Sustainability is by no means a new concept in the field of manufacturing, and already in the late 80’s it was stated by industry pioneers that the potential manufacturing as an industry holds in enhancing the environmental results of their operations is notable. Possessing vast expertise and technical capabilities, the manufacturing companies have the opportunity to solve many of the ecological and social challenges we are facing today – and improve their own competitiveness at the same time.
In this blog post we are discussing the five reasons why the manufacturing companies should be considering higher sustainability adoption in their operations already today:
- Changes in the regulative environment
- Changing demand
- Supplier selection
- Attracting skilled workforce
- Company reputation
1 | Meet the Laws and Regulations of Today And Tomorrow – The increasing role of law and policy makers in accelerating sustainability adoption
The EU has become an exemplar for the law and policymakers globally when it comes to sustainability. The new Corporate Sustainability Reporting Directive (CSRD) set by the EU is a case in point of the ground-breaking work they are doing on the front, and although the directive currently only applies to large companies and listed SMEs, it gives a sneak peek of what is coming. EU in the forefront, the law and policymakers globally are to take a notable role in accelerating the transformation toward a more sustainable economy, having especially the companies causing the majority of the emissions in their radar. Since this is only a start, these signals should not be taken lightly: even if the company would not be subject to these legislative changes today, it is certain that the development in laws and regulations will not stop here. In order to not only be compliant but also competitive today and in the future, the companies would benefit greatly of adopting sustainability into their operations already now.
Even though the increased regulative pressure might have a negative clang to it due to e.g. possible added costs in the short term, it also opens the road to detecting long-term gains: new business models, products, and ground-breaking innovations are examples of what this “forced” adoption of more sustainable actions might bring to the table on the company level – let alone the ecological and social effects these have on a global scale.
2 | Answer the Changing Demand – Increasing market pull for more sustainable products and services
In addition to the changing laws and regulations, the demand for more sustainable products and services is on the increase as well. Several studies have shown that environmentally friendly and socially responsible products and services are gaining notable market share, and sustainability-oriented innovations are becoming major drivers for creating a competitive edge. This shift has also been detected by investors, who are now making decisions and e.g. analysing risks based on the sustainability metrics and actions of companies: for example, reducing the CO2 emissions is already considered as an indication for competitive edge for some investors and institutions such as banks, who are now offering loans with lower interest rates to those companies with greener operations.
3 | Win Contracts – Sustainability affecting supplier selection
Several factors are already affecting the customer’s decision when considering different suppliers. It is no longer about e.g. the price, but sustainability factors have increasingly come into play as well when comparing between different suppliers. Early adopters and especially the companies who are committed to e.g. the Science Based Targets Initiative, are now working on their supply chains to ensure their compliance also on this end. Although this is not an easy task to accomplish and it takes time for sustainability aspects to become the cornerstone of the decision-making process, it has already affected the requirements set for possible suppliers: for example, when quoting, the suppliers are asked to provide sufficient evidence of their operations being compliant on the environmental, social, and governance levels. If they fail, it might well mean that the deal will not be closed, affecting the performance of the supplier directly.
4 | Attract Talent – Sustainability as a cornerstone when deciding who to work for
Many companies operating in the manufacturing sphere are already struggling to find a skilled workforce globally. Large age groups are retiring, taking a large portion of know-how with them, whereas the younger generations struggle with finding the industry an appealing choice when considering their occupational future. Especially the new generations entering the job markets are increasingly paying attention to the values of the company they choose to work for, and do not settle for just beautiful marketing messages when it comes to sustainability – as much as the customers and law and policymakers are requiring evidence, the possible employees do not pale in comparison in their demands.
An interesting finding was made by Wu & Pagell (2010) in their study “Balancing priorities: Decision-making in sustainable supply chain management“: each of the studied companies stated that they have several employees who have chosen them because of their capabilities to show their concrete actions around sustainability, and some of these employees had even rejected an offered job with a higher pay from a less sustainable company. These companies stated that this created direct cost savings since they did not have to compete with salary thanks to the strong purpose-driven operations and capabilities to utilize them for differentiation on the job markets. Also, those companies in the study who paid at or above the industry average, stated that getting these people to work for the company resulted in cost savings due to the main motivation being something other than of economic nature, comprising into higher efficiency.
5 | Build a Stellar Reputation with the Help of Sustainable Actions
It goes without saying that disregarding sustainability in company operations poses a huge reputational risk already in the short run. There are several examples out there where companies have been facing problems, lost sales and even filed law suits due to inadequate adoption of sustainability. Not only is this phenomenon increasing in the future due to stricter laws, regulations and policies, but these failures in taking the ecological and social aspects of company operations into consideration are also gaining more and more media attention globally – increasing the negative effects the misconducts might have on the company performance.
On the other hand, if sustainability is adopted successfully and embedded in the company brand efficiently (and with evidence of concrete actions), it can have a positive impact on the company’s financial performance through increased demand toward the products and/or services of the company.