A Pathway for SMMs to Cultivate Responsible Growth and Innovation
June 27th, 2024
15 years professional, advises clients on a wide range of data strategies, business models, AI, innovation and transformation, and alliance partnerships in sectors including high-tech, insurance, and financial services.
Over a decade of experience as an executive technology consultant with a focus in artificial intelligence (AI), cybersecurity, innovation, risk management, and strategy advising clients across academia and industry.
10 years in management ESG consulting and digital transformation in high-tech, manufacturing, and insurance. Delivered ESG solutions for industry clients and providing ESG thought leadership
4 years of experience in social science research as data scientist passionate about leveraging data analytics and storytelling to solve business problems and drive growth through data-driven marketing strategies
Small and Medium Manufacturers need ESG Strategies Now More Than Ever
The advent of the internet and the interconnectivity of technology, such as social media, has leveled the global business landscape and shifted from an exclusive domain of large corporations to an accessible arena for small and medium-sized manufacturers (SMMs).
Similar to their large corporation counterparts, SMMs are being called upon to have a greater sense of Environmental, Social, and Governance (ESG) responsibilities. For instance, about 77% 1 of SMMs reported receiving ESG-related requirements from their clientele in the United Kingdom (UK). This example underscores the growing importance of integrating environmental, social, and governance considerations into business operations.
As SMMs pursue global expansion, embedding ESG principles into their corporate culture and strategic framework can be challenging. Further, pushing strategic planning into implementation is another obstacle to overcome. Based on an ESG Manufacturing report in the UK, 52%2 said they do not have the resources needed to align with increased customer demands, due to financial constraints or a lack of in-house expertise.
Successful integration requires innovative approaches to align these principles with business objectives, ensuring consistent and effective sustainability practices. Successful adoption of ESG practices empowers smaller businesses to thrive responsibly and innovatively worldwide, helping them to align with ethical expectations and promote sustainable business models.
Challenges Impact Implementation of ESG strategies
We’ve identified three specific areas of ESG challenges that organizations must overcome.
Culture Challenges
The depth of cultural immersion expands internally and externally to an organization. Internally, stakeholders may be resistant to change and adopting new standards or procedures. Externally, local community culture and norms are often misunderstood or misinterpreted. As a result, each interaction can intensify tension, increasing the gap between cultural transparency and problem resolution. This discordance further has the potential to impede swift decision-making, thus undermining effective execution. Furthermore, it may foster a subtly biased understanding of local needs and interpretations, leading to missteps in establishing stakeholder relationships.
Technology Challenges
Navigating the array of disparate systems and data solutions available can pose a significant challenge when attempting to construct a comprehensive and cost-effective plan to achieve their goals. Additionally, accurately discerning when each solution is needed presents its own difficulty. Inability to leverage technology effectively could detrimentally affect the timeliness and precision of decision-making, consequently impacting the speed to market of our products and services.
Regulatory Challenges
SMMs often struggle with limited resources and expertise to meet evolving ESG standards, leading to high compliance costs. These costs can divert financial and human resources from core activities. The lack of standardized reporting frameworks results in inconsistent ESG performance comparisons. Additionally, SMMs may lack the technology and data management systems for thorough reporting. Balancing regulatory compliance with daily operations strains smaller organizations, making it harder to compete with larger firms. Multinational SMMs face the added challenge of diverse and costly regulations across jurisdictions, and the evolving ESG criteria require ongoing policy and practice updates.
Solutions to Overcoming Challenges
For small and medium-sized manufacturers (SMMs), adopting Environmental, Social, and Governance (ESG) principles often begins with tentative exploration rather than sweeping changes to their mission and vision to overcome these challenges. Overcoming these challenges is often slow due to limited budgets and internal hesitation. As a result, SMMs tend to take incremental steps, evolving through rapid iterations. This iterative philosophy allows companies to align their ESG endeavors with their approach, ensuring that it is financially viable and strategically sound.
Solution 1: Shifting Culture through Inclusive Dialogue and Quick Wins
The first solution is to alter the company culture to view and embrace change as an opportunity rather than a threat. It involves actively engaging with stakeholders across the organization to communicate the vision (including benefits) of Environmental, Social, and Governance (ESG) through collaboration. By positioning responsible corporate behavior as a cornerstone of the ESG strategy, the organization's next level of advancement is set in motion. Winning over the culture and establishing an open mindset is a critical first step for ESG growth. This growth can be accelerated through identifying and showcasing quick wins. Open discussion forums, workshops, and presentations aimed at showcasing the ESG roadmap (and results) can play a pivotal role in elucidating the rationale behind expansion plans, while simultaneously removing the fear of blending with a new culture. Being able to set a short agenda with small buy-ins to leverage quick wins creates incentives for more employee engagement.
