Can manufacturers' sustainability agendas measure up?

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When it comes to sustainability, we’ve all heard of the ‘three Rs’ – reduce, reuse, recycle. But what if I told you there are actually six?

Successful manufacturers today understand that environmental responsibility not only meets the needs of the planet and wider society but is an integral part of the entire manufacturing value chain and will deliver significant business opportunities and benefits.

The good news is that business leaders in the sector are gradually waking up to this, and are starting to create a more resilient working culture – one that is focused on aligning sustainability strategies with the organization’s strategy.

In part, this means defining and clarifying what truly makes sustainable manufacturing, which brings me back to those ‘six Rs’ – adding recover, redesign and remanufacture to the three we’re already familiar with.

It’s high time to go beyond traditional lean and green practices and incorporate a holistic six-R approach across the entire value chain because while manufacturing organizations globally have ambitions for their overall climate goals in the coming decade, few are on track to achieving their targets.

The cost of sustainability

Let’s get one thing straight: sustainable initiatives do not come at the cost of profitability and financial stability. In fact, they are distinctly tied to revenue growth and improvements in both environmental, social and governance (ESG) metrics and consumer demand. Establishing a sustainable foundation of manufacturing and technical practice is, objectively, a good thing.

Already, enterprise manufacturers are seeing the cost benefits of a commitment to environmentally friendly product creation – Philips, for example, registered 71% of total 2020 revenues as coming from green products and solutions. Moreover, in our recent report, eight in ten organizations say they experienced an enhanced brand reputation and improved ESG rating, and more than half reported improved efficiency, productivity, sales, and staff motivation levels. These are not trend-based or outlier figures. This is a sign of fundamental, significant attitudinal change to how sustainability equals growth.

A lack of alignment hinders progress

Manufacturers still have a long way to go before sustainability initiatives can be ingrained across the entire value chain. Recent research revealed that only 11% of the sustainability initiatives that are launched are actively being scaled across the organization. This correlates to a lack of executive experience in the roll-out or scaling of such initiatives, and challenges in correctly predicting the financial implications of moving to sustainable manufacturing models.

This is exacerbated by the lack of alignment between the sustainability executives and other functional executives. In our recent research, we found that less than one in three organizations are internally aligned on the priorities of sustainability across areas like production and operations, thereby further hindering the progress of the sustainability journey. Although neither point is causal to the other, both link to a lack of alignment that can spread across the entire supply chain.

The road to sustainable manufacturing

To drive and accelerate the sustainability manufacturing agenda, the role of technology and data is preponderant. This role is also profoundly different than in recent years. Indeed, technology is no longer simply a lever for optimizing a value chain but is at the heart of the value proposition of industrial companies. Reconciling the business agenda with environmental sustainability will enable manufacturing organizations to invest in technologies, such as IoT, digital twins, Artificial Intelligence, 3D printing, at scale and on purpose, to help business opportunities, profitability, and sustainability benefits work hand-in-hand.

By 2030, it’s expected that AI-enabled use cases will help organizations fulfil 11% to 45% of the economic emission intensity targets of the Paris Agreement, depending on the scale of AI adoption across sectors. What’s more, AI is further expected to reduce greenhouse gas emissions by 16% and improve power efficiency by 15% in the next three to five years.

However, this use of technology also comes with a carbon and economic cost that must be analysed. Managing this means understanding the direct and indirect consequences across the supply chain. While incorporating technology into any sustainability initiative, manufacturers should consider the entire value chain, as well as the long-term environmental effects and social cost.

How data will support sustainability strategies

The focus for many companies has been on Scope 1 emissions – direct emissions that an organization owns or controls. While this indicates that improving and expanding sustainable practices is a net positive, the work shouldn’t stop at Scope 1.

The majority of an organization’s carbon footprint falls within Scope 2 and Scope 3 emissions: indirect emissions related directly to the organization, and other upstream and downstream value chain emissions. By looking at the data for Scope 2 and Scope 3, manufacturers will have a more comprehensive overview of their practices as well as a better understanding of costs and revenue pressures.

This may seem like a lot, but the majority of the work has already been done. The task for manufacturers now is accelerating and scaling their sustainability plans to make their ambitious climate goals a reality.

To do so means looking at the data, working with customers and suppliers, and incorporating the six Rs of sustainability. Only then will the gap between ambition and reality begin to close, and the goal of net-zero become more realistic – without taking this action, organizations will struggle to meet the targets they’ve set out to achieve.

- The author, Corinne Jouanny, is Chief Innovation Scaling Officer at Capgemini Engineering.

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