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ML Journal December 2021

Manufacturing’s Sustainability Challenge: The Race is On

The desire to adopt more sustainable and environmentally responsible practices is now an overwhelming sentiment among manufacturing executives, reveals the MLC’s latest sustainability survey. But the pace of change still needs to increase if the industry is going to achieve the world’s Net Zero goal by 2050.

Manufacturing’s race to New Zero and the transition to a more sustainable and regenerative circular industrial economy is demonstrably underway. But while there are an increasing number of public promises and future targets being announced every day, and some noticeable achievements so far, overall practical progress still needs to accelerate to achieve the industry’s Net Zero goal.

The desire to do so among the manufacturing leadership community is now powerful, clear, and present. An overwhelming 87% of the senior manufacturing executives who responded to the MLC’s latest M4.0 Sustainability and Net Zero survey agree that the manufacturing industry has a special responsibility to society to become more sustainable and accelerate the transition to a future circular industrial economy.

What’s more, that sustainability transformation is regarded as either essential, or increasingly important, to the future competitiveness and growth of the companies they work for, say 72% of respondents (Chart 1).

The question now is no longer if, or whether, manufacturing needs to work to create a cleaner, greener, and more globally responsible industrial future. It’s all about the when, and how it can get there in the most effective and swiftest way possible.

Gaining Leadership Attention

While many companies were already pursuing their own sustainability strategies before the COVID crisis began in early 2020, the resultant strategic refocusing and global disruption over the last two years of the epidemic has had a positive impact on how leadership is now prioritizing its green efforts at a number of organizations. Respondents report that management focus on sustainability and Net Zero strategies has actively increased at a third of manufacturing companies as a result of COVID (Chart 2). And despite the urgent need to crisis manage a host of short-term issues during that period, a further 51% say their previous sustainability focus has nevertheless remained in place. Only 12% say the last two years of COVID disruption have actually decreased their management focus on a greener future.

Net Zero Momentum

With future competitiveness and growth at stake, it’s perhaps not surprising that a rapidly increasing number of those manufacturing companies are now publicly declaring their targets to reach Net Zero carbon emissions in the years ahead.

The MLC’s latest research results show that around a third (32%) of respondents already have publicly stated Net Zero targets in place (Chart 3), and while another 16% have not yet announced publicly, they already have Net Zero plans actively underway. A further one in five (21%) are still considering their New Zero stance and have yet to decide on their approach.

“Respondents reporting a formal corporate-wide sustainability strategy with publicly stated goals has risen noticeably over the last three years, up from 39% in 2019, to 50% this year.”

Yet that still leaves almost a quarter of companies who say they have no plans to announce any Net Zero targets. It will be interesting to see if this currently inactive section of the manufacturing community shifts its position as the pressures of competition, rising customer demands, regulation, and public pressure build in the decade ahead.

As Greg Barker, Chairman of global energy and metals company EN+, the largest aluminum company outside China, warned at the recent COP26 Climate Summit in Glasgow, in his view, companies that are not able to ditch their fossil fuel habits simply “don’t have a future”.

Not If, But When

The timeline for companies to reach their Net Zero goals inevitably depends on numerous determining factors, from industry sector to location to corporate ambition. However, the latest survey results suggest that around a third of companies have already set their Net Zero targets within the next 15 years by 2035 (Chart 4), and some early movers, around 14%, are already on plan to hit their Net Zero horizons as soon as 2025.

Reassuringly, over half the companies in the survey (55%) now have, or plan, Net Zero targets that fall within the 2050 timeframe highlighted by global climate change organizations as the date by which the world needs to achieve net zero emissions to try to keep future global temperature rises as close as possible to C1.5 degrees.

Nevertheless, a few companies (5%) are still looking at a longer timeframe of beyond 2050, and there remains a host of manufacturing organizations yet to declare any Net Zero intent. To reach the 2050 climate goal, these organizations may need to act soon to allow sufficient time to effectively transition to a carbon neutral operational status by the middle of the century.

