ESG in Manufacturing: From Compliance to Competitive Advantage

Environmental, Social, Governance (ESG) compliance is not just a general run-of-the-mill box to tick in today’s manufacturing environment. It is a growth lever that helps businesses grow and excel, while ensuring they are sustainable and working for a better world. In fact, companies combining their growth objectives with strong ESG have shown stronger revenue performance, with studies noting that companies excelling in both ESG and financial fundamentals tend to achieve around 11% median annual growth and modestly higher shareholder returns compared to peers.

With a rise in the need and demand for ESG in manufacturing, the evolution from regulatory compliance to strategic advantage for organisations has been a trend that just won’t go away. In this guide, we will break down how the ESG assessment in manufacturing works and what advantages it bestows on businesses if utilised correctly.

ESG in manufacturing refers to how manufacturers address their impact on the environment (E), their interactions with individuals and society (S), and their systems of oversight and ethical decision-making (G).

To get a clear picture of how ESG in manufacturing functions, let’s look at Fémalk Zrt., a Hungarian manufacturing firm. Their procurement team prioritises energy-efficient equipment and seeks supporting sustainability documentation from suppliers. This turns their compliance requirement into a sourcing practice that is not only ethical but also strategic.

ESG in manufacturing has been very dynamic and evolves swiftly. These trends reflect how businesses that are focused on sustainability are turning ESG implications into a competitive advantage:

1. Shift from reactive compliance to proactive ESG strategy

   Manufacturers are moving from “do we meet regulations?” to “how can ESG drive growth, innovation and value?” Many Indian manufacturing firms are embedding ESG into their business strategy. Recent industry commentary highlighted that Indian companies have produced some of the strongest examples of pragmatic ESG reporting linked to transformation.

2. Increased focus on carbon neutrality and the circular economy

   The circular economy in India is projected to exceed $2 trillion by 2050, potentially creating over 10 million new jobs. This shows how manufacturing firms are now shifting from linear waste models to closed-loop operations.

3. Digital ESG reporting and real-time monitoring

   In Asian markets such as Singapore, the launch of digital ESG utility has allowed companies, including manufacturers, to auto-generate ESG data and streamline reporting with faster, near-real-time insights. This has improved transparency and investor readiness significantly.

4. ESG-linked financing and investor pressure

   Companies are now under pressure from lenders and investors: for instance, manufacturers investing in solar energy and wastewater recycling are well-positioned to qualify for sustainability-linked loans, as lenders increasingly tie terms to emissions, safety, and governance KPIs.

5. Supply chain transparency and ethical sourcing

   Manufacturers are demanding full disclosure from their third-party collaborators and suppliers. Whether it is labour, conflict minerals, or environmental impact, ESG data is helping manufacturers ensure that their upstream chain aligns with their brand integrity and ESG goals.

These trends clearly highlight the standing of the ESG framework in manufacturing industry on a global scale, and how integrated it has become with internal business strategies in today’s world.

• Materiality assessments

  Manufacturers assess which ESG issues have the most significant impact on their operations and supply chain, and on their stakeholders who have an interest in their business. The identification of highly material risks, whether it be emissions, waste, labour conditions or governance gaps, is fundamental to manufacturers enacting appropriate resourcing to the high material risks and avoiding generic "checklists".

• Stakeholder engagement

  Engaging employees, suppliers, communities, regulators, and investors enables manufacturers to understand what their stakeholders expect, identify blind spots, and shape ESG priorities. In addition, it allows the credibility of ESG plans to be enhanced by clear communication, ensuring stakeholders know ESG plans are addressing real rather than assumed concerns.

• Third-party audits

  Independent ESG audits verify compliance, confirming disclosures, while exposing gaps in environmental performance, safety standards, human rights, and governance controls during the audit.

