Sustainability is rapidly becoming one of the key drivers of industrial transformation for the rest of the decade, reveals the MLC’s latest exclusive research results.
The manufacturing industry’s urgent pursuit of more sustainable operations and approaches is accelerating rapidly. While there may still be a way to go for some companies, fundamental shifts are underway at an ever-increasing rate among manufacturers across many sectors as they strive to create more sustainable practices in multiple areas of their business. Alongside digital adoption, sustainability is rapidly becoming equally as important as a key driver of widespread industrial transformation for the years ahead.
The results of the MLC’s latest survey on Sustainability and the Circular Economy reveal marked progress in sustainable developments in manufacturing within just the last year – from an increased adoption of corporate-wide sustainability policies, to the number of formal commitments to Net Zero targets, the appointment of dedicated sustainability-focused roles to drive change, the importance of digital technologies in supporting more sustainable practices, and increasing senior-level recognition that sustainability is now essential to future competitiveness and growth.
Perhaps most influential for future progress, there is now an overwhelming belief among 90% of all senior manufacturing executives that, due to manufacturing’s use of raw materials and often complex production processes, the industry has a special responsibility to society to become more sustainable and move towards a future circular industrial economy.
A Competitive Issue
Over the last 12 months alone, the MLC survey clearly shows that the proportion of executives who now regard the importance of sustainability commitments as essential to future competitiveness and growth has leapt by a full 20 points, from 38% in 2021, to 58% this year (Chart 1). That marks an irreversible shift in attitude about how critical sustainability has now become for the future of their business.
The proportion of executives who now regard sustainability as essential to future competitiveness and growth has leapt by a full 20 points to 58% this year.
What’s more, a significantly greater number of those executives are actively implementing extensive corporatewide sustainability strategies across their organizations to support their sustainable goals, increasing from just 39% of companies in 2019, to 50% in 2021, and now to over two thirds of companies (68%) in 2022 (Chart 2).
And a third of those companies (33%) have now further formalized those strategies by appointing a dedicated Chief Sustainability Officer to help drive sustainable initiatives and change across the organization (Chart 3).
What’s Driving Change?
It’s also important to note that the underlying motivations driving this transformation are not simply about compliance in the face of rising regulatory requirements worldwide, or cost-cutting moves, though both of these are still significant.
The primary drivers today are very much about what the company stands for, and how it wants to be perceived by both internal and external influencers. Better alignment with corporate values (73%), a belief in creating a cleaner and healthier environment (68%), and improving the company’s reputation among customers and investors (66%), dominate the key priorities driving sustainable improvement in the latest survey (Chart 4).
Also interesting over the last year, is that significantly more companies are also now starting to regard their sustainability initiatives as opening up new business opportunities, with the number of companies citing new growth opportunities rising from the bottom of the 2021 motivation list at 30%, to 48% this year, now almost half of the companies in the survey.
Those motivations are now driving change across a broad spectrum of corporate activities too, with over half the respondents reporting specific sustainability goals and metrics across almost all key functions in the company. These are most apparent in manufacturing and production (79%), supply chain (69%) and product design and development (67%), but also in areas that have attracted less attention in the past, such as transportation and logistics (56%) and partner compliance (51%) (Chart 5).
These goals and policies are also covering a broader range of key sustainability criteria, especially in energy efficiency and reduction (90%), waste reduction (84%), water usage reduction (74%) and materials efficiency (70%) (Chart 6).
Seventy percent of companies now say they believe 4.0 technologies will be ‘extremely’ or ‘fairly significant’ to reaching their sustainability targets by 2030.
There is also an indication that a number of companies, just under a third so far (30%), have now introduced specific goals for reductions in the use of plastics, too. It will be interesting to track how this figure changes in future surveys as external pressures to reduce plastics usage become more intense in the years ahead.
Net Zero Targets
The primary focus on energy efficiency and reduction, combined with the widespread transition to more renewable energy sources to power industrial facilities and offices, is intrinsically linked to meeting Net Zero goals, where 45% of respondents now report that they have announced formal Net Zero targets, compared to just 32% last year, further evidence of the accelerating sustainability shift now underway across the industry (Chart 7).
The timeline for achieving those critical Net Zero targets has also improved, with 30% of respondents now saying they aim to hit Net Zero by 2030 (Chart 8), compared to only 20% in 2021, an increase of 50% of companies in the last twelve months.
