How Are Companies Adopting the ESG Agenda in 2022?

With climate change problems mounting the world over, corporations are changing priorities - from planet to profit. Given sustainable practices, ESG adoption is growing and is evident from the fact that S&P 500 stocks that adopted ESGs increased by almost 30 percent from Q2 to Q3 in 2019 alone.

From the vaults of stakeholders

Institutional investors expect ESG integration across asset classes, regions, and fund sizes. According to a survey led by BNP Paribas, the percentage of asset owners who put over 25 percent of funds towards ESG increased from 48 percent in 2017 to 75 percent in 2019.

Where there is a business activity, there are watchdogs - the regulators. Today, all Hong Kong-listed companies must publish their ESG reports for financial years commencing 1st July 2020. The Hong Kong Government has also launched an HKD 100 billion green bond plan.

In essence, consumers expect companies to conduct business operations ethically and responsibly. According to a survey, a whopping 73 percent of millennials are willing to spend more on items that are deemed sustainable.

Even sustainability-driven companies shall benefit from better employee engagement and productivity. About 76 percent of millennials look at social and environmental commitments when contemplating working.

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Ways in which ESG can create value

Top-line growth

A robust ESG proposition goes a long way in helping corporations tap into new markets and expand into existing ones. For instance, when Unilever developed Sunlight, a dishwasher liquid that used much less water than other brands. This enhanced the sales of Sunlight and other water-saving products of Unilever. The revenue numbers outpaced the category growth by more than 20 per cent in water-scarce markets.

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Cost reductions

According to McKinsey’s research, effective execution of ESG can help combat operating expenses and affect operating profits by up to 60 per cent.

The 3M Group has garnered savings of over USD 2.2 billion since the “pollution prevention pays” program. Another corporation is FedEx. To date, about 20 per cent of its 35000-vehicle fleet is either electric or hybrid. The transition reduced fuel consumption by over 50 million gallons.

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Reduced regulatory and legal interventions

A power-packed ESG value system helps reduce the risks of adverse government action. For pharma and healthcare firms, the profits at stake can reach about 25 to 30 per cent. In the automotive, aerospace, defence and tech sectors, it can reach 60 per cent.

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Employee Productivity Uplift

Employee satisfaction positively affects shareholder returns. According to the London Business School, companies featured in the “Fortune 100 Best Companies to Work For” list created 2.3 to 3.8 per cent higher stock returns yearly than their peers for over 25 years.

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Asset Optimisation and Investment

A robust ESG value system elevates investment returns by allocating funds to sustainable opportunities such as renewables and waste reduction. For China, especially, the tailwind blows are pretty intense. The country is poised to create over USD 3 trillion in investment opportunities through 2030, ranging across sectors, including air-quality monitoring, indoor air purification and cement mixing.

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The way forward for companies in ESG adoption

Industry 4.0 and corporate culture

Both aspects conspire and pave a new way for sustainability. Embedding sustainability in daily operating procedures enables businesses to reach short-term and long-term goals faster and more effectively.

An example of this is the Flex campus in Zhuhai, China. Automation, analytics, and IoT technologies enabled the team to create a smart system that helps detect abnormal usage of resources. This solution curbed energy consumption by at least 20 per cent. Also, it lowered electricity and water consumption by 29 per cent and 31 per cent in 2019 and 2020, respectively. The crux of the quick resolve got served by self-correcting optimization processes or automated SMS alerts.

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AI-sensing quality control

At Analog Devices, AI-driven sensing solutions offered new opportunities for conducting sustainable business operations. Edge-based solutions got deployed for condition-based monitoring and similar tasks. The solution helped generate insights about asset performance and bid good riddance to energy-intensive processes. The result? A 98 percent reduction in energy consumption by monitoring the asset.

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Digital tools for enhanced well-being of people and the planet

Magic Leap was battling with a lack of skilled workers. And this led the manufacturing sector to seek alternatives. An alternative that Magic Leap leveraged was wearable devices and software paired with well-articulated success metrics. Add to this continuous, real-time measurement cycle, and these solutions enabled manufacturing companies to attain exponential cost and environmental savings. Here’s how!

The digital tools help curb travel time by 50 per cent and enhance production efficiencies by at least 200 per cent. Lastly, time savings via a 33 per cent fall in the ramp-up time for assembly operators.

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Real-time operational performance for unlocking new value

PTC leveraged the power of the IIOT foundation to enhance data visibility into machinery performance and energy consumption. The solution was actionable insights and a holistic view of multiple systems. These avenues enabled companies to reduce work-in-progress by 16 per cent and unplanned downtime by 30 per cent. Plus, energy consumption went down by 13.2 per cent against the target benchmark.

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Energy-driven decision making

For Rockwell Automation, it was the focus on attaining net-zero scope 1 and 2 commitments. This is where the synergistic blend of intelligent devices and innovative sustainability and energy management software helped reduce energy demand and enhance operational efficiency. A standard energy data model in reference to production, energy intensity and other performance metrics can be measured and improved.

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Energy management

Even today, several manufacturers lack critical insights about when and where energy gets used up. This is where the Schneider Electric Lexington Smart Factory in Kentucky came up with a solution. It leveraged IoT connectivity with power meters and predictive analytics. Energy consumption got reduced by 26 per cent, net C02 emission by 30 per cent, and water usage by 20 per cent.

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Automated calculation of carbon footprints

Today, consumers, regulators and other stakeholders desire accurate and validated measurements of product carbon footprints (PCFs). Unfortunately, gathering precise and authentic data across supply chain partners takes considerable effort. The available solutions are not scalable.

This is where Siemens solution came to the fore by automating PCF calculations from cradle to gate with product-level information.

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Supply chain resiliency

Here, the digital twin of standardized data points and certified sources and processes comes to the rescue for TUV SUD. This helped reduce the miles traveled, eventually helping with cost savings. The integrated solution led to a 21 per cent supply chain resilience, 75 per cent reduction of Co2 emissions and at least 90 per cent accuracy in risk management.

The solutions streamline the entire chain by tackling aspects of planning, design and operations.

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At the end of the day

Preservation of the planet is a global goal. And, ESG is paramount in achieving the same. All the stakeholders shall, in unison, make the world a better place. Apart from good PR and cost savings, there are concurrent benefits for everyone involved.