When it comes to environmental, social, and governance (ESG) goals, almost every company today feels the need to strengthen its game. Investors are increasingly considering ESG metrics in valuations. Regulators are looking at them more closely than ever; and a growing number of consumers and employees expect companies to measure their impact on ESG.
But less than half of executives have a formal ESG program, according to a survey in September 2021 by the corporate governance advocacy organization Open Compliance and Ethics Group. Companies need a way to track and measure ESG progress. That’s especially true for manufacturers, who are faced with the ongoing quest from the global supply-chain crisis. Digital workflows can help manufacturers collaborate with suppliers and gain insight into their own ESG efforts.
ESG reporting incentives are clear
Investors in ESG funds want more transparency in performance data. Nearly 90% agree that companies that prioritize their ESG goals are positioned to produce higher profits in the long run. Add to that incentive the more than 200 new ESG regulations that took effect worldwide in 2020, and the willingness of customers and workers to sacrifice financially to support ESG initiatives, and the message to companies is clear: Please make of more.
[Read also: Building a greener supply chain]
The role of suppliers is important in ESG goals
Manufacturers face several unique challenges in improving ESG performance and its measurement. For one thing, they tend to face significant regulatory scrutiny related to their labor standards, use of natural resources, and environmental impact.
Manufacturing accounts for nearly one-fifth of greenhouse gas emissions in the U.S., so compliance is important. Some manufacturers are embracing circular economic design products that can be made more efficiently, used over a longer period of time, and recycled back into their own supply chains. But transparency is an issue: many manufacturers find it difficult to track ESG compliance with their suppliers.
To accomplish ESG goals, the entire supply chain must be aligned to deliver results. Today, only 19% of companies in the manufacturing sector share carbon-emissions figures from their suppliers — likely because of the difficulty in tracking them. And because data on their efforts is so difficult to obtain, rating agencies find it difficult to measure progress against ESG goals across the supply chain.
Digital workflows support manufacturers ’ESG compliance
Digital workflows can help manufacturers improve ESG performance by quickly identifying ESG goals, ensuring they are achieved, and then measuring impacts for desired impact.
Recording ESG goals at each supply chain stop, forwarding spreadsheets, and waiting for data is very slow. Dynamic tracking using automated tools integrated with other systems, on the other hand, allows data to be easily distributed and shared between suppliers and manufacturers, helping to quickly track efforts. to meet ESG objectives.
Manufacturers can better demonstrate ESG compliance by moving to dynamic, digital workflows that allow them to track compliance in real-time across their supply chains. On the whole, the supply chain can use digital boost. McKinsey research found only a 43% level of digitization in the average supply chain, with almost no executives surveyed giving importance.
However, some companies are leading the way. Airbus, which works with 12,000 suppliers, is at the heart of digitally optimizing its procurement and management processes to develop better ESG compliance. Siemens uses a digital tool to provide early warnings of potential ESG risks to its 65,000 suppliers.
Going deep into their supply chains to ensure that Tier 1 and Tier 2 suppliers use sustainable components will be a significant strength of manufacturing companies in the long run.
Just look at Ford Motor Co., which works with its suppliers to help them implement carbon reduction measures. By the end of 2021, Ford suppliers are on track to reduce carbon emissions by half a million metric tons while also saving the H2O equivalent of 837 Olympic-size swimming pools.
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