Here’s why ESG adoption is a must for businesses

Gone are the days when ESG (environmental, social, and governance) was considered a passing trend or just a catchphrase.

Today, ESG is one of the critical factors in the success of businesses as the world is undergoing a major shift in priorities.

Recognising the importance of corporate values and achieving long-term benefits, many companies in the Fortune 100 have made ESG integration a priority, solidifying its importance in today’s business landscape. It’s no longer a box to tick, but just good business.

Investing in ESG initiatives not only aligns with ethical and responsible business practices, but also sets companies apart from their competition.

According to a 2022 study by McKinsey titled Does ESG Really Matter – and Why? companies prioritising ESG outperform financially, with high ESG scores having a median TRS 3.5 per cent higher than low ESG scores from 2016 to 2018.

The modern supply chain is at the forefront of this transition, as companies seek ways to reduce their environmental impact and implement more sustainable business practices.

Governments, too, are playing a key role in promoting ESG-friendly practices. For one, the UAE has launched initiatives such as the UAE Energy Strategy 2050 and the Dubai Clean Energy Strategy 2050, aimed at making the country a global leader in clean energy and sustainability.

Similarly, Saudi Arabia’s Vision 2030 plan places a strong emphasis on renewable energy and sustainability, including the launch of the world’s largest solar project, the King Salman Renewable Energy Initiative, and ‘The Saudi Green Initiative’, which encourages environmentally responsible practices in the private sector.

Collaboration is key to a greener future

With an eye for a more sustainable future, a comprehensive analysis was conducted by Schneider Electric to improve sustainability and reach 2030 goals. An important aspect of reducing carbon emissions involved collaborating with suppliers and vendors, as 70 per cent of emissions stem from the supply chain.

The analysis of 46 industrial manufacturing plants across the UAE’s key sectors, including energy, F&B, paper and wood, and chemicals among others, was conducted in collaboration with the Ministry of Industry and Advanced Technologies (MoIAT) and the Ministry of Energy and Infrastructure, represents an integral step in driving energy efficiency throughout the UAE’s industrial field.

The assessment’s insights offer manufacturers a roadmap for transforming their business models to be sustainable and net zero, thereby facilitating the adoption of the Fourth Industrial Revolution’s innovations.

ESG and the manufacturing sector

According to the World Economic Forum, the manufacturing sector, which makes up 20 per cent of global carbon emissions and 54 per cent of global energy consumption, is one of the largest contributors to overall global emissions, making it critical that companies and governments explore a more sustainable approach: circular economy.

The circular economy offers a trillion-dollar growth opportunity for various industries, as reported by the World Economic Forum but requires a steep shift in company operations to prioritize sustainability, equity, and transparency.

The transition from a linear manufacturing model to a more sustainable circular model calls for a significant cultural shift across the value chain.

Companies must rewire mindsets and functionalities, where they prioritise sustainable practices, such as reducing waste and maximising resource use.

The good news is that demand for sustainable manufacturing processes is growing in the Gulf, with governments and companies investing in numerous renewables and sustainability programmes. These include the ‘UAE Net Zero by 2050’ strategic initiative is a national drive to achieve net-zero emissions by 2050, Saudi Industrial Development Fund (SIDF) which is financing renewable energy projects in the kingdom and Oman 2040 Vision, which targets 20 per cent renewable energy consumption by 2030 and 35-39 per cent by 2040.

The transition to a circular economy also presents challenges, such as reducing waste, increasing recycled materials, shifting to renewables, and ensuring supplier sustainability.

With this in mind, a careful approach is important because, in the long term, the shift will benefit the operations, brand equity, and long-term value of products.

Sustainable supply chain management

The Forth Industrial Revolution, where technology and data play a crucial role, is also driving this change in the supply chain industry.

A data-driven approach is crucial to promoting and implementing ESG principles across the modern supply chain.

Technology can yield impactful results in sustainability if companies reduce their carbon footprint and improve energy efficiency. For example, the use of connected devices and the internet of things (IoT), can help companies monitor their energy usage and being able to reduce it.

Predictive maintenance software and analytics are also key for companies to reduce downtime, increase efficiency, and improve the lifecycle of their products.

It is clear that companies must prioritise sustainability in their supply chain operations if they want to ensure long-term business success and minimise their environmental impact.

It is important that they invest in sustainability management systems, work closely with suppliers to develop sustainability standards and metrics, and ensure that their operations are transparent and accountable.

By doing so, companies can build a more sustainable future for the industry and set the stage for a bright future for the next generation.

Read: Maximising the potential of ESG investing in the MENA region

Manuel Alzugaray Rodrigues is the vice president for Secure Power, Gulf – Schneider Electric.