• ESG scorecards and benchmarking

  Use of scorecards identifies and tracks metrics like energy use, emissions, waste, safety, and diversity. Benchmarking identifies and compares performance scores to industry standards or peers. Leading manufacturers align ESG goals with their business strategy, embedding targets like emissions, resource efficiency, safety, quality, and ethical sourcing into operations-related KPIs. This further helps shape the outcomes of ESG assessment in manufacturing industry to be included in the incentivising approaches for decision makers.

ESG assessment in manufacturing industry relies on clear and quantifiable metrics. The KPIs translate the sustainability and governance commitments into trackable performance. This helps manufacturers in identifying gaps, meeting regulatory demands and demonstrating credible improvement to their investors, partners, and customers. Here are the key metrics and KPIs you should look out for:

• Carbon emissions (Scope 1, 2, 3)

  Monitors direct emissions, emissions from energy purchased, and total emissions for the entire supply chain. Important for compliance with regulations, measuring progress against net-zero targets, and tracking total climate impact.

• Energy and water use

  Measures the intensity of resource use for each unit of production. Useful for managing costs, reducing environmental impact, and increasing operational efficiency.

• Waste diversion and recycling rates

  Tracks waste produced, waste recycled and waste diverted from landfills. Indicates progress towards circular manufacturing and compliance with waste reduction targets.

• Worker safety and diversity metrics

  Includes the frequency of worker accidents, hours of training received, ratios of women to men, and indicators of inclusion. Represents general worker health and well-being and culture in the workplace.

• Governance indicators (Board diversity, ethics policies)

  Measures the diversity of the board, anti-corruption systems, and policies surrounding enforcement. Indicates accountability, transparency, and ethical decision-making.

Who determines which ESG metrics are valid and reliable? There are a few globally recognised ESG frameworks commonly used in the manufacturing industry that standardise reporting, strengthen a business’s credibility, and align with investor expectations.

• GRI (Global Reporting Initiative)

  Provides standards for reporting on environmental, social and governance impacts, which are used by a wide variety of manufacturers to disclose emissions, waste, labour practices, and related supply chain impacts with global comparability.

• SASB (Sustainability Accounting Standards Board)

  Provides industry-specific metrics for investors. The manufacturing standards focus on material issues such as energy usage, work hazards, product safety, and supply chain risks.

• TCFD (Task Force on Climate-related Financial Disclosures)

  Helps companies report on climate risks, transition plans, emissions and associated financial impacts. TCFD provides a framework to help manufacturers seek out climate risk resources while fulfilling global expected investor needs.

• ISO 14001 (Environmental Management)

  Establishes requirements for environmental management systems. Manufacturers across sectors use ISO standards to establish methodologies for managing emissions, waste, compliance events, and environmental performance.

Materiality helps manufacturers focus on ESG issues that truly matter to both business and stakeholders.

SCG Packaging Public Company Limited (Thailand) uses a “double-materiality” approach for stakeholder prioritisation annually. As a result, the company has reported significant reductions in Scope 1 and 2 emissions in recent years.

ESG assessment in manufacturing usually follows a structured process for a holistic review of the suppliers.

• Define ESG criteria -

  Set clear requirements on labour standards, emissions, waste, human rights, ethics, and responsible sourcing.

• Pre-qualification screening -

  Use questionnaires and disclosures to filter suppliers before onboarding.

• Supplier ESG scorecards -

  Rate suppliers on quantitative and qualitative indicators (certifications, safety records, carbon intensity, audit findings).

• On-site / third-party audits -

  Verify real practices on the ground, checking working conditions, permits, environmental controls and grievance mechanisms.

• Risk segmentation -

  Categorise suppliers as low/medium/high risk and prioritise considering plans for engagement and/or remediation.

• Corrective action & capacity building -

  Establish agreements on plans for improvements, support trainings, and pre-establish timelines.

• Ongoing monitoring -

  Utilise regular scorecards, digital platforms and/ or re-audits to balance progress against renewal, incentives or exiting evaluation.

Following this structured process, manufacturers can holistically assess and monitor their suppliers to avoid any potential collaboration risks.

