What is ESG and Why Does it Matter in Manufacturing?
ESG stands for environmental, social, and corporate governance. It is an evaluation of a company’s conscientiousness around issues that impact people and the environment. As businesses and investors become more socially and environmentally conscious, ESG is increasingly coming into focus for growth-minded organizations.
When analyzing a company’s ESG fitness, company-reported data, securities filings, voluntary disclosures, governmental databases, academic information, and media sources are all considered. Here are the components upon which companies are evaluated when determining their ESG scores:
- Environmental criteria: The drive toward net-zero greenhouse gas (GHG) emissions by 2050 is a key factor when it comes to a company’s sustainability. Other environmental criteria include water consumption, use of energy, waste, and pollution.
- Social criteria: Social criteria comprise how a company manages relationships with its employees, suppliers, and customers. A company’s involvement in its community, its contributions to charitable causes, and its commitment to diversity and inclusion also factor into its social score.
- Governance criteria: Governance criteria assesses a company’s internal processes, which can include accounting methods, executive compensation, and board composition. Self-imposed regulations designed to prevent conflicts of interest and unethical behavior may also be considered.
Who Determines ESG Scores?
There are several different ESG ratings providers. Examples of organizations that measure and rate ESG performance include: Bloomberg ESG Data Services; Dow Jones Sustainability Index; MSCI; Sustainalytics; and S&P Global.
ESG Scoring Scales
There is no single standard for ESG scoring methodology. It is up to the organizations that assign ESG scores to determine the best way to communicate a company’s performance. Typically, companies are assigned a letter grade (AAA to D, for example) or numerical score (usually out of 100).
How to Improve Your ESG Performance
Making ESG a part of your overall business strategy is critical to improving your performance. A good first place to start is to conduct a materiality assessment. Identifying which issues are most “material” to your business will help you focus on the most impactful areas. This is important because investors want to know that you have taken thorough action to mitigate the greatest risks to your business continuity and finances. Here are a few key areas that we’ve discovered are usually of concern to the customers we work with at Shapiro.
Sustainability & Waste Management
Manufacturers, for example, usually find that sustainability issues are of particular significance. Greenhouse gas and other emissions, energy, and waste are often cited as the top environmental issues that companies focus on. A company’s management of solid wastes is crucial, as ESG evaluations consider the treatment, handling, storage, and disposal of these manufacturing byproducts. Implementing a “zero landfill” strategy in the business is one way that we help many manufacturers reduce their carbon footprint.
Water use, water consumption, and wastewater generation are key factors in environmental criteria. Improving water efficiency and reducing waste using fluid recycling systems is one way that we’ve helped manufacturers reduce their strain on this vital resource.
Employee Health & Safety
Employee health & safety is another crucial ESG area for manufacturing companies looking to improve their performance. Common successful tactics include implementing safety plans, developing training requirements for employees, and conducting regular safety audits. Both physical and mental health are considered when evaluating this area.
In manufacturing, material handling tasks are laden with risk for employees working in plant operations. That’s why when we implement a recycling program for a customer, we spend time in the plant to ensure the equipment is set up to reduce the amount of handling employees must perform for byproduct materials. Our sustainable master alloys also help companies reduce the amount of raw materials required for employees to physically transport and handle during the manufacturing process.
Looking to improve your environmental performance? We can help.
Focusing on your company’s ESG performance is a smart move—not only because it is likely to improve your financial outcomes, but also because good ESG practices make for a better future for our planet and the people that work in your business.
While most people know us for metal recycling, what we do at Shapiro goes far beyond scrap. We can help your company implement a full-scale sustainability strategy that encompasses everything from material or metal and nonmetal recycling to fluid recovery, and we can measure and report on the data you need to prove your program’s impact. The next step toward a greener future for your company and the community you serve is a consultative plant analysis with a Shapiro sustainability expert. Connect with your Shapiro rep online today to start a conversation!