It’s no secret that consumers have become more concerned about the sustainability of their products. This includes not just the environmental sourcing of the materials used in products, but also the social aspects of the manufacturing process. As a result, the Environmental, Social, and Governance (ESG) framework has become increasingly important for manufacturing companies.
So, what is ESG? And how does this framework impact your product compliance?
What is ESG?
ESG began as a way for investors to measure the sustainability and ethical impact of a business. It has quickly emerged as an important factor for other aspects of business as companies aim to reach sustainability goals, not just for investors, but also to improve brand reputation, attract customers, and reap the long-term benefits of improved sustainability.
There are three aspects to ESG that are essential for companies who want a strong ESG program.
Environmental
The Environmental tenet of ESG addresses the environmental impact of a business. For product manufacturers and suppliers, this will be especially applicable. This will include chemicals compliance, carbon footprint assessments, PFAS use and reporting, waste management practices, and SPCC programs among others.
Social
Social considerations for ESG address the social impacts of your business. This can include everything from community engagement to labor practices to employee engagement. This will also include product safety and responsible supply chain sourcing, as well as conflict minerals reporting. It’s all about how your company impacts people around the world, whether that is your own employees or the people who use your products.
Governance
Governance factors highlight the structure of an organization to increase operational transparency. This can include leadership practices, decision-making processes, executive compensation, and the overall corporate framework.
How Does ESG Impact Product Compliance?
As ESG principles continue to impact investment decision, companies have recognized that these tenets should be integrated into their product compliance strategies. But ESG is no longer just limited to investing; it’s become an important part of brand reputation, consumer trust, and overall sustainable practices. Which means it should be an important part of your product compliance.
If you are in the automotive industry, you should be aware that automakers will be asking for product carbon footprint information in the International Material Data System (IMDS). At first this will be on a voluntary basis, but later it will become mandatory.
Sustainable Sourcing
Sustainably sourcing materials is an essential part of a strong ESG program. This will include prioritizing eco-friendly sustainable resources, choosing suppliers with fair labor practices, and providing supply chain transparency to customers and consumers.
Conflict minerals reporting is a prime example of how ESG can be an important aspect in product compliance. When reporting conflict minerals, companies must disclose the origin of certain minerals in order to show they are not sourcing minerals that fund conflict and human rights abuses.
Chemicals Reporting
Remaining compliant with chemicals and materials compliance reporting regulations is just one part of having a strong ESG program. Chemicals reporting encourages companies to find alternative sources where possible, reducing their environmental impact.
The recent focus on per- and polyfluoroalkyl substances (PFAS) is a good example of this. Government entities and consumers alike are increasingly concerned about the impact widespread PFAS are having on the environment and human health. As such, we have seen new PFAS reporting requirements emerge and an increased emphasis on replacing PFAS in products.
Compliance tools are beginning to recognize this as well. For example, in the future, IMDS will address ESG concerns as they relate to chemical reporting.
Chemicals reporting also includes chemicals safety requirements, such as maintaining Safety Data Sheets (SDS), keeping an up-to-date Spill Prevention, Control and Countermeasure (SPCC) Plan, and training employees on the safe handling of hazardous chemicals.
Product Safety
A huge reason for the existence of product compliance is to regulate product safety, and this is even more true for ESG-aligned compliance programs.
Product safety will include not just chemicals reporting, but also transparent communication with consumers, quality controls, and robust documentation. It also means companies should always be looking for ways to improve their products and make them safer by reducing the use of hazardous chemicals.
Ethical Labor Practices
Ethical labor practices are an essential aspect of ESG and they apply not just to your internal company employees but to your supply chain at large. Internally, companies will need to prioritize fair wages, workplace safety, and transparent communication. However, they will also need to prioritize working with other companies in their supply chain that prioritize the same principles.
Not only will ethical labor practices help you maintain a strong ESG program, but they will also help you retain talented employees and maintain product quality. By prioritizing the fair treatment of workers, companies create a positive ripple effect that extends throughout the supply chain and ultimately improves product quality and consumer trust.
Workplace Culture
Workplace culture can be easy to overlook, but it is also one of the most important aspects in the long-term success of your business. A healthy workplace leads to motivated employees that work toward success, while a workplace with an unhealthy culture can see frequent employee turnover and poor product quality.
In working with ESG principles, companies should prioritize transparent communication, healthy collaboration, a strong safety culture, regular training, and ethical behavior. Having a healthy workplace culture in place will strengthen your product compliance program, ultimately improving your success.
Get Product Compliance Support
ESG is becoming a hot topic not just in the world of investing, but in the world of sustainable compliance as well. This means your company shouldn’t just be talking about ESG principles as general concepts that affect corporate leadership; you should be applying ESG to your product compliance and sustainability programs.
ESG will be integrated with every aspect of product compliance, from chemicals reporting to workplace culture. If you need help reaching your product compliance goals, contact Tetra Tech’s experts at [email protected]. We have decades of experience with global product compliance issues and can help you with everything from training your employees to managing your compliance reporting to helping your build a product compliance program for a sustainable future that incorporates these ESG principles.
