Why ESG Matters to Manufacturers

Environmental, social, and governance (ESG) initiatives have gained increasing attention, especially as topics like climate change, social unrest, and corporate responsibility have made news headlines. Many manufacturers have been focused on more immediate concerns, such as keeping their employees healthy, obtaining critical goods, or managing rapidly increasing costs, that demanded significant attention over the last eighteen months. However, as businesses see some return to more normal business conditions, evaluating ESG policies should become a priority.

What are ESG initiatives?

ESG initiatives are those that measure a business’ conscious activities towards protecting the environment, managing relationships in an ethically and socially responsible manner, and operating in a way that encourages accuracy, transparency, and legal and ethical behaviors. While ESG initiatives affect all businesses regardless of industry, manufacturers may face heightened scrutiny due to their impact on the environment, workforce, and overall gross domestic product (GDP).

The Impact

Consider four potential impacts ESG initiatives can have for manufacturers.

  1. Customers

    As ESG initiatives become more commonplace, manufacturers may face increased scrutiny from customers who are evaluating their supply chains. Buyers of manufactured goods may be interested in the materials used and manners in which their products are made, which could include assessments on raw material sources or producer labor policies. Creating, documenting, and following ESG policies can help solidify relationships with these customers and ensure your continued place in their supply chain.

  2. Lender Requirements

    Lenders have encouraged ESG initiatives by requesting certain environmental reports for financing commercial properties, offering specific programs for businesses that are minority-, woman-, or veteran-owned, and requiring accurate and timely financial data to be reported by borrowers. However, as lenders’ ESG policies continue to evolve, it is expected that certain offerings could require these policies or related metrics to be met by potential or active borrowers.

  3. Mergers and Acquisitions

    Potential buyers of a business may also have an interest in a manufacturer’s ESG policies. When a merger or acquisition occurs, the partner can inherit deficiencies in ESG programs that could require immediate attention. As a business’s reputation is affected by its ESG programs and actions, buyers and potential business partners may have great interest in ESG initiatives and actions within a company.

  4. Reputation: Attention on ESG compliance has never been greater, and the risk of a misstep can be devastating to a business and its executives. By proactively addressing ESG priorities and compliance before a misstep occurs, manufacturers can ensure that alignment exists between their leadership team and decision-makers in the business.

To further discuss your ESG initiatives or their impact on your business, please contact a member of HBK Manufacturing Solutions.

About the Author(s)

Amy M. Reynallt, MBA
Amy Reynallt is a Manager with the HBK Manufacturing Solutions Group in the Youngstown, Ohio office of HBK CPAs & Consultants. She is experienced in navigating the strategic and financial matters associated with manufacturing and works closely with manufacturers to help them plan, execute, and meet their short- and long-term financial goals. Amy can be reached at 330-758-8613 or by email at areynallt@hbkcpa.com.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.