Manufacturers measure success using a wide variety of key performance indicators (KPIs). Many use profits and margins as a basis for gauging success, and still more are realizing that modern success goes beyond money.
That’s where environmental, social, and corporate governance (ESG) standards come into play. ESG standards help investors—and consumers—evaluate a company’s commitment to things like sustainability practices and community outreach.
Today, ESG practices go a long way toward instilling confidence in your products and practices. Local manufacturing success is as much about corporate responsibility practices as it is financial performance.
That’s why smart business leaders understand the importance of environmental, social, and corporate governance and its impact on public relations and your bottom line. It’s in your best interest to apply ESG best practices to your business goals and strategies if you want to manufacture locally and succeed.
What is Environmental, Social, and Corporate Governance?
Environmental, social, and corporate governance is an old idea with a snazzy new acronym.
According to Investopedia, ESG standards are a way to tell if a company is being environmentally friendly, socially responsible, and holding itself accountable on an organizational level.
Environmental criteria consider how a company performs as a steward of nature.
Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Again, none of these ideas is new, which is why it’s easy for manufacturers like AirBoss—which has always tried to apply ESG-like standards to company operations—to stand out from the competition.
“Historically, there was a perception that looking at sustainability and growth and trying to improve your carbon footprint was more expensive,” says AirBoss Executive Vice President Chris Figel. “But the reality is, even if it’s more expensive in the very short term, it’s been shown time and time again that the gains come through pretty quickly.”
Why do investors like socially responsible companies? Because a focus on more than just profits establishes clout and secures trust.
According to Aflac’s annual corporate social responsibility study, 73% of investors and 77% of consumers are more likely to invest in or purchase a product from a company that demonstrates a commitment to social, economic, and environmental issues.
Why ESG Standards Are Important for Local Manufacturing Success
According to a study conducted by research firm Opimas, ESG-data driven assets were worth more than $40 trillion in 2020. That’s a considerable piece of an ever-growing pie, and manufacturers want their slice. Smart business leaders realize that investing more resources into ESG practices is a smart move.
Figel explains, “It’s taken time for [environmental issues] to be accepted, and it’s taken time for people to realize that these are things that need to be dealt with. But as they’ve come around to that, it’s inevitable that [investors] are going to look at businesses and say, ‘What are you doing about this?’”
Figel adds, “And from that came the whole ESG thing. Which is really investors holding companies accountable: having their businesses be sustainable, using renewable resources, and when you combine all of that, this is going to happen one way or another.”
ESG standards don’t replace traditional manufacturing success metrics, but they infiltrate every aspect of the manufacturing landscape. Everything from factory floor health and safety practices to supplier sourcing and product recyclability serve as benchmarks for investors and consumers.
Companies like AirBoss make positive outward impacts through environmental initiatives, community building, and celebrating the diversity of their workforce and communities. This, in turn, translates to a better understanding of what it means to succeed locally as a manufacturer.
“A lot of temptation to outsource to low-cost countries has to do with the wages that you pay,” says AirBoss President and COO Chris Bitsakakis, “What we’re doing is we’re becoming a lot more sophisticated in understanding the total cost, … [and] you start to factor in all the elements to make a better decision.”
Manufacturers Succeed When ESG is a Priority
There will always be a vocal subset of manufacturers who will find a reason (usually financial) to justify offshoring manufacturing operations. For some, the perceived benefits outweigh the pitfalls. For others, the quick wins from offshoring aren’t enough to justify moving manufacturing overseas.
“As you think about this stuff from a sustainability perspective, from an ESG perspective, you often find that you’re actually better economically,” says Figel. “It’s just changing the perception and the way people think about it more than anything else.”
As a result of being environmentally conscious with processes and practices—and supporting communities through charitable giving and job creation—AirBoss of America and its subsidiaries continue to succeed in a crowded marketplace. We do this by balancing traditional success metrics with a modern ESG mentality to provide added value to customers and investors.
“Part of the way you fight against [offshoring],” offers Figel, “is you make your products higher quality, you make your products more sophisticated, and you find other ways to add value for your customers.”