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The ethical manufacturer: How to balance corporate success with social good

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In an increasingly conscientious world, manufacturers are under significant pressure to prioritise corporate social responsibility (CSR) in their operations. The imperative has escalated as governments and customers continue to squeeze manufacturers on either side to action and incorporate CSR and environmental, social, and governance (ESG) practices. According to the United Nations Global Impact (Business & Human Rights Navigator), businesses without clear social policies to protect the environment could have elevated risks, whether reputational and brand, financial, legal or operational. By embracing CSR, manufacturers demonstrate a genuine commitment to impacting the lives of employees and people in surrounding communities positively, according to Forbes.

A poll by McKinsey and Company uncovered that approximately 60 per cent of consumers said they would pay more for products made ethically, free of child labour, and upholding employee safety. CSR not only eases customers’ fears but also appeals to investors. Manufacturers with higher ESG ratings tend to have a 10 to 20 per cent uplift in their valuations and gain better funding options in contrast with their peers who do not adhere to social policies to ensure sustainable manufacturing.

CSR, positive consumer satisfaction and investor confidence are inexplicably linked and underscore the essential question: What key aspects of social responsibility must enterprises prioritise to benefit consumers, investors, employees, and the community as a whole?

The top three CSR focus areas for manufacturers

Before manufacturers delve into integrating CSR into their operations, they must first assess their current ESG blind spots and consider how to address them. To do this, there are three key areas for manufacturers to examine:

1. Ethical operations:

Ingraining social responsibility throughout manufacturing operations is critical. Supply chains specifically must also be assessed continuously to ensure ethical sourcing. However, leaders still find supply chain visibility a significant challenge and in need of reform as it accounts for over 90 per cent of greenhouse gas (GHG) emissions, according to Gartner.

2. Social equity:

Building social equity and leading with humanity is imperative for leaders. Diversity procedures, training, and a commitment to ensure every individual a manufacturer touches directly or indirectly (supply chains) is not harmed. Deloitte research found that workers are 2.6 times more motivated if working for an organisation leading with humanity.

3. Environmental stewardship:

Implementing a sustainable framework to reduce the manufacturer’s environmental footprint through cutting waste production, reducing carbon emissions, and investing in green energy where possible.

While these are critical areas leaders must prioritise to ensure a successful CSR integration, there are significant barriers that leaders must be aware of and address.

What are the roadblocks to manufacturers prioritising CSR?

Although CSR practices must be prioritised, profitability is critical to the health of the business and does factor into incorporating ethical and sustainable ideologies into typical business objectives for manufacturers, as does efficiency and innovation. In manufacturing, there also is an inherent conflict between profit maximisation and social responsibility.

A Statista survey revealed 19 per cent of the leaders find sustainability practices too costly, with 29 per cent of C-level executives said they had a muddled picture of their environmental impact and is the top sustainability implementation obstacle. Other critical blockers include a focus on short-term goals (18 per cent) and a lack of support from governments (17 per cent).

By attaining clarity on their environmental impact, overcoming cost anxiety through sustainable initiatives that offer long-term benefits, setting clear sustainability goals aligned with business objectives, and advocating for supportive government policies, manufacturers can design a vigorous CSR framework that not only boosts their social impact but also contributes to long-term business success.

Manufacturing ESG wins

After these areas are assessed and addressed, manufacturers will uncover significant benefits to committing to upholding and adopting a tailored ESG and CSR framework.

According to McKinsey Quarterly, enterprises that have ESG ratings and have incorporated ethical practices in their business goals will attract more customers and talented employees and have a higher valuation uplift (10-20 per cent) than their peers. ESG leaders also have better financing availability and terms. A recent study that polled Chief Investment Officers on investing revealed that an overwhelming amount of leaders (85 per cent) said that ESG factors significantly in their investment decisions. However, the caveat is that investors want clarity on ESG reporting and the particulars of efforts.

Beyond evaluations and financing, manufacturers can also expect lower energy consumption and even cost reductions when deploying green energy. Additionally, manufacturers can expect to mitigate potential regulatory and legal risk through deregulation, gaining subsidies from government support.

Successful CSR implementation: a case study

An example of a company that got CSR right is Tony’s Chocolonely. The organisation exemplifies how embracing CSR initiatives can drive social impact and boost profitability. According to the Harvard Business Review, the cocoa industry experiences widespread social and environmental abuse, leading the average farmer to earn a meagre two dollars or less a day. Tony’s set out to counteract the status quo.

Tony’s vision centred around producing ethical chocolate free of forced labour, which could only be accomplished by setting a clear ethical standard for its supply chain. The company’s approach was focused on collaboration between supply chain partners, supporting cocoa farmers, and eradicating child labour. In doing so, Tony’s constructed a new sourcing model where all stakeholders and farmers share accountability. Part of the chocolatier’s success stems from transparent communication regarding challenges and successes, building integrity and trust with backers, and emphasising its position as a CSR business leader. Other manufacturers can replicate similar success by considering these seven steps when building a CSR step-by-step process:

  1. Assess current practices
  2. Set clear objectives
  3. Engage stakeholders
  4. Develop action plans
  5. Implement sustainable practices
  6. Monitor and measure performance
  7. Continuous improvement and reporting

Manufacturers do not have to sacrifice profits to incorporate social responsibility, but leaders must foster an environment where all stakeholders support the new initiatives and feel empowered by them, as Tony’s workforce did.

Assess and then address CSR

It is clear that manufacturers must urgently include ESG and CSR practices in their business goals as the demand from governments and consumers worldwide to change is expected to grow.

In order to appropriately plan, the Consumer Sustainability Industry Readiness Index (COSIRI) supports manufacturers in their CSR journey with a robust framework. It provides a set of tools and reveals a clear path on how to best integrate sustainability practices into their operations, regardless of their size or industry. Because COSIRI aids in benchmarking sustainability maturity and fostering ESG transparency, manufacturers can be positioned well to move towards a sustainable future in alignment with global standards and stakeholder expectations.

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