A Manufacturer’s Guide to Sustainability

The manufacturing sector stands out as one of the main sustainability challenges to tackle. While we’re making significant strides in other high-impact sectors, such as transportation with electric vehicles and in energy with renewables, manufacturing remains a challenging yet crucial area to address.  As one of the most significant users of raw materials, energy, and labor, addressing the sector’s environmental and social impact will require significant innovation and regulation. However, it’s also a massive opportunity for differentiation and competitive advantage.

As Chief Sustainability Officer at Good.Lab and having held environmental roles at Ford and with Europe’s leading public-private partnership for climate, Climate-KIC, I know firsthand that this challenge is a call to action and an opportunity for manufacturers. By embracing sustainable practices and innovative technologies, manufacturers can gain the same competitive edge that early adopters of EVs and renewables have enjoyed.

The key to unlocking this potential lies in starting your sustainability journey now. Companies that successfully reduce their environmental and social impacts have to take the initial steps of conducting a materiality assessment, understanding what peers and competitors are doing, collecting data, setting targets, and tracking performance.

Sustainable manufacturing is not something companies should leave to a later date or to large multinationals. It is something that manufacturers of all sizes can do today to build a strategic advantage in accessing new markets and enhancing overall competitiveness.

Why Sustainability Matters to Manufacturers  

As one of the most significant users of raw materials, energy, and labor, there is a particular focus on the manufacturing sector to reduce its sustainability impacts. It is responsible for a fifth of the world’s GHG emissions and consumes nearly half of global energy. The significant footprint of the sector means that even minor improvements can lead to substantial reductions in emissions and energy use.

The importance of sustainability for manufacturers is driven by two market factors:

• Global Sustainability Regulations: New sustainability reporting regulations, including the SEC and California Climate Reporting Rules, as well as the EU’s Corporate Sustainability Reporting Directive (CSRD), will require thousands of manufacturers to report their sustainability data. Additional product-specific or supply chain regulations will require even more manufacturers to consider every aspect of their design, production, and customer use to stay competitive.

• Increased Market Pressure: Large multinational companies are increasingly requesting that the companies that make up their supply chains share sustainability data and reduce their impact. Large buying organizations that have set their own ambitious targets or are impacted by the above regulations are using sustainability reporting frameworks, like EcoVadis and CDP, to request this data. There is also a growing body of research revealing that consumers now care more than ever about the sustainability of their products. One recent study found that 79% change their purchase preferences based on sustainability, increasing the pressure on manufacturers to make their products more sustainable to stay competitive.

Received a request for EcoVadis? Streamline your EcoVadis assessment with Good.Lab →

The sustainable manufacturing practices driven by these forces, such as implementing regular reporting, energy efficiency measures, or investing in renewable energy sources, not only prepare manufacturers for compliance and market changes but can also help them save on energy costs, identify and mitigate sustainability-related risks, and build their brand reputation to drive competitive advantage.  

Sustainability Manufacturing and the Supply Chain  

Most manufacturing companies’ sustainability impacts are in their supply chains. From an emissions perspective, the supply chain (Scope 3) is typically responsible for more than 20 times the emissions from Scope 1 and 2. Plus, most other environmental and social issues will occur in the supply chain.

Through engaging with suppliers and working on their procurement, manufacturers could see significant improvements in reducing their emissions and other sustainability impacts. Ensuring the ethical, sustainable sourcing of raw materials protects the company’s brand reputation and makes supply chains more resilient to disruptions. However, most manufacturers (54%) see their limited control over suppliers as the biggest challenge to meeting their sustainability goals.

Manufacturers also play a significant role in other companies’ supply chains, supplying the products and raw materials most companies rely on to function. As supply chain pressure to report sustainability data and take action grows, manufacturers will be among the companies most affected. This is both a risk and an opportunity. Being the manufacturer to provide sustainability data or lower carbon, circular products would help differentiate your company.

