Sustainability and Profitability Can Work Together

Dec. 27, 2021
It may be tempting, when faced with shortages, to temporarily start procuring raw material from unapproved suppliers--but it's better in the long run to stick to your goals.

From the COVID-19 pandemic to port congestion, from rising energy prices to evolving government regulations and product shortages, there is no end in sight to the challenges businesses face.

How can manufacturing organizations remain faithful to their sustainability and environmental strategies amidst continuous market disruptions?

It may be tempting, when faced with shortages, to temporarily start procuring raw material from outside the approved network of suppliers. Conditions may be such that organizations overlook the new supplier’s sustainability impact. Must companies pause on their sustainability journeys to stay afloat in uncertain, volatile times?

The World We Live In

One CEO recently told IDC, in very clear terms, that their organization will never compromise on sustainability, even when there is a struggle to obtain raw materials from suppliers.

Another senior executive, however, was perplexed by the problem of maintaining “sustainability with responsibility.” He talked about facing “a new storm every day.” Difficulties have included deciding whether to ship products in containers suddenly 10 times more expensive than they were three years ago—that is, if space on a container can even be found.

Sustainability is indeed vulnerable as executives struggle to navigate a topsy-turvy world. Companies must find a balance between environmental sustainability and commercial sustainability. Above all, businesses must stay profitable and deliver value to the board, shareholders and customers.

Crucially, building a sustainable company requires the establishment of transparent and measurable goals. IDC predicts that in 2023, 60% of G2000 companies will have environmental sustainability parameters embedded in their business KPIs.

Sustainability also delivers benefits to the organization that many not be easy to account for using traditional financial metrics. These include the benefits of compliance—and the boon of generating trust and employee and customer satisfaction.

At the end of the day, of course, everything is about securing shareholder value. But when there’s a low level of trust among customers, employees and society, business is unlikely to succeed for long.

Digital Is Inevitable

Digital technology can play a key role in enabling businesses to remain on their sustainable business journeys. IDC research () shows that manufacturing organizations that have made IT investments in both digital transformation and sustainability outperform their peers revenue and profit. Environmental, social, and governance (ESG) funds have outperformed the market consistently, even during the worst of the COVID-19 crisis.

An organization’s carbon footprint is a key focus of sustainability initiatives. The machines and non-production assets used by an organization cannot yet, by themselves, create this profile. However, by leveraging technology, an organization can measure and track its CO2 emissions across the entire production process, at a granular level.

As manufacturing companies progress in their digital transformation journeys, the door opens to “digital factory” technologies, such as converged IT and OT systems underlined with AI and physical and process automation,that enable precise control, monitoring and management of production processes. These innovations offer an incredible opportunity to reduce resource consumption. Once the true extent of carbon emissions is known, more efficient decisions on reduction can be made and communicated to end customers.

The role of digital technology thus becomes inevitable. IDC predicts that by 2025, 75% of organizations will deploy software tools on premises, in the cloud or at edge locations that monitor energy consumption. This will improve metrics and lead to reduced energy costs and improved sustainability.

In April 2021, the United Nations named Schaeffler Group, a leading global supplier to the automotive and industrial sectors, one of the world’s 50 Sustainability & Climate Leaders. Schaeffler has set the goal of making all its manufacturing processes, at all of its production sites worldwide, carbon neutral by 2030. Since 2020, production at one of its plants in Spain has been 100% carbon neutral.

Companies are also increasingly focusing on the recycling of products and components — even seeking to make them up to 100% recyclable.

Airbus, for example, has taken the lead in maximizing material reuse and recycling when it dismantles aircraft. In the automotive industry, Renault is seeking to become a leader in implementing a circular economy. It recently started the RE: Factory at its plant in Flins, France. Renault expects this facility to be Europe’s first dedicated circular economy factory for vehicles and mobility. The factory, to be developed from 2021–24, has four areas of focus: Re-trofit, aimed at extending the lives of vehicles; Re-energy, devoted to the use of green energy; Re-cycle; and Re-start, dedicated to research, innovation and knowledge-sharing.

Stay True to Your Green Goals

Here are some key questions manufacturing organizations should answer as they stick to their sustainability goals during times of rapid change:

  • What are the specific areas where we can make a sustainability difference?
  • How does the organization define sustainability? Does it include only the environment? Does it include diversity and inclusion (D&I)?
  • Do the sustainability goals of different company regions and departments align with corporate sustainability goals?
  • What should the KPIs be? How can they be measured?
  • Where does responsibility sit? Is sustainability a corporate-level responsibility only? Should engagement be driven at the local levels?

 Sustainability must be embedded in manufacturers’ digital transformation efforts. Sustainability must be a key parameter when selecting technology and defining use cases. The convergence of digital technology and circular manufacturing principles is taking us from “Industry 4.0”  to “Industry Green.0.”

In other words, to stay on the green journey, sustainability must become part of a manufacturing organization’s DNA. It must be included in each molecule of organizational processes. We believe this is the only way to build a resilient and sustainable manufacturing organization of the future.

Jan Burian is senior director, head of IDC Manufacturing Insights EMEA. Gunjan Bassi is research manager, IDC Manufacturing Insights EMEA.

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