With growing innovations and applications of technology and digital tools for ESG in manufacturing, the climate is shifting towards smarter and greener operations. Here are the most relevant ways in which this shift is benefiting businesses:

• IoT for energy and emissions tracking

  Sensors are enabling continuous and comprehensive monitoring of energy use and emissions for production equipment. This has led many manufacturing plants to reduce their energy consumption for a sustainable production pipeline. For example, an IoT-based energy management system helped a manufacturing plant in Vietnam reduce its monthly electricity consumption by over 15%!

• ESG data platforms for reporting and analytics

  Many CRMs and cloud platforms can centralise scattered ESG data like incident logs, supplier records, resource metrics, energy consumption, and more. This data can be used in a centralised dashboard for easy accessibility and help with quick insights for decision-making. Siemens Energy has demonstrated this by reducing the data collection time for a global factory network by 50%.

• Blockchain for supply chain transparency

  Manufacturers need to prove ethical sourcing and provenance to show their ESG compliance. Ledger-based systems help manufacturers trace raw materials along with their supplier actions. This has been implemented in blockchain and has enhanced visibility and trust across value chains for businesses.

• AI for predictive ESG risk modelling

  Artificial intelligence analyses large datasets (e.g., emissions trends, labour-safety records, supplier geo-risk) to forecast ESG risks and trigger early action. EnerSys, an industrial battery manufacturing and energy storage company, demonstrated this by using AI tools to improve its data collection and emission reporting across 180 sites globally

Even with favourable conditions, manufacturers are faced with structural challenges that make it difficult to implement ESG strategies. Structural challenges arise from fragmented supply chains, differences in data systems and divergent global regulations.

• Collecting and Standardising Data

  Without unified systems or standardised definitions of KPIs, ESG reporting can become less reliable and harder to compare, which slows decision-making and reduces credibility.

• Supplier Compliance and Transparency

  Global supply chains are typically composed of smaller suppliers, which may have lower ESG maturity. To ensure ethical labour, sourcing emissions data, and tracking materials requires the intent to build capacity, audits and partnerships, not merely a contract requirement.

• Cost vs. Sustainability

  Energy-efficient equipment, circular materials, and low-carbon technology are an upfront cost, and manufacturers need to justify the same at a lifecycle savings, against the reduction of risk and market access, not merely a financial metric over short-term metrics.

• Complexity of Regulation in Several Regions

  Manufacturers who are operating globally are burdened with similar, but fast-changing ESG regulations. The need to disclose, manage and report across jurisdictions on the same content, and on the same systems regulations (EU CSRD and Asian supply-chain due diligence) requires impressive governance and continued monitoring.

Addressing these challenges will require businesses to be more strategically aligned with technology adoption and supplier partnerships with holistic monitoring. Manufacturers that invest in integrated ESG systems will reduce risk and shape industry standards in the coming years to secure long-term competitive advantage.

ESG provides quantifiable financial and strategic benefits to manufacturers who adopt increments to their core business.

1. Cost Savings with Energy Efficiency

   Energy-efficient machinery, IoT monitoring and precision processing allow for utilities to be saved and output to be improved, which can yield quick payback and long-term cost savings.

2. Reputation & Customer Loyalty

   Sustainability manufacturing builds buyer trust, and global brands are increasingly prioritising low-carbon, ethically produced products.

3. ESG Financing Access

   Strong environmental, social and governance performance strengthens eligibility for sustainability-linked loans, green bonds, or lending terms tied to emissions, safety, and governance KPIs.

4. Risk Reduction / Regulatory Compliance

   Proactive systems of ESG develop less risk exposure to supply-chain disruptions, penalised compliance and changing regional regulations.

5. Attracting and retaining talent

   Younger and more skilled labour wants to work for responsible and accountable employers. ESG corporate cultures would strengthen retention, safety, and engagement within labour pools across industries.

