5 ways manufacturing companies can tackle ESG now

Co-authored by: Paul Vail, EY Canada Advanced Manufacturing and Mobility Leader

Repositioning ESG priorities from risk to opportunity is the first step to generate meaningful progress and create lasting growth for all stakeholders. 

The race to be a more sustainable society is on — and advanced manufacturing and mobility (AM&M) organizations will play an important role in the transformation. Repositioning environmental, social and governance (ESG) priorities from risk to opportunity is the first step to generate meaningful progress and create lasting growth for all stakeholders. 

Why is ESG so important for AM&M organizations today?

The increasing reliance on ESG reporting represents one of the most significant changes in public company reporting since the formation of the SEC nearly 100 years ago. Stakeholders — from regulators and investors to employees and customers — are now defining long-term value in entirely new ways.

What does that look like?

• Regulators are moving to standardize the way companies report against ESG, decarbonization and sustainability overall.
• Shareholders are looking at sustainability through a more value-oriented lens, as important as evaluating financial performance.
• Employees are now factoring sustainability strategies into decisions about where they work.

All of these factors will impact the future of AM&M, as well as top- and bottom-line results for industry players. This is happening at a time when the pandemic has just upended the market itself. Over the last two years, pandemic-fuelled forces have driven tactical change across AM&M operations and accelerated the need for digitization and automation.

New challenges have required AM&M companies to overhaul supply chains from end to end. Companies have had to rethink recruitment and retention strategies to meet market demand. All the while, megatrends around ESG, and decarbonization in particular, have been continuously reshaping AM&M’s broader operating environment.

All this change makes it easy to see why some AM&M organizations might default towards viewing ESG as just one more risk in a long succession of threats. But that would be a mistake. Across AM&M, many organizations have already made more progress than leaders may realize.

Internally, organizations have achieved remarkable progress, improving operating efficiency and decarbonizing at the same time. Externally, AM&M has led the way on innovation, developing lighter-weight products that are a natural fit for a more environmentally conscious world. All this bodes well for the industry. The progress made means AM&M organizations are already well on their way to implementing ESG factors into their risk assessment and strategic decision-making going forward. 

How can AM&M organizations quickly move the needle on ESG?

Reframing ESG from risk to opportunity requires fundamental changes to the way AM&M organizations operate. While there is certainly momentum in the industry, it’s time to cement that shift and embed ESG as a priority across operations, functions and teams. Put simply: for ESG commitments to succeed, they must be embedded at the heart of your overall corporate strategy.

To understand how industry leaders are making progress on that front, we brought together key industry players for a robust discussion. Common themes and leading practices quickly emerged. Chief among them: 

• Collaborate to make meaningful progress. Working across internal and external groups to drive change is helping top AM&M organizations make ESG progress quickly. Consider the ripple effect an organization can make by leaning across lines and collaborating with vendors, suppliers, industry associations or even competitors to prioritize ESG. The collective impact could be huge.
• Supply chains can lead the way. As the spirit of collaboration takes hold, many AM&M organizations are getting their supply chains involved early in the process and partnering with them to drive ESG progress. While larger suppliers and vendors may already have ESG on the agenda, others may not. Scale the approach accordingly by building tools and resources to enable suppliers in line with their current ESG positions. That could mean offering a reporting framework to support a more ESG-sophisticated supplier or a training workshop to help a smaller operation embrace sustainability and kick-start their commitments.
  
• Cast a broader net to generate better ideas. Innovation has often been the lifeblood of AM&M. Now it’s time to turn that focus more deliberately toward ESG priorities. Across the industry, organizations are making ESG a priority for every functional team or department. This can empower more people across the business to spark ideas and further conversations. It also helps leaders get closer to the frontlines of the business, where applying the ESG lens against everyday challenges and operations can cultivate a rich pipeline of diverse thinking — often from people and teams who haven’t traditionally been tapped to innovate before.
• Go beyond the E to tackle the S and the G. Too often, organizations get hung up on the environmental impacts of ESG. But the AM&M organizations with the most mature ESG strategies are going further, to consider social — your broader societal impact — and governance — your ability to cultivate transparency and trust — in equal measure. Regulators are refreshing and evolving their ways of measuring impact against all three aspects of ESG. Take a balanced approach to spur holistic ESG progress and results.
• Manage the change well. Shifting the organizational culture to focus more intentionally on ESG requires clear tone from the top. You may also need to rethink the skills required to tackle ESG deliberately: internal communications to bring people on board, clarity around what’s material and knowledge of how rating agencies are changing their approach to ESG. Reframing ESG from risk to opportunity will require an integrated change management plan that connects all of these areas and helps people navigate the change effectively. Anything less could throw even the best intentions and efforts off course. 

What’s the bottom line for AM&M and ESG?

Remember, this is a journey for AM&M organizations. Now is the time to dig in. Be methodical. Make ESG an integral part of organizational strategy. Build momentum. Don’t wait for regulation. Establish what ESG means to your specific business now — and set out to seize the opportunity it represents.