The Digital Dimension
A further significant shift has been the increase in the number of companies now recognizing the importance of applying digital solutions within their sustainability efforts, whether it’s in managing and monitoring key resources, using analytics to optimize operations, or measuring and reporting on sustainability progress. Seventy percent of companies now say they believe 4.0 digital technologies will be ‘extremely’ or ‘fairly significant’ to reaching their sustainability targets by 2030 (Chart 9), up from 52% in 2021.
Many of those 4.0 technologies are already being put to good use, with analytics, PLM, and IoT sensors regarded as currently having the most impact for companies in achieving their sustainability and Net Zero goals (Chart 10).
55% of companies now report that they are actively working with their supply chains and manufacturing partners to align sustainability efforts.
What’s more, many companies are now moving towards a more direct alignment between their corporate digital adoption approaches and sustainability strategies, so they better complement and support each other (50%) as companies strive to transform and green their operations for the future (Chart 11).
The People Factor
Engaging employees in sustainable progress is, of course, a key factor in any company’s ability to successfully implement its policies and meet its targets. This year’s survey reveals that almost two thirds (64%) of responding companies are taking employee education seriously and now have overall sustainability awareness programs in place (Chart 12). Almost a quarter (23%) have also introduced specific job training courses on sustainability, and 12% have established formal accreditation and certification programs.
There is also a growing trend for companies to create internal systems that monitor and directly link employee sustainability performance with some form of reward or target metrics. Almost two in five companies (38%) now have such systems in place (Chart 13).
An increasing number of companies are also beginning to acknowledge that their sustainability stance is having a growing influence on their ability to attract and retain staff as more and more employees seek to work for companies with a strong sustainability profile as their preferred employers. Forty four percent of companies in the latest survey (Chart 14) now believe that their company’s sustainability initiatives are a key factor in, or are actively used to support, their talent recruitment and retention efforts, up from 36% in 2019.
Greening the Supply Chain
As any manufacturer will know, being able to manage internal sustainability activities is significantly easier than trying to implement policies across often diverse and widely distributed partner networks, yet this is becoming an ever more pressing need as global Scope 3 sustainability regulations and reporting requirements develop. Manufacturers seem to be rising to the challenge, as 55% of responding companies now report that they are actively working with their supply chains and manufacturing partners to align sustainability efforts (Chart 15).
In addition, 55% also say that they either already have full Scope 3 reporting processes already in place (18%) or have partial processes in place and are currently rolling out further aspects across their partner networks (27%) (chart 16). Though a complex issue, this is one area that is likely to see increasing focus in the years ahead.
Manufacturing leaders continue to maintain a strong belief that sustainable change must happen, and that manufacturing’s sustainable shift will continue to transform industrial organizations at an ever-accelerating rate.
Seeking Circular Value
Greater progress is certainly being made in the use of more circular economy approaches to industrial operations. A substantial 88% of companies now believe that circular economy approaches will be either ‘highly impactful’ or ‘fairly impactful’ to the future of manufacturing (Chart 17).
As companies recognize that there may be new business opportunities or even revenue streams from better managing and recycling materials, components, and even products at end of life, many companies have introduced specific criteria into their new product design and development processes to ensure more sustainable, circular economy outcomes. For example, 64% of companies say they have design criteria to support the recycling of some or all materials at product end of life, while over a third (36%) plan for the reuse of some components, and one in five (22%) hope to be able to refurbish products to extend their usefulness (Chart 18).
ROI/Funding Challenges Remain
Nevertheless, for all the significant progress the industry had made towards more sustainable operations and approaches over the last year, there are still some lingering issues facing many companies and sustainability teams in terms of preparing clear return on investment cases, and securing adequate funding for sustainability initiatives, especially in the current economic climate of rising interest rates, inflation, and global trade uncertainties.
A lack of a clear business case (46%) and a lack of funding (43%) are highlighted as the two primary barriers to further sustainability progress as companies move into 2023, with a third also citing a lack appropriate production technologies to support sustainable activities, probably reflecting the prevalence of less sustainable legacy assets that can often take a long time and significant investments to replace (Chart 19).
Overwhelming Support for Change
However, there is also evidence in this list of challenges that most senior leadership teams do not seem to lack either the understanding or the commitment to a more sustainable future – identified by only 14% of respondents as a potential barrier and ranked second from the bottom of the table.
This strongly supports the results of the final question in this year’s survey, designed to gauge individual attitudes among senior leaders about how they regard the importance of sustainability and more eco-friendly, circular approaches at an industrial level.
