How to Start ESG Targets in Your Business

The manufacturing landscape is undergoing a significant shift. Consumers and investors are increasingly stressed upon transparency and accountability on environmental, social and governance (ESG) practices. The UK government is adamant on regulating environmental sustainability within the manufacturing sector. New regulations and frameworks, like the UK Green Taxonomy, are emerging to guide responsible business practices.?

Hence, for manufacturing businesses in the UK, establishing strong ESG targets is no longer just a “good thing to do,” it’s a strategic advantage. However, navigating the complex world of ESG can feel overwhelming, especially for busy sustainability officers in the UK manufacturing sector. Amidst the regulations and stakeholder stress, it is essential for businesses to set clear ESG targets. But do you know where and how to make a start??

In this article, we'll look at practical steps needed to set effective ESG targets.? Whether it's complying with evolving government regulations or creating a more sustainable future for your business, we have got you covered. Follow the step-by-step guide mentioned below to increase your brand reputation. Lastly, your business will be able to attract responsible investors and work towards improving the overall operational efficiency of your business.

Let’s get started!

What are ESG Targets?

ESG targets are specific objectives a manufacturing business sets to improve its environmental, social, and governance performance. There are three key areas defined by measurable goals:

• Environment: Targets can focus on reducing resource consumption (e.g. energy, water, raw materials), minimising waste generation (production waste, pollution), and increasing use of renewable energy sources.?

An example of an environmental target would be to reduce scope 1 and 2 GHG emissions 45% by 2030.?

• Social: Social targets can address employee well-being, diversity and inclusion practices, community engagement, and ethical sourcing of materials.

An example of a social ESG target would be to donate 5% of profits to causes aligned with a company’s core purpose by 2030.?

• Governance: Governance targets focus on ensuring ethical business practices, transparent decision-making, and strong corporate oversight of ESG initiatives.?

An example of a governance target could be to link 30% of executive short-term incentive plans to ESG performance by 2025.?

Step-by-Step Guide to Setting ESG Targets

Setting ESG targets for your manufacturing business is a gradual process that involves careful planning and impeccable execution. From assembling a team and understanding the focus point of your business, to setting SMART goals, sustainability officers have their work cut out. To make your life easier, here is a detailed step-by-step guide that can be followed by UK manufacturing businesses when starting ESG targets:

Step 1: Building the Foundation: Setting the Stage for ESG Success

Before diving into specific ESG targets, it’s crucial to lay a strong foundation. This initial phase involves building a cross-functional team and conducting a comprehensive baseline assessment:

Assembling Your Team

Setting ESG goals is not a one-man job! You’ll need representatives from across your organisation who understand the environment, social responsibility, and governance (ESG) landscape. Don’t limit yourself to traditional “Green” departments. Involve representatives from operations, finance, marketing, and human resources. This ensures a nicely-rounded expertise of your agency’s impact.?

Companies also can search for folks that are captivated with sustainability and own relevant expertise in their respective areas. A group with diverse backgrounds and stories will bring about a richer dialogue and result in more comprehensive ESG targets. By bringing together diverse perspectives, you’ll gain a holistic view of your company’s ESG performance too.?

Conducting a Baseline Assessment

The baseline assessment is your chance to establish a clear starting point. Begin by analysing your current performance across environmental, social, and governance metrics. Then move towards gathering data that is quantifiable and trackable over time. Focus on key performance indicators (KPIs) relevant to each ESG pillar. For example, for the environment, tracking energy consumption in kilowatt-hour (kWh) and waste generation in tons.?

The assessment should also consider social and governance aspects. Companies can analyse employee demographics to understand diversity and inclusion. During the assessment, companies can also review existing policies related to ethical sourcing, anti corruption and risk management.?

A great way to conduct a swift baseline assessment is to utilise data already collected by different departments like utility bills, waste management reports, and human resource records, etc.?