Sustainability Structures in Place

Net Zero targets apart, the vast majority (72%) of manufacturing companies have already embedded some form of corporate sustainability structures and processes into their organizations (Chart 5). For example, the number of respondents reporting a formal corporate-wide sustainability strategy with publicly stated goals has risen noticeably over the last three years, up from 39% in our previous 2019 survey, to 50% this year. A further 22% say that while they may not yet have a formal strategy in place, sustainability initiatives are now embedded into business practices.

Those sustainability approaches and policies are also covering an increasing number of key criteria (Chart 6). Targeted reductions in energy usage (81%), waste (73%), water (60%) and improvements in material efficiency (60%) are becoming industry standard, while circular economy policies covering material reclamation (55%) and product lifecycle strategies including safe disposal (50%) are becoming more popular. Almost a half of respondents (45%) also say their companies are now either using or generating renewable energy to help power their operations.

“Over half the survey respondents now regard 4.0 digital tools as either extremely or fairly significant in their sustainability efforts.”

The way companies are managing and driving their sustainability strategies has also shifted over the last three years (Chart 7). The number of companies that have now established dedicated teams or functions tasked to drive corporate sustainability and Net Zero initiatives has risen from 51% in 2019 to 61% in the latest survey as leadership teams increasingly recognize the importance of focusing direct resources and management attention around their efforts.

A Reputational Issue

Interestingly, the key factors now motivating leadership teams to pursue sustainable practices have become more about corporate reputation and values than hard costs. In this year’s survey, respondents ranked an improved reputation among customers and investors (57%), the importance of a cleaner and healthier environment (56%), and better alignment with their corporate mission and values (56%), as their top three primary motivations for embracing sustainability (Chart 8). In the 2019 survey, reduced costs ranked at number three in the table, yet this has now fallen to number six on the motivation list at 38%. By contrast, customer requirements are clearly becoming more vocal and intense, rising from sixth to fourth as a key factor in driving more sustainable approaches.

This shift of emphasis is also apparent when respondents were asked which groups now most influence a company’s sustainability and Net Zero strategies. C-suite leadership teams remain as the primary influencers, yet their impact has risen sharply from 61% of respondents saying they were the most significant group in 2019, to 84% this year (Chart 9), perhaps reflecting a growing recognition by leadership teams that sustainability has now become critical to the company’s overall reputation and mission. This may also be linked to the fact that the influence of customers and consumers has also increased sharply over that period, from just 27% in 2019, to a substantial 54% this year. The market, it seems, is already playing a significant part in driving sustainable industrial change.

Forward Progress

Certainly, there has already been significant change in the industry’s attitude to, and ability to deliver, more sustainability in manufacturing enterprises (Chart 10). Compared to 5 years ago, 40% say they have already made significant progress in their sustainability achievements, up from 31% in 2019.

“It’s the level and power of human sentiment that is likely to make the most difference to how, and how fast, the manufacturing industry can develop more sustainable global approaches in the years ahead.”

Manufacturing and production activities have made the most progress in achieving their sustainability goals so far, according to the survey (Chart 11), with 63% of respondents saying these areas rank among their company’s top three areas of success. There are, however, other activities where progress has not been as impactful and may now be ripe for further attention, especially in supply chains (24%), transportation and logistics (15%), and partner compliance (10%).

These activities, of course, are inevitably more challenging to transform as they are essentially dependant on external factors, infrastructures, and ecosystems, unlike the directly controlled manufacturing facilities within the walls of the company. Nevertheless, as environmental performance and carbon footprints are increasing judged on the basis of full end-to-end value chains, rather than just in-house activities, companies may need to pursue sustainable ecosystem approaches more intensely in the future.

And although cost reductions may not rank as high on the overall corporate priority list of motivational factors in sustainability efforts these days, the survey results do indicate that cost factors dominate the list of key targets for in-house manufacturing and production facility improvements (Chart 12). The top two areas where respondents say they now have specific sustainability goals and metrics in place at their manufacturing plants include reduced energy consumption (67%) and less materials waste during the manufacturing process (64%), both of which have direct cost implications. Other areas of focus that also help manufacturers directly reduce production costs include more efficient use of raw materials (48%) and the use of reclaimed or recycled materials (45%), again delivering bottom line benefits.

