Six Ways Process Companies Can Improve ESG

There is no doubt that the movement to address climate change is not only here to stay but is also gaining momentum in both consumer and business sectors with Environmental, Social and Governance (ESG) initiatives becoming a top priority for both companies and for investors. According to the Co-op’s 2020 Ethical Consumerism Report, between 2010 and 2019, ethical consumer spending in the UK rose from £46bn to £46bn.

In fact, the climate concern has become so urgent that in April 2020—at the height of the global pandemic—more than 70% of citizens across 14 countries felt it was its own crisis that needed an answer. 

Driven by a combination of COP26 outcomes, net-zero carbon goals and public pressure, investors and consumers are increasingly putting their money where their values lie, adding pressure for companies to tighten the ESG ship or risk going under.

For many, the biggest challenge is in collecting and reporting data, and developing a plan to achieve stated goals. For others it’s simply too difficult to quantify and make measurable progress.

At the heart of the challenge is ESG Reporting – the disclosure of environmental, social and corporate governance data. As with all disclosures, the purpose is to shed light on a company's ESG activities while improving investor transparency and inspiring other organisations to do the same. 

The value of such ESG reporting is that it ensures organisations consider their impacts on sustainability issues and enables them to be transparent about the risks and opportunities they face. 

The process sector faces significant challenges in prioritising environmental-related ESG when most of our fuels and electricity still come from carbon-based sources, even as renewables gain ground. As a result, many are still coming under fire for slow progress, despite having made major strides.

But climate isn’t the only ESG issue—human safety, purpose-driven business practices and fiscally sound management are also part of the equation. Consumers and investors expect the companies they do business with to do good by the planet, its people and their pocketbooks, demanding more than just feel-good statements.

According to a recent article from Deloitte, consumers are “looking for organisations to put purpose at the core of their operations, caring for the issues that concern their employees, communities, industries, and the world at large.”

In addition, there are issues around future regulation and legislation – companies that take ESG factors into account will likely be better placed to deal with new laws as and when they come into force. By contrast, those that fail to take adequate steps on ESG issues will not only be more susceptible to regulatory risks, they might also have to pay more for insurance, and their access to capital could be costlier. Likewise, they may even find that other companies’ ESG policies prevent them from doing business with them.

And, as an additional benefit, a company’s long-term sustainable or ethical perspective can also have a present-day impact on its employees. Increasingly, people want to work for businesses whose values reflect their own – whether it be on environmental issues, treating their workforce well or linking CEO pay to performance. A 2017 survey by Deloitte found that millennials were more likely to be loyal and stay more than five years (34% v 24%) at a company that provided charitable opportunities than one that didn’t.

But there are real business benefits to an ESG strategy, too. ESG risk exposure erodes competitive advantage, while achieving ESG goals drives business value, lowers operating costs, helps companies tap into new markets and boosts productivity.

Process companies need to balance business needs against shareholder pressure, and there are some surprisingly simple solutions. Here are six ways companies can achieve ESG goals that satisfy both investors and the public.

(1) Reduce energy consumption

Lowering energy usage across facilities means less electricity production, which reduces environmental impact. But doing that while maintaining productivity in an industrial facility can be difficult—you can’t just shut down equipment to save on energy.

One of the fastest and easiest ways to slash energy use is to upgrade to modern LED lighting. Not only is LED lighting 80% more efficient than conventional lighting, which means lower energy use per fixture, it also offers better visibility with higher lumens per watt, which can mean fewer LED fixtures are needed to light the same area. It also requires fewer consumables—there are no bulbs to change out—which has the knock-on effect of reducing the energy required to produce standard fixtures and bulbs.

(2) Use more sustainable energy sources 

There’s been a tremendous push toward the adoption of renewable sources, especially offshore wind. Whilst it’s not an immediate solution for total energy supply, the ongoing conflict in Ukraine has certainly focused European attention on reducing its reliance on Russian gas supplies.

Companies can also employ renewable sources themselves where it makes sense, for example, using wind and solar to power low-demand needs such as lighting, HVAC and more, which has the welcome side effect of helping to insulate from the volatility of oil and energy costs.

(3) Reduce maintenance demand

Facility maintenance is resource intensive and dangerous for staff, especially if it requires working at heights to address overhead issues, like constantly changing light bulbs. It also requires special equipment and extra energy, and often requires shutting down production.

Investing in better performing, longer-life products reduce maintenance cycles, keeping employees out of harm’s way, and lowers resource demand and costs, freeing up funds for more mission-driven investment.

By investing in more robust, industrial-grade equipment that’s built for harsh and hazardous applications, companies can drastically reduce the time and resources spent on maintenance, along with the waste (both hazardous and non-hazardous) involved in disposing of spent parts.

(4) Emphasize safety

The humanitarian aspect of ESG means creating safer, healthier work environments for people, both within primary facilities and across the supply chain. Just as reducing pollution protects our planet’s wellbeing, reducing the risk of accidents and injuries protects the wellbeing of our people.

Slip, trip and fall accidents and contact with objects and equipment are some of the most common non-fatal work injuries that result in time off work. Reducing this risk can be as simple as upgrading facility lighting and focusing on overall improved visibility.

Adequate lighting has proven to reduce the risk and prevalence of accidents and injury, and reduce fatigue which can aid productivity. It also makes for a more invigorating environment that keeps staff engaged and responsive to safety risks.

(5) Focus on metrics that matter

Neither consumers nor investors have time for projections and estimates – they want real, measurable proof. For a long time, ESG metrics have been hard to quantify, but the industry is rapidly moving toward globally standardised metrics and disclosure requirements.

Investors need assurance – 97% feel sustainability disclosures should be audited to prove credibility and reliability, and two out of three said those audits should be as rigorous as financial audits.

Deploying measurable solutions allows companies to prove the impact of their ESG reporting with both quantitative and qualitative data. For example, start by focusing on metrics like energy consumption, water management, greenhouse gas emissions and safety performance data, including data from across your supply chain. Next, address social impacts like community relations, workforce and leadership diversity, and employee health and wellbeing. 

(6) Ensure the WHOLE organisation understands the importance of ESG

There’s been a tremendous boom in hiring ESG talent over the last few years, but merely hiring a director to oversee the programme isn’t enough. One of the biggest mistakes companies have made in striving for ESG success is failure to decant those goals across the company.

Fortunately, that tide is turning as organisations embed ESG resources within departments across the company. Today, nearly a third of organisations in the USA have a dedicated sustainability resource embedded within their facilities department. And as ever more UK companies prove the benefit of doing so, we can expect to see ESG further permeate the culture and operations.

Now is the time to take action!

By all accounts, 2022 will be the year of ESG with more pressure than ever on companies to set and meet objectives. And as pressure mounts, the penalties for not making satisfactory progress have become increasingly severe.

The reality is that companies that hesitate to make ESG a priority risk losing their opportunity to establish themselves as leaders and jeopardise their ability to remain competitive, attract investors and employees and, ultimately, survive in the long term.

With inflation on the rise and costs going up, some companies may be hesitant to invest in solutions to meet ESG goals. But with demand for these technologies only increasing as more organisations catch on, process companies must act now to get ahead of mandates or it may cost more in the end, both in terms of capital expenditure and loss of competitive advantage.