Human-caused climatic changes are no longer a new phenomenon, and one of the prime examples that recently occurred was the Los Angeles wildfire. Strong winds and a lack of rain were among the reasons for the blaze. Experts say climate change is altering conditions, leading to catastrophic events like this. So, what precautionary measures are we talking to address it?
This is where decarbonization comes into the picture. The manufacturing sector is one of the primary contributors to carbon dioxide and other greenhouse gases, causing global warming. Decarbonizing Manufacturing isn’t just about saving the planet, but it is also about staying competitive in a world where investors and consumers prioritize eco-friendly practices. ESG (Environmental, Social and Governance) audits have emerged as an essential tool in the transition, enabling organizations to identify and implement sustainable practices. By integrating ESG principles, manufacturing companies can align their operations with sustainability goals and contribute towards a greener future.
Why Is There a Need for Decarbonizing Manufacturing?
The manufacturing sector accounts for 25% of global emissions as of 2022, with energy consumption, resource extraction, and waste generation being the major contributors. Over three decades, the IPCC (Intergovernmental Panel on Climate Change) has shed light on climate change, contributing to the understanding of its causes and consequences and the options for risk management through adaptation and mitigation. IPCC’s Fifth Assessment Report provided the scientific input into the Paris Agreement, which aims to strengthen the global response to the threat of climate change by keeping the increase in the global average temperature well below 2ºC above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5ºC above pre-industrial levels. According to the International Energy Agency (IEA), under current policy settings, the share of fossil fuels in the global energy supply is projected to decrease from around 80% to 73% by 2030, with global energy-related carbon dioxide (CO₂) emissions peaking by 2025. This anticipated peak in emissions underscores the urgent need for the manufacturing sector to decarbonize
By implementing sustainable technologies and renewable energy resources, manufacturers can reduce their carbon footprint while aligning with the demands of environmentally conscious consumers. However, to achieve this, a structured approach is needed, and that’s where ESG audits become vital.
Role of ESG Audits in Driving Sustainability
An ESG audit is a framework used to evaluate a company’s practices and performance on various sustainability and ethical issues. It also suggests ways to measure business risks and opportunities in those areas. Key components of an ESG audit include:
- Environmental Impact (carbon consumption and efficiency, carbon footprint, waste management, etc.)
- Social Practices (employee well-being, community contributions, etc.)
- Governance (ethical leadership, transparency, etc.)
By suggesting actionable insights, ESG audits help manufacturing sectors or companies to set realistic decarbonization goals and track progress. These audits also boost investor confidence, as stakeholders today prioritize companies with strong ESG performance.
Strategies for Decarbonization Using ESG Frameworks
Decarbonizing manufacturing requires a multi-faceted approach, guided by the ESG audit reports. Some of the effective strategies are:
- Switching to Renewable Energy Sources: This is one of the steps that nowadays is widely being considered. Transitioning from fossil fuels to renewable energy reduces carbon emissions. Wind, solar, and hydropower offer cost-effective and, importantly, clean alternatives that can provide power for industrial processes.
- Upgrading to Energy-Efficient Technologies: Upgrading machinery can contribute in lowering energy consumption significantly. Technologies like automation systems and smart sensors enable real-time monitoring, thus improving efficiency.
- Implementing Circular Manu Practices: Reusing and recycling materials are the main ways through which a circular economy reduces waste. Manufacturers can use recycled materials in their supply chains and create goods with a greater lifespan.
- Engaging in Carbon Offsetting: If direct emission reduction seems unlikely, then companies should opt for carbon offset projects like afforestation or renewable energy development so that they can neutralize their impact.
- Supply Chain Optimization: ESG audits can help in identifying inefficiencies in the supply chain, such as unsustainable sourcing processes or high-emission modes of transportation. The overall emissions can be reduced by switching to local suppliers and low-carbon logistics methods.
Industry Highlight
Quite a few leading manufacturers have already taken ESG-driven measures to reduce their carbon footprint. For Example:
- General Motors: By 2040 the General Motors plans to become carbon neutral in its global operations and products. They will also set science-based targets aligning with the net-zero trajectory by 2050. The company has also signed the Business Ambition Pledge for 1.5⁰C.
- Siemens: Siemens aims to be the world’s first major industrial company to achieve a net-zero carbon footprint by 2030. The company plans to cut its carbon dioxide (CO2) emissions, which currently total about 2.2 million metric tons a year, in half by as early as 2020. To achieve these goals, Siemens will invest some €100 million over the next three years in order to reduce the energy footprint of its production facilities and buildings.
- McKinsey: By 2025, McKinsey will reduce their direct emissions by 25%, their travel emissions by 35% per FTE, and transition to 100% renewable electricity. By 2030, they will further reduce their direct and travel emissions by a combined 55% per FTE and address all their unabated emissions through carbon removals. By 2050, they have committed to reducing their direct emissions by 90% absolute and travel emissions by 97% per FTE and to permanently remove all residual emissions.
Challenges in Implementing Sustainable Practices
- High Initial Cost: You need to upgrade machinery to switch to renewable energy, and this requires a significant amount of investment. Many companies’ financial health doesn’t support this.
- Technological Barriers: Many companies don’t have access to the latest technologies needed for decarbonization.
- Regulatory Complexity: Going through a complicated process of sustainability regulations and standards can be frustrating.
Even though there are challenges, but the opportunities are immense. Prioritizing sustainability gives businesses an upper hand by attracting consumers who prefer eco-friendly businesses. Moreover, decarbonization also encourages innovation, creating new markets for eco-friendly goods and services.
Why Manufacturing’s Future Relies on Decarbonization
The entire world is watching, and customers are demanding environmentally friendly goods, investors are giving preference to businesses that prioritize ESG, and governments are imposing harder sustainability laws.
Manufacturers who don’t adjust face the risk of falling behind. However, companies that adopt decarbonization and ESG audits are creating robust, future-ready enterprises in addition to cutting emissions.
Decarbonizing manufacturing is one of the most critical steps in addressing the global climate crisis. Businesses can evaluate their environmental impact, pinpoint areas for development, and adopt sustainable practices by utilizing ESG audits. In addition to reducing carbon emissions, these initiatives enhance long-term profitability, brand reputation, and operational effectiveness.
It is our joint duty to move toward a greener future. To bring about significant change, manufacturers, governments, and consumers must collaborate. The manufacturing industry can set the standard for creating a resilient and sustainable environment for future generations by adopting decarbonization and ESG principles.