it’s about doing what’s right for business, stakeholders, and our planet. Alongside that will come high valuations and increased market interest.
