NAA Member News: Businesswise Solutions – The rise of ESG and the challenges for the automotive industry
Rather than only looking at financial performance, businesses are having to measure, report and improve their environmental footprint, their social impact, and how they govern themselves.
Environmental, Social and Governance (ESG) is attracting more interest from business stakeholders. But what exactly is ESG?
Stakeholders are increasingly prioritising ESG in their buying decisions, indicating a significant shift in the way businesses are assessed. This is due to stakeholders recognising that the most significant risks are ESG related rather than operational.
Further, poor or rapidly delivered products may pose a significant operational risk, but being caught manipulating carbon dioxide emissions data, as Volkswagen was, is significantly more damaging in the long term.
ESG initiatives demonstrate to stakeholders and the public that your business is ethical and trustworthy. However, their motivations may vary:
Employees – A strong ESG proposition can help businesses attract and retain quality employees, enhance employee motivation by establishing a sense of purpose, and increase productivity overall. Employee satisfaction is positively correlated with shareholder returns.
Customers – While customers have similar motives, they also recognise that poor sustainability practices (e.g. human rights, supply chain) or unsustainable and unsafe products are a result of poor ESG practices.
Investors – Largely driven by risk management and client demand, Investors recognise that companies that do well on ESG are less risky, better positioned for the long term, and more prepared for uncertainty.
Government – A strong ESG proposition can help businesses to earn subsidies and government support – particularly for the automotive industry, where subsidies and other forms of regulatory and legal interventions are prevalent.
The last two years have brought weak ESG credentials into sharp relief; climate change, COVID-19 pandemic, civil disturbance, and poor management are all instances of the impact that poor ESG can have on our lives.
Investors in the U.S. have begun to express their concern to the Government Accountability Office (GAO) about the lack of clarity in ESG information provided by companies – unsurprisingly given the voluntary nature of this disclosure.
What does this mean for the UK?
The UK should expect more regulations and disclosure.
Energy is typically the largest indirect cost most businesses face and features in multiple areas within a standard ESG framework. So it’s no surprise large businesses and groups containing large undertakings in the UK, are required to comply with the Energy Savings Opportunities Scheme (ESOS). As well as, mandatory reporting of their greenhouse gas emissions and energy consumption, under Streamlined Energy and Carbon Reporting (SECR).
So how will the automotive industry be affected?
Current trends such as zero emissions and carbon-neutral manufacturing demonstrate the growing significance of sustainability in the automotive industry.
As a result, car manufacturers and suppliers must reassess the long-term viability of their products and value chains, assuring compliance with legislative requirements while also maintaining cost-effective manufacturing and meeting the needs of consumers.
In November 2020, the UK became the first country to require mandatory climate-related disclosures, when it announced plans to require such disclosures across key sectors of the UK economy, including commercial companies and UK-registered large private companies, by 2025.
Climate change is probably the most significant single existential threat, with science conclusively demonstrating the link between CO2 emissions and global warming. Consequently, stakeholders in the automotive industry are likely to want reliable, trusted tools and analytics to help them understand and mitigate climate risk.
What is the UK’s contribution to stopping global warming?
The UK government has established a legal obligation for the country to achieve Carbon Net-Zero (CNZ) by 2050, with some milestones already established along the way; no new diesel or petrol cars by 2030, all electricity generation to be from renewables by 2035, all gas boilers to be capable of burning hydrogen by 2025 etc.
Where should the automotive industry focus first?
If you are in the Automotive Industry and do not already have a CNZ plan, this should become a priority because your customers will begin to look for suppliers who do. So, act now to gain a competitive advantage for your company and stay ahead of the competition.
Understanding when and where you consume energy is a good place to start. You cannot control your energy if all you have is a half-hourly metre; asset level consumption sensing is the first step on your path to CNZ.
Businesswise Solutions are part of the UK’s largest Commercial and Energy Advisors, helping energy intensive businesses take control of their business energy and support their ESG and Carbon Net Zero goals.
Contact / More Information
All enquiries can be directed to, Peter Catlow, Sustainability Consultant, peter@businesswisesolutions.co.uk
Additional information can be found on our website www.businesswisesolutions.co.uk
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