The M4.0 Opportunity

For many manufacturing organizations, digital technologies have become fundamental enablers in how they streamline processes, measure performance, and virtualize operations to help drive sustainability. Analytical and predictive tools can also provide unprecedented insights into how best to maximize resources and reduce energy and waste. Virtual platforms, meanwhile, not only speed up processes and improve quality, but the ability to act remotely also cuts travel requirements and overall carbon footprints.

The recognition that 4.0 approaches have a direct role to play in helping to achieve sustainability and Net Zero targets over the decade ahead is clear. Over half the survey respondents now regard 4.0 digital tools as either extremely or fairly significant in their sustainability efforts (Chart 13). And they see some of the most advanced technologies currently being adopted today as having an increasingly important impact on their sustainability goals over the next ten years to 2030, especially augmented and virtual reality systems (80%), AI and machine learning (76%), and more advanced networking platforms like 5G (73%) that can deliver information in rapid real-time from assets, products, and partners alike (Chart 14).

Over half (57%) also highlight innovations in new materials as important to their greener future, while 69% anticipate the increased adoption of digital production techniques like additive manufacturing to help transform their production operations by increasing efficiency and maximizing the use of raw materials.

Towards a Circular Industrial Economy

Broader changes to the way the overall industrial sector operates are also expected to have a major impact on future business models and improvements in industry wide sustainability. Eighty one percent of respondents believe that the shift from traditional “Take, Make, Dispose” approaches to a more regenerative and circular economic model of “Refurbish, Reuse, Recycle” will be highly (38%) or fairly (43%) impactful for the future of the industry. Only a mere 4% still believe this accelerating shift toward a new industrial paradigm will have no impact at all (Chart 15).

Some of the key elements of that circular future industrial model are already being adopted by early movers in the industry. For example, over half the respondents (59%) now say their companies have design and development criteria to promote the recycling of all or some materials, while 29% also design with the reuse of some components in mind (Chart 16). There remain many areas for further progress at the majority of organizations, however, with only 16% who have intentionally designed refurbishment procedures, 15% who are actively designing products for easy disassembly at end of life, and just 10% who are exploring remanufacturing approaches. Over a quarter (27%) have still yet to formally embrace any of these design-driven circular economy practices at all.

Some of the key elements of that circular future industrial model are already being adopted by early movers in the industry.

Looking specifically at recycling, almost a third (30%) now provide ways for customers to return products to a dedicated recycling partner at end of life, and almost the same proportion (27%) have ways to return products directly to the manufacturer (Chart 17). Eighteen per cent even offer incentives to their customers to take one of their recycling options.

A Global Obligation

With all these various sustainability activities, targets, policies, opportunities, technologies, and areas of progress as the background to today’s manufacturing sector, the MLC thought it was especially important to stand back and take a broader view in this year’s survey as we begin what may be a pivotal decade in the development of a more sustainable industrial paradigm for the future.

More specifically, we wanted to know, not just what manufacturing companies now have underway or planned, but what manufacturing leaders and senior executives themselves, those who are now actively working in the industry on the front lines, feel about the manufacturing industry’s role in the race for sustainability in the face of increasingly urgent warnings about the impact of climate change this century.

The results cannot be underestimated or ignored. An overwhelming 87% of the senior executives who responded to the survey agreed that, due to the nature of manufacturing with its use of raw materials and complex production processes, the industry now has a special responsibility to society to become more sustainable and accelerate the transition to a future circular industrial economy.

Technologies can certainly help, but it’s the level and power of that human sentiment that is likely to make the most difference to how, and how fast, the manufacturing industry can develop more sustainable global approaches in the years ahead, from transforming operations, to slashing emissions, to creating more sustainable ecosystems, to driving climate smart innovation for the benefit of future generations.