Solution 2: Internal Collaboration and Data-Driven Decision Making
To complement solution 1, businesses should take advantage of what makes them unique—their people and their data—to overcome ESG challenges. Internal teams often operate independently and do not openly share data. Establishing cross-functional partnerships can surface unique perspectives and highlight opportunities to enhance ESG. One partnership proven to be effective is unifying data analytics with environmental/sustainability risk management. Both groups offer expertise and can share data that can be analyzed using artificial intelligence (AI) and machine learning (ML) techniques. This form of advanced analytics enables the generation of novel insights and offers a deeper understanding into the challenges each company is facing. This information can be used downstream to facilitate decision-making and help understand a complex area quantitatively. By doing so, businesses create competitive differentiation using the assets they already have.
Solutions 3: Global to Local Thinking
Companies should employ a Global-Local (GloCal) approach that applies an overarching, uniform ESG strategy to all operations, with minor adjustments being made to account for unique requirements at a local level. Having a central design is critical to championing humanity, revering biodiversity, and advancing ecological equilibrium in a consistent manner. This approach allows for a universal design that is flexible and executes decision-making processes that can account for local cultural, economic, and regulatory contexts. In addition, global labor strategies and policies should respect regional laws and cultural practices to promote work-life balance and fair employment. By integrating these principles, companies can ensure their globalization efforts are commercially successful, socially responsible, and ecologically sustainable.
Solutions 4: Training and Change Management
Training is pivotal in guiding employees toward the envisioned future and alleviating their apprehension about embracing change. Tailored training programs are essential at various organizational levels to facilitate mental adjustment, prepare individuals for forthcoming changes, and provide them with a detailed execution plan. Organizations can foster a cohesive journey alongside their employees by ensuring internal stakeholders are equipped with the necessary skills and understanding. This not only cultivates a culture of synergy but also proves crucial for successful localization efforts, minimizing disruptions to local communities and fostering a respectful transition process.
Conclusion
The strategic integration of Environmental, Social, and Governance (ESG) principles is crucial as small and medium-sized manufacturers (SMMs) expand globally, presenting both challenges and opportunities for sustainable growth and innovation. SMMs can utilize ESG strategies to enhance reputation, attract new customers, achieve cost savings and efficiencies, retain talent, manage risks, ensure compliance, and establish long-term eminence.
ESG adoption is often slowed due to cultural, technological, and regulatory barriers, but can be mitigated with four potential solutions:
Shift culture by having an open dialogue with employees and generating quick wins to create momentum.
Identify risks and responding by leveraging data and analytics.
Employ a Global-Local (GloCal) strategy to emphasize humanity, biodiversity, and ecological equilibrium.
Provide training to employees to bring everyone on the journey.
These solutions can assist SMMs in navigating global markets and establishing a resilient and sustainable business model leveraging ESG as a cornerstone for enduring success and competitive differentiation.
Reference
1&2 George. S, 2024, Report: Small manufacturers struggling to meet customers’ increasing ESG demands from https://www.edie.net/report-small-manufacturers-struggling-to-meet-customers-increasing-esg-demands/#:~:text=Similarly%2C%2077%25%20of%20the%20SME,impact%2C%20for%20better%20or%20worse.
Stay tuned for the following upcoming articles related to ESG strategies for SMMs
● Article on Artificial Intelligence (AI) and ESG
● Article on phases and approach to implementing a comprehensive ESG strategy
● Case Study Series: small and medium-sized businesses (SMMs) embrace the ESG strategies
● Case Study: A calculator to quantify the Impact of ESG strategy and initiatives
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About us
Drive ESG impact with Innovation. At London ESG Analytics, we embody the principles of Environmental, Social, and Governance (ESG) to usher in a new era of corporate responsibility and innovation. As a catalyst for change, we are dedicated to shifting mindsets, cultivating sustainable habits, and driving actions that deliver impacts on society and the environment. Our role as an advocate is evident through our efforts to inspire individuals, build stronger community bonds, and mobilize collective action towards common goals. In the spirit of guardianship, we are passionately committed to championing humanity’s causes, revering the rich tapestry of biodiversity that our planet hosts, and diligently working to advance ecological equilibrium. With these pillars, London ESG Analytics stands at the forefront of integrating ESG values into the core of business strategy, ensuring that every decision made drives economic growth and contributes positively to the well-being of our planet and its inhabitants.
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