Material Concerns in Sustainability for Manufacturing

Companies in the manufacturing sector should start considering their most material impacts to better understand the risks they are exposed to, the opportunities they can exploit, and where they should focus. This can be achieved through a robust materiality assessment. Depending on your compliance needs and internal goals, this could be a single or double materiality assessment. Typical material impacts for the manufacturing sector include:

Material Environmental Topics for Manufacturing

• Climate, Energy, & Emissions: Manufacturing is an energy-intensive sector and, therefore, significantly contributes to emissions and climate change. This is also the focus of most regulations and consumer expectations to measure, report, and reduce. Manufacturers can reduce their energy use, emissions, and costs by:
  • Innovating products and operations to be more energy-efficient
  • Regularly calculating and reporting emissions
  • Using recycled materials instead of raw materials
  • Utilizing on-site renewable energy sources

• Materials, Waste, & Circularity: As one of the world’s largest users of raw materials and contributors of waste, the manufacturing sector has a lot to gain from implementing a more circular business model. Circular manufacturing, also called remanufacturing, could contribute $4.5 trillion to the global economy by 2030 and save 45% of global emissions. Manufacturers need to work with their in-house product innovative teams or take the help of external resources to envision novel approaches to the complete product lifecycle. 

Overwhelmed by emissions calculations? Simplify Scope 1, 2, and 3 calculations with Good.Lab →

Material Social Topics for Manufacturing

• Labor Practices and Human Rights: The manufacturing sector employs almost 500 million people globally, so ensuring fair labor practices and protecting human rights is critical. This involves providing safe working conditions, fair wages, and respecting workers’ rights throughout operations and the supply chain.
• Health, Safety, & Wellbeing: Ensuring employees’ health, safety, and well-being is paramount in manufacturing due to the use of hazardous materials and the likelihood of injuries and illnesses. This includes implementing robust safety protocols, promoting health programs, and ensuring mental and physical well-being.

Material Governance Topics for Manufacturing

• Supplier Performance Management: As we have shown, the supply chain is where the majority of manufacturers’ sustainability impacts lie. Managing supplier performance is crucial to ensure suppliers are meeting ambitious standards of environmental and social performance. Sustainability clauses, such as emissions data sharing, target setting, and progress tracking, can be included in supplier codes of conduct to promote sustainability in the supply chain.

• Policy & Advocacy: Good governance over policies and advocacy will also be important for manufacturers, as companies that are active in engaging with regulators and industry groups can help shape regulations and promote sustainability initiatives within the industry.

Do you know your supply chain’s sustainability impact? Explore Good.Lab’s Supply Chain Resource Center →

The Sustainability Regulatory Landscape for Manufacturers

The manufacturing sector’s massive environmental and social footprint exposes it to a variety of regulations. These range from sustainability reporting regulations to product-specific, sub-sector-specific, and supply-chain regulations.

For US companies, the primary rules they should be aware of are domestic rules from the EPA, SEC, and states, as well as the vast array of sustainability reporting, product, and supply chain regulations coming out of the European Union.

Global Sustainability Reporting Regulations Facing US Manufacturers

These are the most important sustainability reporting regulations manufacturers should be aware of. However, US manufacturers should also be aware of new international and product and supply chain-specific regulations, most of which currently come from the EU:

Product & Supply Chain Sustainability Regulations Facing US Manufacturers Operating in Europe

Market-Driven Manufacturing Sustainability Data Requests

In addition to the regulatory pressure, manufacturers are feeling pressure from their customers to share and, in many cases, manage their sustainability impacts. Most of these requests come from CDP and EcoVadis, and many still use proprietary surveys. Around 20,000 manufacturers will receive a data request from CDP alone in 2024.

Historically, only half of companies respond to data requests from the CDP and EcoVadis. Manufacturers that do are more likely to improve supplier-customer relationships, win contracts, and gain a competitive edge.

The rapidly increasing number of requests coincides with the increase in sustainability reporting regulations. As more take effect, customers will begin to require their suppliers to report on a range of sustainability topics as part of their supplier codes of conduct.

Receiving sustainability data requests? Maintain strong customer relationships with Good.Lab →

How Good.Lab Helps Manufacturers Address Sustainability

In their sustainability journey, manufacturers face several significant challenges. These include navigating complex global supply chains, fast-evolving regulations, and collecting data from diffuse sources. Effectively addressing these challenges requires a strategic plan. Following outlines how we help our clients in the manufacturing sector solve sustainability challenges:

1. Conduct a Materiality Assessment: Although manufacturing companies will have similar material sustainability issues, each company’s material impacts will be dependent on their size, what they manufacture, and geography. For this reason, the first step we take is to conduct a single or double materiality assessment (double materiality assessments are required by some reporting regulations, like CSRD) to determine what ESG impacts your company should focus on. 
2. Benchmark Sustainability Performance: Benchmarking vs. peers and competitors helps manufacturers understand industry best practices and where they stand compared to industry leaders and laggards. Sustainability benchmarking is a powerful tool to help set achievable goals, determine ambition, and develop strategies. Good.Lab has a library of thousands of companies in your sector and region that will help you calibrate your ambition.
3. Conduct a Climate Risk Assessment: Conducting Good.Lab’s climate risk readiness assessment will help your company understand its preparedness to meet climate disclosure regulations and supply climate information to its customers.
4. Quantify ESG Performance: When collecting data on your sustainability performance, Good.Lab advises the best place for manufacturers to start is by calculating carbon emissions, as that is what most regulators and other stakeholders want data on. However, we also support every other type of sustainability metric to ensure you can comprehensively measure your sustainability impact, and eventually, we advise you to expand to water usage, biodiversity, social metrics, and anything else, as data will be essential for tracking progress, assessing risk accurately, and building data-driven strategies. 
5. Set Targets and Build a Strategy:  
   • Set Targets: Set clear, achievable, and measurable targets aligned with the company’s ambition levels and influenced by sustainability benchmarking, materiality assessment, and current performance. 
   • Develop Strategies and Implement Initiatives: Based on the findings of all previous steps, we will help you develop strategies and roll out initiatives that will help you achieve your sustainability goals based on the specific goals and needs of your manufacturing company. This could include a supply chain engagement strategy, a product redesign, procurement change, energy efficiencies, etc.
   • Report, Review, and Adapt: Once you have completed all the reactive actions, we advise manufacturers to take a more proactive approach, regularly reporting your company’s ESG performance in an annual sustainability report in line with the most up-to-date reporting frameworks (CDP, ISSB, GRI). Then, review what has worked and what has not and adapt accordingly.  

How Manufacturers Drive Growth Through Sustainability

Over the years, I have witnessed and worked with multiple manufacturing companies that have grown their business by taking action on sustainability. Two examples from our recent work at Good.Lab include:

BioWorld Merchandising: Leading Sustainability in Apparel Manufacturing

Good.Lab helped Bioworld set ambitious ESG targets and optimize its ESG performance. This partnership enabled BioWorld to implement a data-backed approach, demonstrating its commitment to environmental responsibility and solidifying its position as a leader in sustainable manufacturing.

BioWorld Merchandising, is now a mid-market leader in apparel manufacturing, has leveraged its replying to market-driven data requests through CDP and Walmart’s Project Gigaton to enhance its sustainability initiatives. As a Giga Guru in Walmart’s Project Gigaton, BioWorld has built solid relationships and improved its brand reputation around sustainability.

CTL: A Sustainability Leader in Consumer Electronics Manufacturing

CTL, a leading consumer electronics manufacturer, is a Good.Lab client. They partnered with Good.Lab to enhance their supplier sustainability engagement program and set ambitious ESG targets.

With Good.Lab’s expertise and scalable solutions, CTL achieved 100% supplier compliance with its new code of conduct, de-risking its supply chain and mitigating impacts from its most significant source. It also set ambitious targets for climate and energy, waste reduction, diversity, equity, and inclusion and strengthened its ESG leadership. The actions they took have positioned them as a leader in consumer electronics manufacturing, which has given them a competitive advantage over competitors.

Sustainability is clearly a material issue for manufacturing companies today. However, as new regulations kick in, consumer preferences change, and the business benefits of sustainability become increasingly apparent, the importance of sustainability in manufacturing is likely to increase.

The manufacturing sector is a harder-to-abate sector than other high-impact sectors, like transport and energy. This challenge requires manufacturers to be innovative to ensure they can reduce emissions, improve circularity, stay compliant, and make their products more competitive. In my work in the automotive industry, I have seen how early movers in EV manufacturing gained a competitive advantage over others, and I expect to see early adopters in the manufacturing industry do the same.

Being more sustainable is not just for large manufacturers in certain sectors; it is for manufacturers of all sizes and subsectors. Companies that get started early could benefit from a competitive advantage as they de-risk their operations and supply chains, save costs, and build a strong brand reputation around high sustainability performance and low-carbon, circular products.

To get the most out of your sustainability program, you’ll need sector-specific advice. Contact Good.Lab’s experts for sustainability strategies tailored to the manufacturing sector’s risks, opportunities, and needs.