The impact of Environmental, Social, and Governance (ESG) has been significant worldwide over the past several years, and the manufacturing industry is not immune. As global awareness of sustainability and responsible business practices grows, manufacturers are increasingly recognizing the importance of integrating ESG considerations into their operations, even if that recognition is forced.
The SEC has implemented mandatory climate-related disclosures and emissions data with various phase-in targets for public companies, and although many of our readers are not public companies, their customers are. Scope 3 of the rule would require public companies to disclose and track emissions from their supply chain, meaning many privately held businesses could eventually be impacted.
Although the SEC rule is and will most certainly continue to be challenged, that doesn’t necessarily mean this initiative will be put on hold. Many businesses are facing pressures from international partners and environmentally conscious shareholders and consumers, and they are planning to adopt all or part of the rule regardless of whether it’s legally stalled. For Scope 3 early adopters, this push could come in the form of emissions mandates for their suppliers, required certifications, or other annual data tracking.
There are, of course, potential benefits that come with implementing ESG policies into an organization’s business practices. There is the opportunity for new customers coming from competitors who either would not or could not comply with a customer’s target. There is also an enhanced brand reputation and customer loyalty opportunity by focusing on sustainability, as more people intentionally choose to buy from eco-focused companies. In the same vein, the workforce is evolving and a company’s environmental policies are increasingly as important as its benefits package for potential employees.
Additionally, many investors are also now placing a higher focus on sustainably-focused companies. Most notably, the New York City Employees’ Retirement system, one of the largest pension funds in the country, has announced emission targets for their investments, including Scope 3, with a goal of zero emissions in their portfolio by 2040.
Lastly, although many of these initiatives require more upfront costs, companies could see operational efficiencies and cost savings down the road with the integration of more efficient factories and equipment.
The importance of each arm of ESG could vary from company to company, and it will be important for owners to understand the most impactful factors to integrate for their business.
If you would like to discuss how ESG could impact your company or initiatives you are considering implementing, please contact Steve Feimster, Director, Audit & Accounting and Manufacturing & Distribution Industry Group Leader, or any member of our Manufacturing & Distribution Industry Group.
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