• Unilever

  Unilever embedded ESG into its business strategy through its “Sustainable Living Plan”, achieving zero non-hazardous waste to landfill across its global factories and sourcing over half its agricultural raw materials sustainably.

  By aligning its brands to sustainability, Unilever showed a positive correlation between ESG reporting quality and improved financial performance.

• Tata Steel

  Tata Steel uses an enterprise risk management framework to decarbonise its operations and build resilient supply chains. It developed cradle-to-cradle steel products and aims to integrate ESG into procurement and supplier assessments, demonstrating how heavy-industry manufacturing can pivot toward sustainability and value creation.

• Siemens

  Through its enterprise-wide DEGREE framework, Siemens integrates ESG into strategy, governance and incentives. Executive compensation incorporates verified ESG KPIs, while EcoTech Profiles embed circularity into product design. The company’s technologies also support customer decarbonisation, with fiscal 2024 offerings expected to help avoid 173 million metric tons of emissions globally.

Manufacturers will soon anticipate the future in their educated decisions, thanks to AI-enabled ESG analytics transitioning them from reactive reporting to predictive decision-making. It uses pattern recognition to predict potential supply-chain risks, safety incidents, and hazardous emissions. Tracking Scope 3 emissions will be mandatory when regulators and global buyers demand visibility into the entire value chain.

ESG integrated into products will also accelerate as manufacturers design low-carbon materials and modular components as part of a circular economy at the outset and not wait until capping the losses on competitors by addressing environmental remediation after the fact. Real-time ESG dashboards will be essential factory infrastructure for leaders to make informed decisions from live data, not at least once a year when it is too late, abusing numbers in a report.

Compensation for executive performance will increasingly be linked to ESG outcomes, while boards will demand that executive compensation be tied to climate, safety, and ethical sourcing-related objectives, thus decoupling sustainability performance from business performance in business reviews.

Change is at the cusp, and a future where sustainability is not simply an add-on, but core to the identity of competitive performance manufacturing is fast approaching.

• Invest in ESG data systems

  IoT systems, modern platforms, and consolidated databases will all help you in eliminating disconnected data and poor insights, and allow real-time tracking of emissions, safety measures, and supplier performance.

• Train teams in ESG compliance and strategy

  Upskilling production, procurement, and sustainability staff ensures ESG is delivered operationally rather than just at the policy level. This creates accountability across the organisation and reduces compliance mistakes.

• Engage suppliers in ESG goals

  If you want to be a leading manufacturer, practice co-creating roadmaps, providing training, and support capability building instead of just imposing your requirements on your suppliers. This will improve labour practices, emissions reporting, and traceability of operations through the supply chain.

• Use third-party ESG assessments for credibility

  To validate ESG claims, always conduct independent or third-party audits and check certifications. This will help you unravel any blind spots, benchmarking, and building stronger relationships with your investors & stakeholders.

Dun & Bradstreet provides manufacturers with deep ESG intelligence that converts fragmented data into clear insights and actionable insights. Utilising ESG scoring, risk-based segmentation, and holistic compliance evaluations, Dun & Bradstreet assists businesses in identifying suppliers with higher risk profiles. Make better-informed sourcing decisions and develop a culture of transparent and resilient supply chain with our analytics, benchmarks, and monitoring tools to meet global ESG standards. Reduce risk from operational disruptions, and pursue ESG-linked growth opportunities with confidence.

Dun & Bradstreet has enabled manufacturers and large industrial players to turn ESG commitments into measurable progress.

D&B’s ESG intelligence was used by a leading diversified manufacturer to measure its emissions and consolidate its metrics against advancing regulatory frameworks like BRSR. This helped them enhance the reliability and validity of disclosures, significantly improving investor confidence and internal governance.

D&B’s Risk Analytics platform also helped a global pharmaceutical company to review its suppliers’ ESG profiles on a large scale. This helped them in gaining better visibility into their suppliers’ labour practices, environmental risks, and compliance. This transparency reduced their supply-chain exposure and improved their overall procurement standards.