The Role of a Sustainability Officer

He or she leads the baseline assessment and provides support to the team in a number of ways. Firstly, they must spearhead data collection and analysis to ensure accuracy and completion. The officer is also responsible for translating raw data into actionable insights for the team. They also identify areas where the company excels and areas for improvement. Once the baseline assessment is complete, the sustainability officer collaborates with the team to establish realistic and achievable ESG targets.?

Step 2: Prioritise Your Focus

ESG encompasses a broad range of environmental, social, and governance issues. While all are important, some hold greater significance for your specific business. A materiality assessment helps you identify the most impactful ESG issues - your company’s “material” issues. Think of it like prioritising the trees in the forest that matter the most to your business and stakeholders.

Materiality Assessment

It is a process that analyses the intersection of two key areas:

Firstly, it considers how your operations affect the environment, society, and governance practices. For instance, a manufacturing company might evaluate its energy consumption, waste generation and labour practices.?

Secondly, a materiality assessment also identifies the ESG issues that matter the most to your stakeholders, such as investors, employees, customers, and communities. Here are some of the benefits you can avail from a materiality assessment:

1. Set more effective ESG targets: Focus your resources and efforts on the issues that matter the most, leading to more impactful results.
2. Enhance stakeholder engagement: Demonstrate your understanding of their concerns and commitment to addressing them.?
3. Improved decision-making: Integrate ESG considerations into core business strategies for long-term sustainability.?

Let’s see how a materiality assessment can translate into specific ESG focus areas for a manufacturing company:

• Analysis: The assessment reveals high energy consumption in production processes as a significant environmental impact and a concern for investors focused on sustainability.?
• Focus Area: “Reduced energy use in production by 20% within two years” becomes a clear and measurable ESG target.
• Analysis: Large volume of waste generated. Community groups concerned about pollution.
• Focus Area: “Implement a 50% waste reduction program through recycling and process optimisation.?

Step 3: Setting SMART Goals for Impactful ESG Action

Now that you have identified your most critical ESG issues through a materiality assessment, it’s time to translate them into actionable goals. Enter SMART goals - the roadmap to achieving your ESG aspirations.

What are SMART Goals?

SMART is an acronym that stands for:

• Specific: Clearly define what you want to achieve, avoid ambiguity.?
• Measurable: Establish a way to quantify your progress and quantify success.
• Achievable: Set goals that are ambitious yet attainable with dedicated effort and resources.?
• Relevant: Ensure your goals align with your overall ESG priorities and business strategy.
• Time-bound: Set a clear deadline for achieving your goals to maintain focus and urgency.?

SMART goals are crucial for effective target setting because they provide a clear direction and framework for your ESG efforts.?

• Increased Focus: They prevent your ESG initiatives from becoming scattered and ensure you’re working towards well-defined objectives.
• Improved Accountability: Measurable targets allow you to track progress and hold yourself accountable for achieving results.
• Motivation and Celebration: Reaching milestones fosters a sense of accomplishment and motivates teams to stay engaged.?
• Enhanced Transparency: Communicating SMART goals demonstrates your commitment to ESG progress to stakeholders.?

Let’s revisit the focus areas identified through the materiality assessment in step 2 and craft SMART ESG goals for a manufacturing company:

• Focus Area 1: Reduce Energy Consumption in Production

• Non-SMART goal: Be more energy efficient in production

• SMART goal: Reduce energy consumption in production processes by 20% within the next two years, by implementing energy-saving technologies and optimising production workflows.?

• Focus Area 2: Implement Waste Reduction Program

• Non-SMART goal: Minimise factory waste

• SMART goal: Develop and implement a comprehensive waste reduction program by the end of the year, achieving a 50% recycling rate for all production materials and a 25% overall waste reduction by 2025.?

Through these two example focus areas, you can see that SMART goals transform your ESG priorities from aspirations to actionable plans. This allows you to track progress, celebrate successes, and continuously improve your impact.?

Remember, SMART goals are a dynamic tool - Review and adjust them as needed to ensure they remain relevant and drive continuous improvement in your ESG journey.

