As the manufacturing industry continues to transform, so do the standards by which they’re evaluated by shareholders, stakeholders, and the public. In addition to that, rules and regulations are changing, and manufacturers are facing increased scrutiny around the environmental impact of their operations, products, and services. But it goes further than solely focusing on the environment and sustainability – manufacturers are being evaluated on their environmental, social, and governance (ESG) performance.

What does ESG mean for industrial manufacturers? Let’s dive in.

First, let’s take a quick look at what ESG is.

What is ESG?

ESG is a framework designed to assess a company’s broader impact beyond their financial results. Here’s a brief breakdown of each component:

Environmental (E) focuses on your company’s environmental footprint. It covers factors like energy consumption, greenhouse gas emissions, waste management, resource depletion, and pollution. You may have heard of material Scope 1 and Scope 2 greenhouse gas (GHG) emissions – those fall into this category.
Social (S) looks at your company’s relationships and impact on people. This includes employee relations, workplace diversity and inclusion, community engagement, human rights practices within your supply chain, and workplace safety. In short – what are you doing to provide equal opportunities and a safe place for your workers and the community?
Governance (G) relates to how your company is run. This includes leadership ethics, board diversity, executive compensation, transparency in reporting, and risk management.

Making Cybersecurity a Part of ESG

It’s worth noting that cybersecurity also generally falls under ESG in both the social and governance categories, although it has implications for all three, depending on your industry. Manufacturers are under constant and growing threat of cyberattacks and need to be prepared:

Environmental: Cyberattacks can disrupt environmental monitoring systems, compromise safety measure, and lead to environmental incidents.
Social: Cybersecurity breaches can violate employee privacy, compromise customer data, and erode public trust.
Governance: Robust and comprehensive cybersecurity practice demonstrate effective risk management and responsible corporate governance

It could be argued that cybersecurity should be added as its own category in ESG – ESGC. Either way you look at it, it’s not a matter of if you’ll face a cyberattack, but when.

ESG Implications for Industrial Manufacturers

As a manufacturer, your operations naturally have a significant environmental and social impact. ESG considerations are becoming increasingly important for:

Attracting Investors: Many investors now prioritize ESG factors in their decision-making. A strong ESG performance can open doors to new capital.
Consumer Demand: A growing number of consumers favor companies with responsible practices.
Talent Acquisition and Retention: Employees want to work for companies that align with their values.
Regulatory Compliance: Environmental and social regulations are tightening.
Risk Management: Identifying and addressing ESG risks can help you avoid costly incidents and reputational damage.

How ESG Benefits the People, the Planet, and Your Business

Focusing on ESG benefits everyone – people, the planet, and your profits.

People: A safe workplace with fair wages and community engagement boosts employee morale and makes for a more productive workforce. If the company takes care of their employees and their community, they’ll take care of the company.
Planet: Using resources responsibly, reducing emissions, and minimizing waste contribute to a healthier environment and a boost to your reputation.
Profit: Prioritizing ESG can drive innovation, reduce costs, and improve your operational efficiency – all of which can boost your bottom line and provide a better product for your customers.

Steps Industrial Manufacturers Can Take to Boost Their ESG

Understand Where You’re at: Get a baseline understanding of your current performance in each of the three categories – where are your strengths and what needs improvement?
Set Clear Goals: Once you have a good picture of where you’re at, establish measurable ESG targets that align with your business strategy.
Develop Action Plans: Outline specific steps you'll take to achieve your goals. This could include starting with a safety assessment or security and availability assessment. You might also start conducting regular thermal audits to identify where energy might be wasted.
Create a Strong Coalition Team: Assign dedicated and accountable resources to define a roadmap and solicit cross-functional engagements and support. Start the momentum and build upon the success.
Integrate ESG into Your Operations: Once you have your action plan set and your coalition team in place, embed ESG into your considerations, decision-making, and policies across all departments.
Communicate Your Efforts: Transparency is key. Share your ESG initiatives and progress with your stakeholders – employees, investors, customers, and the public.

The Bottom Line

ESG is a long-term journey, not a sprint. By embracing it, you're not just mitigating risks – You're positioning your business for a more sustainable, profitable, and socially responsible future.

The experts at Rexel can help you identify and implement the tools, technology, and resources to boost your ESG efforts. Contact us today to get started.

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A (Brief) Guide to ESG for Industrial Manufacturers