An overwhelming 90% of all the senior respondents agree that, due to its use of raw materials and often complex production processes, manufacturing does indeed bear a special responsibility to society to become more sustainable and accelerate the transition to a future circular industrial economy in the future (Chart 20).
That high percentage continues to be consistent and is even up slightly from the 87% last year, confirming that whatever the challenges ahead may be, manufacturing leaders continue to maintain a strong belief that sustainable change must happen, and that manufacturing’s sustainable shift will continue to transform industrial organizations at an ever-accelerating rate in the years ahead. M
Part 1: SUSTAINABILITY STRATEGY
1. Significant Increase in Manufacturers Believing Sustainability Is Essential to Competitiveness and Future Growth
Q: How does your company regard the importance of sustainability commitments to its competitive profile and future growth?
2. Over Two Thirds Now Have Formal Corporate-wide Sustainability Strategies in Place
Q: How are your company’s sustainability initiatives organized and deployed?
3. A Third Also Have Dedicated Chief Sustainability Officers in Charge
Q: Who in your company is tasked to drive corporate sustainability initiatives?
4. Corporate Values, Environment, Reputation Drive Sustainability Efforts; New Growth Opportunities Rising in Importance (Ranked by ‘Most important’)
Q: What are your company’s primary motivations for embracing sustainable practices?
5. Manufacturing, Supply Chain, Product Development Key Areas of Focus
Q: Does your company’s sustainability strategy currently include specific goals and metrics for the following activities?
6. Energy, Waste, Materials and Water Top Sustainability Goals
Q: Which specific policies, codes of conduct, or goals covering the following sustainability criteria are included in your company’s sustainability approach?
7. Almost Half Have Already Announced Net Zero Targets
Q: Has your company publicly announced a Net Zero emissions target?
8. 30% Aim to Hit Net Zero by 2030
Q: What is the timeframe for achieving this Net Zero emissions target?
Part 2: TECHNOLOGY INVESTMENTS
9. 70% Now Believe M4.0 Technologies Significant to Reaching Sustainability Targets By 2030
Q: How important are Manufacturing 4.0 technologies to support your company’s current sustainability initiatives, including Net Zero targets, and to your ability to achieve future goals by 2030?
10. Analytics, PLM, IoT, New Materials, Having the Most Sustainability Impact Today
Q: Which of the following M4.0 technologies are already having the most impact on achieving your sustainability goals, including Net Zero targets, today? (Top 3)
11. M4.0 Strategies Increasingly Aligned with Sustainability Strategies
Q: Please indicate the extent that you would agree with the following statement: “Our company’s Manufacturing 4.0 strategy directly complements and is directly aligned with our corporate sustainability strategy”.
SECTION 3: ENGAGING EMPLOYEES IN SUSTAINBILITY
12. Around Two Thirds Educate Employees on Overall Sustainability Issues
Q: What level of sustainability awareness provision and/or formal training does your company provide for employees, either internally or in collaboration with outside agencies? (All that apply)
13. Two in Five Companies Also Reward Employees for Sustainability Performance
Q: Are manufacturing management and employees incented or measured on their sustainability performance?
14. Sustainability Becoming Increasingly Important to Talent Attraction and Retention
Q: Do you consider your company’s sustainability initiatives to be a key factor in, and are actively used to support, your talent recruitment and retention efforts?
SECTION 4: SUPPLY CHAINS AND CIRCULAR ECOSYSTEMS
15. Over Half Actively Work with Suppliers on Sustainability
Q: Do you actively work with your supply chain and manufacturing partners to align your sustainability efforts?
16. 55% Already Have Full or Partial Scope 3 Reporting Processes Underway
Q: Do you have a formal process in place for monitoring and reporting indirect emissions from upstream and downstream across your company’s value chain, known as Scope 3?
17. 88% 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?
18. Recycling Materials and Reuse of Components Increasing; Yet One in Five Still Not Designing for Sustainability
Q: During your product design and development process, which of the following are formal design criteria related to product end-of-life?
SECTION 5: SUSTAINABILITY CHALLENGES
19. Business Case and Funding Remain Inhibitors to More Sustainable Progress
Q: What do you feel are the most significant barriers to increasing sustainability in your manufacturing and production activities?
SECTION 6: SOCIETAL RESPONSIBILITY
20. Yet 90% 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?
About the authors:
Paul Tate is Co-founding Executive Editor and Senior Content Director for the Manufacturing Leadership Council. He is also Secretary to the MLC Board of Governors.
Survey development was led by Paul Tate, with input from the MLC editorial team and the MLC’s Board of Governors.