Step 4: Develop an Action Plan

You’ve identified your critical ESG and set SMART goals for tackling them. Now it’s time to translate these goals into a concrete action plan - your roadmap to achieving measurable ESG targets.?

Why Do You Need an Action Plan?

Think of an action plan as a bridge between your aspirations and their realisation. It provides a clear path with concrete steps on how to achieve your ESG goals. Here’s how it benefits your ESG journey:

• Improved Efficiency: An action plan defines tasks, timelines, and responsibilities, ensuring efficient use of resources and time.?
• Enhanced Communication: It fosters clear communication across departments and stakeholders, keeping everyone aligned with the goals.?
• Increased Accountability: By assigning ownership for specific actions, the plan promotes accountability and ensures progress is tracked.?
• Flexibility and Adaptability: The plan can be adjusted as needed based on progress, changing circumstances, or new opportunities.?

Key Consideration for Your Action Plan

To create a robust action plan, consider these vital elements:

• Resource Allocation: Identify the resources required to achieve a goal. This includes financial resources for equipment or technology, personnel with the necessary expertise, and any external support needed.?
• Integration with Business Strategy: Ensure your ESG targets and action plan seamlessly integrate with your overall business strategy. This fosters a holistic approach where ESG considerations become a driving force for long-term sustainability and success.?
• KPIs and Data Management: Establish key performance indicators (KPIs) to measure progress towards your goals. KPIs should be specific, measurable, achievable, relevant and time-bound - just like your goals.?

Implement reliable data management systems to track your KPIs effectively. This allows you to monitor progress, identify areas for improvement, and demonstrate your commitment to transparency with stakeholders.?

Putting it into Action

Let’s revisit the focus areas identified earlier and see how they translate into concrete action plans:?

• Focus Area 1: Reduce energy consumption in production (SMART Goal: Reduce energy consumption by 20% in two years.)?
• Focus Area 2: Implement waste reduction program (SMART Goal: Achieve a 50% recycling rate and 25% overall waste reduction by 2025)

Remember, a well-defined action plan is a living document. Review it periodically to evaluate progress, adapt to converting circumstances, and ensure it maintains to guide you efficiently for your ESG journey.?

Step 5: Implementation and Communication

Your ESG action plan serves as your roadmap to success, but its effectiveness hinges on strong implementation and clear communication. Here’s how to navigate these crucial steps:

Leadership Buy-In

Securing leadership buy-in is paramount for the successful implementation of your ESG targets. Leaders who champion ESG initiatives ship a powerful message at some stage in the enterprise, creating a way of life of sustainability and motivating groups to include those objectives. Here’s how leadership could make a difference:

• Provide Strategic Direction: Integrate ESG considerations into the overall business strategy, aligning goals with long-term vision and mission of the company.?
• Allocate Resources: Ensure sufficient financial, personnel, and technological resources are available to execute the plan effectively.?
• Empower Teams: Delegate ownership of specific action within the plan, ensuring accountability and employee engagement.?

Stakeholder Engagement

Effective communication with stakeholders is vital throughout your ESG journey. Keeping stakeholders informed demonstrates your commitment to transparency and builds trust in your ESG efforts. Here is how to engage your stakeholders:

• Investors: Communicate your ESG goals and progress through regular reports and investor briefings. Showcase how your ESG strategy aligns with long-term financial sustainability.
• Employees: Keep employees informed about ESG initiatives and their role in achieving them. Encourage employee participation through internal communication channels and training programs.
• Customers: Highlight your commitment to sustainability in your marketing and communication materials. This ensures clients make knowledgeable selections and potentially build brand loyalty.

Putting Communication into Action

Let’s revisit our previous examples and see how communication performs its role in implementation:

• Focus Area 1: Reduce energy consumption in manufacturing
• Focus Area 2: Implement waste reduction program

Remember, effective communication is an ongoing process. Regularly update stakeholders on your progress, address concerns, and celebrate your achievements. This creates transparency, builds trust, and keeps everyone engaged in your journey towards a more sustainable future.?

