Lloyds Bank and manufacturing body Make UK have published a report revealing that the UK has seen a 48% increase in manufacturing firms setting environmental, social and governance (ESG) targets for their business, with 62% now doing so since 2021.
The report delved into the progress, opportunities and challenges faced by UK manufacturing firms looking to improve their ESG strategies and revealed that almost two-thirds of them expect to expand the scale of their targets in the next two years, due to increasing pressures from the labour market, government, investors, and customers.
The findings come ahead of plans to make ESG transition disclosures mandatory for many UK companies later this year.
At present, while 77% of firms are receiving ESG conditions or targets from their customers, only 48% said they have the resources required to meet them, with 27% not being given support by customers to do so.
The report also revealed that businesses are accelerating the ESG requirements of their suppliers, as 74% of firms have built ESG conditions into their procurement strategies, however, 45% are not aware of their suppliers’ performance against their targets.
It found the most prominent forms of ESG conditions set by manufacturers to be human capital-related, with 53% having stipulations on health & safety, 41% on human rights, 34% on labour rights, and 27% on diversity and inclusion.
Carbon emissions and nature are becoming increasingly important, scoring 24% and 12% respectively.
UK manufacturers said they expect carbon and biodiversity/nature to be the most likely requirements to increase in prevalence in their supply chain conditions.
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Lloyds Bank head of manufacturing and industrials Huw Howells said: “The research has shown a significant shift change in the number of manufacturers that are focusing on social purposes and environmental factors, while managing competing priorities and day-to-day challenges”.
“It’s particularly encouraging to see that larger companies are mostly in a good position in terms of formalised ESG strategies, corporate and supplier governance, and supplier management. However, these increasing requirements are creating financial and technological barriers for many firms and even more so for smaller firms in their supply chains.”
“It’s therefore important for manufacturers to work with their supply chains to ensure that ESG strategies are a sustainable collective achievement and a force for future growth.”
Make UK head of policy Faye Skelton said: “Manufacturers are raising their ambitions and commitments to ESG as the issue moves beyond solely issues relating to human capital”.
“Customers, suppliers, investors, and employees are now increasingly expecting that companies make the issue as core to their strategy as any other business objective.”
She added: “It’s now clear that ESG is becoming more than a ‘nice to have’ and rapidly rising up the boardroom agenda. As a result, those companies getting ahead of the game will clearly have a competitive advantage and those who have yet to take action risk being shut out of supply chains.”