How can the visibility afforded by digital technologies in manufacturing fit together with environmental, social, and governance (ESG) goals?
Diving into recent developments in ESG programming and advanced digital technologies shows that investment in both will yield significant gains, now and in the future.
Significant and measurable ESG = Significant measurable growth
There are a number of internal and external reasons that ESG has become a focal point for manufacturers recently:
- Sustainable investing assets have increased 42% since 2018, making up about one-third of US assets under professional management.
- Millennial and Gen Z employees are more likely than their predecessors to factor a company’s ESG goals into employment decisions.
- Standards for regulating ESG programming and its impact continue to become more specific and stringent.
As a result, maintaining compliance, shareholder interest, and a strong workforce all rest on prioritizing decarbonization and overall sustainability. Tentative gestures to “check the box” for sustainability will fall flat.
Leadership = Going green
Leaders in the field indicate that now is a crucial moment to make meaningful moves with a recent study indicating that 80 percent of CEOs report company plans for big steps in taking responsibility for environmental impact. And with good reasons! A robust and effective ESG program can eliminate costly regulatory and legal interventions and open up a company’s access to “green” capital and long-term growth market opportunities. Aligning company strategies and business models with environmental sustainability also aligns with supporting the livelihood of the manufacturing company.
In a 2021 letter to CEOs, BlackRock chairman and CEO Larry Fink, highlighted BlackRock research indicating that “purposeful companies, with better [ESG] profiles” outperformed their peers in 2020.
Digital technology leads to clear and reportable impact.
In spite of all this, ESG programming remains a looming specter of complexity and uncertainty for many manufacturing companies. Fortunately, digital technologies like AI and Industrial IoT operate to successfully excise inefficiencies hampering both business growth AND sustainability.
A UK study recently concluded that industrial digital technology has both reduced CO2 emissions while simultaneously adding gross value by billions of dollars.
Gain visibility across operations
A key ingredient of ESG impact is visibility. Organizations that have shifted their data to the cloud are able to streamline the ongoing collection and translation of constant data flows, centralizing all of it – including ESG reporting – into one location. This constant data flow powers AI to provide comprehensive visibility into all aspects of operations. Visibility takes organizations from throwing sustainability pitches at the wall and seeing what sticks to strategic, incisive action that optimizes energy consumption and reduces scrap.
With visibility of all factory processes, AI analyzes production processes globally, identifying opportunities to reduce waste and catch defects before they produce scrap. Predictive analytics
- Power maintenance that prevents defects.
- Improve production planning and product design.
- Facilitate logistical optimization.
All of this promotes efficient and effective resource use, reduced waste, and lower energy consumption.
Targeting Scope 3
Comprehensive visibility into all aspects of operations catalyzes targeted, a pivotal change in previously unexamined areas. To take a closer look at how this operates, consider the growing focus on Scope 3 emissions. Scope 3 emissions are all greenhouse gasses produced along the value chain of a manufacturing company, but not directly by the company. This includes emissions from packaging and shipping the raw materials used to manufacture products and emissions produced from consumer use and subsequent discarding of a product.
Unsurprisingly, quantifying Scope 3 emissions presents a much greater challenge compared to Scope 1 emissions, those directly produced by in-house manufacturing processes. Tracking what happens to products before they enter and after they leave the shopfloor is much more complicated than keeping tabs on energy consumption powering a factory, for example.
In spite of the seemingly elusive nature of Scope 3 emissions, disregarding these factors is a mistake. For many organizations, Scope 3 emissions account for the highest proportion of greenhouse gasses. Case in point, Apple’s 2021 environmental progress report found that Scope 3 emissions made up 99% of their carbon footprint.
How visibility with AI can help with Scope 3
Organizations that reduce key Scope 3 emissions gain a leading edge in ESG programming. Fortunately, advanced technology and comprehensive data provide visibility and insight here as well. AI can analyze gathered data on greenhouse gas emissions generated to extract, produce, store, and ship purchased and raw materials to reveal Scope 3 carbon hotspots along an organization’s value chain. With this analysis, organizations can minimize the impact of the biggest culprits, enacting strategies like utilizing less of the targeted raw material and finding closer producers when possible.
We expect large business decisions to flow from Scope 3: Producers and partners who can document their environmental impact and their efforts to reduce that impact will become partners of choice all along the value chain. Creating visibility around Scope 3 emissions has been a challenge for manufacturers because many suppliers chain do not report on them. Reporting has become easier, and more suppliers will start to do so with the right incentives. Manufacturers should work with existing suppliers to encourage them to report emissions. With greater visibility, manufacturers and suppliers can work together to reduce environmental impact.
Jumpstart ESG programming by increasing visibility today
ESG programming is a long-term process that takes into account a vision for the future. Starting with the visibility generated by AI and centralized continuous data, manufacturers have the tools for strategy, planning, monitoring, and reporting.
Taking a proactive approach to ESG now gives manufacturers the opportunity to establish themselves as leaders in the field. Companies that wait for regulatory enforcement to kick in miss out on the chance to take ownership of their own compelling narrative of environmental commitment.
A strong position on sustainability
- Attracts talented employees
- Strengthens investors’ commitment
- Reduces or eliminates costly regulatory interventions
Add to that the evidence that enacting effective sustainability strategies goes hand in hand with increased productivity at reduced costs, it makes even less sense to delay ESG programming. Furthermore, when considering the evidence that implementing efficient sustainability strategies is correlated with enhanced productivity and cost savings, delaying ESG initiatives becomes even more indefensible.
As manufacturing enters the post-COVID era, ESG programming has become a sink-or-swim issue. ESG encompasses a broad range of interests from diversity and inclusion to reducing greenhouse gas emissions. Increasingly, regulators, shareholders, and employees place a high value on organizational goals and impacts on ESG’s broad range of interests, in particular reducing carbon emissions. At the same time, advanced digital technologies are bringing data collection, analysis, and automation to new levels.