The global shift towards green manufacturing in line with net-zero commitments is accelerating, driven by ESG mandates. The European Union’s Net-Zero Industry Act (NZIA), for instance, requires social engagement with workers and stakeholders to produce green energy equipment locally. It is in response to the US$369 billion of green subsidies extended in the United States (U.S.) Inflation Reduction Act. The new U.S. Act has a US$4 billion allocation to produce a variety of green energy equipment but also has a particular social focus on supporting communities impacted by the closure of coal mines and power plants.
Both instances underscore the importance of the social component of the ESG ethos, which acts as a vital link bridging the gap from sustainable ideology to practical implementation, allowing for enhanced training, upskilling, community engagement, and stakeholder support.
The intersection of social engagement and green manufacturing
Green manufacturing is focused on reducing waste, minimizing energy usage, using sustainable materials, and improving supply chain sustainability. When supported by social engagement and by internal and external stakeholders, manufacturers can uncover pathways to environmental, social, and government (ESG) excellence and supports governmental regulations. They can also harness the power of green manufacturing by mobilising the community around initiatives such as the three R’s—reduce, reuse, recycle—applying effective waste management strategies and adopting sustainable practices within their supply chain operations.
In today’s digital landscape, manufacturers face heightened accountability for meeting these ESG standards and immediate feedback from consumers and stakeholders if a misstep occurs. Social engagement is a crucial aspect of business plans, and without widespread support from communities, stakeholders, workers, government officials, and manufacturing leaders, green manufacturing is doomed to fail.
Why should enterprises pay attention? Strong ESG commitment by enterprises leads to increased worker motivation, heightened investor confidence, and consumers will pay a 9.7% sustainability premium regardless of whether cost-of-living and inflation soar.
Social engagement can act as a catalyst for the adoption of sustainable practices in manufacturing when leaders embrace Corporate Social Responsibility (CSR) initiatives in areas such as workforce development, supply chain management, and community outreach. Incorporation of CSR is imperative for any successful manufacturer, but how does profitability factor into adopting ESG and social engagement initiatives?
The ESG profitability equation: “Revenue + economic profit + ESG progress = outsize returns”
According to Gartner, only 38 per cent of business leaders polled said they had inserted sustainability into their decision-making processes, underlining the need for businesses to change their ESG perspectives. In fact, in a recent McKinsey and Company report, enterprises they term as “triple outperformers” grew their revenues at a median rate of 11 per cent per year. It appears it is possible to “do good” and reap the benefits, including a positive social impact and higher profit margins.
In another report, roughly 43 per cent of leaders surveyed said their organisations have gained monetary value from their ESG investments. By prioritising social policies and ESG within manufacturing business goals, an increase in profitability is not only possible but likely.
With revenue likely not being affected, manufacturers can turn their attention to adopting sustainable operation best practices, but prior to integration, it is critical to pinpoint which areas will be affected the most by adoption.
Key manufacturing areas most impacted by CSR initiatives
When addressing areas of CSR improvement in manufacturing, leaders must examine their business goals, profit margins and compliance to ensure they will complement the integration of new engagement policies. During this process, however, certain segments of the business will be more impacted than others, according to a Deloitte report. The five primary areas most affected by applying social and sustainable include:
1. Life cycle engineering (LCE)
The engineering phase is critical in terms of the “S” in ESG, and LCE is a sustainability-centric product development and manufacturing practice that allows businesses to embrace integration from the start. Manufacturers will have better control over ensuring that products and procedures observe the business’s social policies.
2. Sourcing
The supply chain aspect of an ESG strategy could also prove to be the most difficult, but it is imperative that ethical selection and sourcing of sustainable and/or alternative materials is prioritised, upholding fair treatment of all individuals involved in the product’s lifecycle. The International Energy Agency (IEA) recommends manufacturers identify and develop strategic partnerships with trusted vendors to support social engagement.
3. Production
Innovative technologies can unlock improved operational optimisation and green energy. By adopting sustainable energy, manufacturers can reduce energy costs after their initial adoption and reduce their footprint on the local community and planet.
4. Transportation
With the electrification of transportation, manufacturers can significantly decrease their carbon emissions (75-85 per cent, on average) in this segment of the business. During shipping and delivery, supply chain reconfiguration and decarbonisation efforts are rationalising trade routes and reducing emissions.
5. Aftermarket
The European Parliament, along with other entities, is advocating for manufacturers to shift to a circular economy model that supports “reusing, repairing, refurbishing and recycling” to reduce waste, cut emissions and packaging, benefiting consumers, vendors and manufacturers work alike.
By recognising and addressing these key areas of impact, manufacturers can better manage how to best build a framework to incorporate ESG and CSR practices into each business segment, unlocking value and efficiency, improving their ESG efforts, and boosting their profile positively with consumers, investors and employees.
Building a talent ecosystem through proactive ESG engagement
Through proactive engagement in areas such as environmental stewardship, labour rights, and stakeholder collaboration, manufacturers can embrace the social engagement aspect of ESG for the good of the planet and local communities without compromising profitability.
There is an added benefit: Attracting talented workers.
In a recent survey, Generation Z (GenZ) and millennial respondents said they would likely stay with a company for over five years if the employer’s values match their own. In contrast, another almost 40 per cent of those surveyed said they rejected a job because of a value mismatch.
Yet, in a recent Gartner HR survey, 84 per cent of Australian employees believe their organisation does not have an effective sustainability culture. In general, a lack of commitment to sustainability can lead to employee disillusionment, prompting some GenZ respondents, aptly termed “climate quitters,” to consider leaving or quitting their jobs, adding more pressure for the manufacturing industry struggling to find and retain talent.
Deloitte uncovered that as many as 3.8 million net new jobs will be required in manufacturing between 2024 and 2023, and half of these jobs might stay vacant unless manufacturers act now. By creating an inclusive, socially-driven environment for workers, manufacturers can build a talent ecosystem including students, retirees and skilled professionals, while upholding a robust commitment to CSR practices.
Leveraging CSR with ESG frameworks for social engagement success
Patagonia has confronted its environmental footprint head, aligning with its mission statement, “We’re in business to save our home planet.” The sustainable apparel founder, Yvon Chouinard, has said that his business serves as an example of a company that is doing the right thing for the planet, yet it’s still a profitable business model. “We’ve proven it for decades now,” he said. By holding their suppliers and the business to the highest environmental and social standards in the industry, Patagonia has found the balance between profitability and meeting business objectives.
Empowered by a comprehensive social engagement strategy, manufacturers can leverage best practices that organisations such as Patagonia have implemented, use digital tools to drive innovation and enhance the worker environment, ultimately bolstering corporate reputation and ensuring compliance with government regulations.
A comprehensive framework, such as the Consumer Sustainability Industry Readiness Index (COSIRI), offers a dynamic set of ESG tools tailored to support manufacturers in improving sustainability transparency and embedding sustainability across all operational facets. The evolving global manufacturing landscape requires a clear path towards sustainability transformation success, which COSIRI provides.
