In our latest Peer Session: Sustainability in Manufacturing Supply Chains, aim10x Innovators Network members discussed key insights on ESG as presented by Anne-Marie Schoonbeek, Founder and COO of Key ESG and Joao Guarisse, o9’s Sales Director, and former McKinsey Engagement Manager.
For many companies, Environmental, Social and Governance (ESG) practices are evolving into a strategic driver that carries influence across the business, especially as integrated reporting becomes more prevalent. Core to ESG is the multi-stakeholder approach that includes investors, customers, suppliers, and employees who increasingly demand company practices to align with sustainable values.
ESG management as a value driver for companies
Company stakeholders want more transparency on and improvement of company ESG performance, Schoonbeek explains. For example, professional investors like fund managers increasingly integrate ESG screening criteria into their stock selection process. Publicly held companies that don’t properly manage or disclose their sustainability performance, risk getting screened out of fund managers’ portfolios.
ESG considerations will continue to evolve as we learn increasingly more about the non-financial impact companies have, therefore companies should remain proactive about sustainability management. “If you play into the shifts and demands of your stakeholders, including your regulators, and pro-actively embrace sustainability as a differentiator, you set a good example of ESG as a value driver” Schoonbeek says.
Climate change is a catalyst to embrace ESG
Adopting ESG initiatives can also transform how companies conserve natural resources. A member who worked for a major beverage company shared how a long-term drought was a catalyst in reviewing water usage and finding more efficient approaches at their production plants. “Environmental situations are something to be very much aware of, and you can’t just act on it when it pops up,” he says. “You have to have a strategy of how you will overcome this.”
The group also discussed how embracing ESG can bring about a business strategy transformation. Orsted, an energy company based in Denmark, shifted its strategic focus from fossil fuels to renewable energy and in doing so, reduced its greenhouse gas emissions intensity by 67% since 2006, Schoonbeek says. More importantly, through harnessing ESG as a strategic advantage, Orsted was able to realize a share price outperformance vis-à-vis peers since its 2016 IPO.
Early ESG adopters may also become more aware of potential supply chain disruptions and be better prepared to convince stakeholders of the importance of building a resilient supply chain. An aim 10x member pointed out a scenario if a raw material supplier is disrupted by climate change or if they are in an area with geopolitical issues, this directly impacts your business and emphasizes the reasons for leadership to support ESG as a way to mitigate supply chain risks.
The challenges of incorporating data into efficient supply chain planning and forecasting
Creating a sustainable supply chain will ensure the longevity of your business. Businesses should shift towards the mindset of what are the costs of not building a sustainable supply chain. Capturing the data to make more efficient decisions is imperative. Organizations are challenged in determining what areas need to be optimized and ultimately how this data is brought back into the business to create more efficient processes. Another challenge is lacking visibility into the sustainability practices of vendors across the supply chain. A member pointed out that companies need to create more efficient S&OP processes, by showing where the bottlenecks exist and helping a company use its data to develop sustainable solutions.
ESG continues to evolve
Overall, June’s Peer Session sparked a lively discussion and many insights about building more sustainability into a company’s practices and supply chain. For many companies, the conversation around ESG is just beginning. “ESG is slowly being brought into the realm of decision making in companies, but it’s still usually on the CO2 and environmental aspect,” says Guarisse. “There’s still room to grow on other aspects of ESG.”