That’s going to be the real challenge for global manufacturing over the next decade. Perhaps the most important challenge in the industry’s history.   M


Part 1: SUSTAINABILITY STRATEGY

 

1. Sustainability Seen as Key to Future Competitiveness and Growth

Q: How does your company regard the importance of sustainability and Net Zero targets to its competitive profile and future growth?


2
A Third Say COVID-19 Has Increased Leadership Focus on Sustainability

  Q: What effect has the COVID-19 pandemic had on
your leadership team’s focus on sustainability and
Net Zero initiatives?

 

3 A Third Have Already Announced
Net Zero Targets

  Q: Has your company publicly announced a Net
Zero decarbonization target?


4
A Third Aim to Reach Net Zero Within 15 Years

  Q: What is the timeframe for achieving
this Net Zero target?


5
50% Now Have Formal Corporate-wide Sustainability Strategies in Place

Q: How are your company’s sustainability / Net Zero
initiatives organized and deployed?


6
Corporate-wide Sustainability Policies Cover Increasing Number of Key Criteria

Q: Does your company’s approach include specific
policies, codes of conduct, or goals covering the following sustainability / Net Zero criteria? (All that apply)


7
Over 60% Now Have
Dedicated Sustainability Team

Q: Does your company have a dedicated team or function tasked to drive corporate sustainability / Net Zero initiatives?


8
Reputation, Environment, and Corporate Values Are Driving Change

Q: What are your company’s primary motivations for embracing sustainable/Net Zero practices? (All that apply)

 

9 C-Suite and Customers Have
Most Influence on Manufacturing Sustainability Strategies

Q: To what extent do the following groups influence your sustainability / Net Zero strategy?

Part 2: SUSTAINABILITY PROGRESS


10
40% Have Already Made Significant Progress in Sustainability Over Last 5 Years

Q: Compared to five years ago, how would you characterize your company’s sustainability / Net Zero progress and achievements so far?


11
Manufacturing Activities Lead; Partner Compliance and Logistics Lag

Q: In which of the following corporate activities do you feel you have made the most significant progress in achieving your sustainability goals so far? (Top 3)


12
Over Half Now Have Formal Goals/Metrics for Energy, Materials, and Waste

  Q: In your manufacturing and production activities specifically, which of the following areas have specific sustainability goals/metrics?  (All that apply)

Part 3: M4.0 & SUSTAINABILITY


13
Over 50% Believe M4.0 Will Be Significant to Reaching Sustainability Targets By 2030

Q: How important will Manufacturing 4.0 technologies
be to achieving your company’s sustainability and
Net Zero goals by 2030?

14 AR/VR, AI, and 5G Technologies Expected to Have Most Sustainability Impact by 2030

Q: Which of the following M4.0 technologies are already having the most impact on achieving your Sustainability / Net Zero goals today and which do you feel will have the most impact by 2030?

Part 4: The CIRCULAR INDUSTRIAL ECONOMY

 

15 81% Believe Circular Economy Approaches Will Increasingly Impact Manufacturing

Q: Looking forward, how impactful do you think the concept of a regenerative Circular Industrial Economy — where traditional ‘Take, Make Dispose’ approaches increasingly give way to ‘Refurbish, Reuse, Recycle’ approaches — will be to the future of manufacturing?

 

16 Recycling Increasing, But Significant Room for Improvement in Sustainable Product Design

Q: During your product design and development process, which of the following are formal design criteria related to product end-of-life? (All that apply)

17 30% Now Provide Programs to Return Products to Recycling Partner at End-of-Life

Q: Which of the following programs or processes does your company have in place that support product returns/end-of-life activities? (All that apply)

Part 5: SOCIETAL RESPONSIBILITY

 

18 87% Believe Manufacturing
Has a Special Responsibility to Society
to Become More Sustainable

Q: Due to the nature of manufacturing, with its use of raw materials and often complex production processes, do you think the industry has a special responsibility to society to become more sustainable and accelerate the transition to a future circular industrial economy?

Survey development was led by Paul Tate, with input from the MLC editorial team and the MLC’s Board of Governors.

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