Manufacturing Businesses and ESG

It is no surprise that the manufacturing sector is a driving force when it comes to effecting industry change, considering the supply chains and processes involved. In the current climate (pardon the pun!), manufacturing businesses are finding themselves subject to closer inspection than ever before, as more businesses seek to find suppliers who align to their values on Environmental, Social and Governance (ESG) principles.

What is ESG?

ESG is the term used to measure the impact a business has against set environmental and social standards.

ESG reporting is now required for major UK companies (being those companies which are "listed" or "quoted", have an annual turnover of £500m or more or where there are over 500 employees). Whilst many businesses are not yet required to report on ESG, many are doing so as a matter of best practice.

So, how does this affect my business?

On the 17 January 2022, the Task Force on Climate-Related Financial Disclosures (TCFD) mandatory financial disclosure requirements came into force. The requirements apply to financial years from 6 April 2022 onwards and require a major company to incorporate climate disclosures into their annual reports. The disclosures should cover how climate change is addressed in corporate governance, the impact on strategy and how climate related risks are managed.

The effect of ESG can also be seen in the marketplace where investors are keen to ensure that businesses are reducing their costs and waste whilst improving efficiencies and maximising conservation of energy and other climate considerations. We are also seeing a rise in sustainability linked loans which contain specific ESG conditions which can include a reduction in CO2 emissions and a commitment from the business to lower consumption in the manufacturing process. When it comes to employment, businesses are repeatedly being asked to prove that they prioritise ESG goals and have a commitment to sustainability.

What should I do next?

Whilst the financial disclosures may not apply to all businesses just yet, there are many opportunities for all businesses to get ahead. Businesses can begin developing their ESG offering by reviewing their values to ensure that these align with ESG and sustainability initiatives, consider investing in cost-saving technologies, using sustainable materials, undertake due diligence on your supply chain and consider including environmental requirements into associated contracts.