Lead or Lose Out: The Strategic Value of ESG

By Andrew W. , CEO

I was recently invited to the CIBC Innovation Banking Podcast to share my perspectives on the value of environmental, social, and governance (ESG) for business growth. My mantra for ESG is, “if you abuse or misuse, you will eventually lose.” Businesses that are insufficiently attentive to their resources, people, and risks, including those in their supply chains, are setting themselves up for surprises. Resilient businesses are foresightful businesses.?

In today’s corporate landscape, there’s still a lot of hesitance and apprehension around ESG as a “feel good” endeavor. There’s also a sense that it’s being pushed onto businesses by regulators for political reasons. But as someone with deep roots in helping manufacturers work more transparently with their suppliers, I can confidently say that ESG isn't just feel-good work or a regulatory burden — it's an opportunity for operational efficiency and supply chain resilience.

Risk & Incident Avoidance

Recent enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) and problems caused by the COVID-19 pandemic have shown that supply chain disruptions are frictions to predictable progress. Nothing shuts down processes and cuts off profits quite like them.?

By prioritizing ESG, businesses can avoid similar risks and incidents that can cripple their operations and profits.? ESG discipline drives a structured, measurable framework for businesses to track both ethical and environmental risks and proactively mitigate inherent risks, be they related to carbon footprint or human rights abuses.?

Just as we invest in people and processes to prevent data breaches and other cybersecurity issues, the same mindset should be applied to supply chain ESG. We know our security measures are working by the absence of incidents, and view their success as having a positive impact on the bottom line. Supply chain ESG is similar: It protects the bottom line by proactively addressing potential disruptors and operational risks — risks like having goods blocked at the border due to forced labor concerns.?

Competitive Advantage & Differentiator

One reason manufacturers can be slow to adopt ESG management practices is because standards are still evolving, and there’s debate about where to begin, and within a given context, what should drive focus. However, waiting for a universal approach is not a winning strategy. While some wait for ESG to be simpler, allowing risk blindspots to grow, many manufacturers capture a competitive advantage by establishing themselves as the “sustainable” leaders.?

ESG is not a one-size-fits-all proposition. Each business needs to evaluate what's material to their operations and assess how upcoming disclosure requirements will affect their markets. But this means there’s opportunity for differentiation: Identify where your business can make the most significant impact and capitalize on what matters most to your customers. While every business has unique ESG challenges and opportunities, investors are still demanding standardized frameworks. They want assurance that their investments are safeguarded against non-financial risks.

Mandatory Non-Financial Sustainability Reporting

Brace yourself, because mandatory non-financial sustainability reporting is coming your way. This includes EU Corporate Sustainability Reporting Directive (CSRD) requirements and proposed climate-related disclosures in the U.S. This shift will underscore the need for comprehensive ESG strategies that not only mitigate risks but also demonstrate a commitment to sustainable business practices. As executives, we must anticipate this shift and plan accordingly, just as we would for any other new business requirement or trend.?

Supply Chain Collaboration

Successful ESG management requires collaboration across the entire supply chain. If we take the time to engage our suppliers, we often find that they are on the same sustainability journey as us. The weakest link in that chain can be the Achilles heel of your ESG strategy. If suppliers aren’t communicating, have low quality data, or are engaging in questionable practices (or all of these things), it is your business that will be held accountable.?

Take carbon emissions, for example. Your biggest carbon footprint is probably scope 3 emissions, covering supply chain and indirect emissions, which will soon be under the spotlight through mandatory climate-related disclosures. And let me tell you, the stakeholders who care about carbon emissions do care about scope 3.?

Join the ESG Conversation

Executives, especially in the manufacturing industry, must recognize that our stakeholders — investors, customers, employees, and the public — all care deeply about our ESG performance. We can no longer afford to view ESG as a peripheral issue. Instead, it should be at the core of our strategic decision-making.

How are you planning for long-term sustainable growth? What barriers are you facing to ESG adoption? Take 15 minutes out of your day to join the conversation and listen to my discussion on the CIBC Innovation Banking Podcast.?

If you’re an executive trying to understand just what’s at stake for ESG and the future of complex manufacturing, connect with me. Don’t get left behind.?