Step 6: Monitoring and Reporting

Last step on our guide to setting ESG targets involves monitoring and reporting. By this point, you have already established the goals, devised an action plan and have started implementing and communicating. Now it’s time to track progress towards your ESG targets. Here’s why tracking progress and monitoring the project is essential:

Importance of Tracking Progress

• Measuring Environmental and Social Impact: Monitoring allows you to gauge the effectiveness of your initiatives. Is your company lowering its carbon footprint? Are you fostering variety and inclusion inside your personnel?
• Identifies Opportunities and Challenges: As you track, you’ll uncover areas where your ESG efforts are excelling and areas needing improvement. This data empowers you to capitalise on success and address challenges before they become roadblocks.?
• Demonstrates Accountability: Tracking progress showcases your commitment to ESG targets. It allows you to hold yourself accountable and show stakeholders you’re serious about creating powerful environmental and social change.?

Transparency and Stakeholder Reporting

Open communication with stakeholders is key. Regular reporting on your ESG performance builds trust and transparency. Stakeholders including investors, customers and employees, are increasingly interested in a company’s ESG efforts. Here’s what reporting allows you to do:

• Showcase Achievements: Share your progress and celebrate milestones achieved towards your ESG targets. This transparency builds trust and demonstrates commitment to sustainability.?
• Maintain Credibility: Regular reporting allows for independent verification of your ESG performance, bolstering your credibility and reputation.?
• Engage Stakeholders: Reporting also creates a dialogue between the company and its stakeholders, allowing them to understand your ESG journey and potentially offer valuable feedback or suggestions.?

By effectively monitoring progress and maintaining open communication, you can ensure your ESG targets are more than just aspirations, but a measurable roadmap for creating positive change.?

Additional Considerations for Manufacturing Businesses in the UK

Building on the foundations of a strong ESG strategy, there are some additional considerations specific to manufacturing businesses in the UK. These considerations concern both the broader regulatory environment and the unique challenges faced by different manufacturing sub-sectors.

Relevant Regulations and Framework

The UK government is setting a framework for mandatory ESG reporting for large companies. While the exact requirements are still under development, manufacturers should be aware of these upcoming regulations and begin incorporating ESG considerations into their business strategies.?

The UK Green Taxonomy is a classification system that defines sustainable economic activities. Manufacturers can use the Green Taxonomy as a guide for setting ESG targets aligned with national sustainability goals.

Industry-Specific Considerations

It’s important to recognise that specific ESG targets will vary depending on the manufacturing sub-sector. For instance, a textile manufacturer will likely be aware of objectives related to sustainable material sourcing and water usage, whereas an electronics producer might prioritise decreasing e-waste and power intake at some point of production.?

By considering both upcoming regulations and their enterprise’s unique environmental and social influences, producers within the UK can proactively set ESG objectives that advantage both their enterprise and the environment and society.?

Conclusion

In today’s world, implementing a robust environmental, social and governance (ESG) strategy is no longer optional, it’s essential for businesses to thrive. This article has provided a roadmap for setting impactful ESG targets, empowering companies to create positive change for both their bottom line and the environment.?

The foundation for impactful ESG targets lies in a strong connection to your company’s core values. This alignment allows employee buy-in and ensures authenticity in your efforts. However, don’t try to boil the ocean. Focus on the most critical ESG issues for your industry and operations through a materiality assessment.?

Once you have identified these areas, craft Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) targets to ensure clear and meaningful progress. Remember, transparency is key. Openly communicate your ESG goals and progress with stakeholders to build trust and accountability.?

Finally, recognise that ESG is a continuous journey, not a one-time fix. Regularly review and update your targets to ensure ongoing improvement. Are you struggling with what you need to know about scope 1, 2 and 3 carbon emissions, contact us today for all the help you need.?