Advancing the Manufacturing Sector by Embracing ESG
THE Zambian manufacturing sector, which is critical to the country's economy, has a significant impact on the environment and society. The production of goods often requires the use of energy, which can lead to greenhouse gas emissions and contribute to climate change.
Additionally, the sector generates waste that can be harmful to the environment, and relies heavily on natural resources, such as water and raw materials. As a major employer, the sector plays a huge role in the health and safety of workers and local communities. Which is why corporate sustainability is a growing concern among investors who seek not only economic profit but also social good and environmental protection.
Environmental, Social, and Governance (ESG) practices therefore come in as a solution that seeks to meet current manufacturing demands without jeopardizing future ones. By incorporating ESG factors into their decision-making processes, manufacturers can identify and mitigate potential risks that may affect their financial performance. Environmental risks, such as improper handling of organic waste or toxic chemicals, pollution, deforestation and industrial accidents can have a significant impact on a company's operations and supply chain. Social risks, such as labour matters, community health and safety, and occupational safety for workers, can also affect a company's reputation and ability to operate effectively. Additionally, governance risks, such as conflicts of interest and unethical behaviour, can lead to legal and financial liabilities.
By considering ESG factors, companies can proactively manage these risks and avoid potential negative impacts. For example, a company that prioritizes sustainability and reduces its carbon footprint may be less vulnerable to regulatory penalties and reputational damage associated with environmental concerns. Similarly, a company that prioritizes the health and safety of its workers and the community within which it operates may be less vulnerable to lawsuits and negative publicity associated with social issues.
In 2019 The Green Climate Fund (GCF) and the African Development Bank (AfDB) worked together to support a USD 154.0 million renewable energy financing framework in Zambia. Thefund was aimed at supporting projects that diversified energy sources moving from the dependency of hydro energy to other environmentally friendly energy sources such as solar particularly small scale solar farming. Investors and other stakeholders are increasingly focused on ESG factors when evaluating companies, and those that effectively manage these risks are better positioned to attract new business opportunities, and retain capital, customers, and talent. Manufacturers that prioritize ESG practices therefore have better access to capital and may be able to secure more favourable financing terms. This can even lead to the development of new products and processes. ESG considerations ultimately help business owners identify ways to improve their operations, reduce their environmental impact, and better serve the needs of their employees, customers, and other stakeholders.
The growing demand for sustainable products has fueled a potential market opportunity for manufacturers that focus on ESG. From the consumer end, consumers are becoming more aware of the impact that their purchases have on the environment and are seeking out products that are made with sustainable materials, have a low carbon footprint, and are produced using ethical labour practices. By focusing on ESG, manufacturers can therefore improve their reputation, attract new customers, reduce costs, and create new business opportunities. This ultimately leads to increased brand loyalty, a better reputation and an opportunity to create products that carter for a niche market.
Implementing ESG practices also leads to cost savings and lower operational costs in the long term. For example, reducing energy consumption and recycling waste can lead to lower operating costs while also reducing their environmental impact. This presents a great opportunity for manufacturers to improve efficiency through ESG initiatives. In addition, by investing in the wellbeing of their employees, manufacturers can improve their workplace culture, increase employee satisfaction and retention, and attract top talent.
Increasingly, companies are now looking for suppliers and partners that share their commitment to sustainability and ESG, and by prioritizing ESG in their operations, manufacturers can position themselves as preferred partners in these industries. By enhancing their ESG practices, Zambian manufacturers can capitalize on market opportunities by appealing to buyers who prefer to support
socially responsible businesses. These practices can enable manufacturers and other companies to attract investment, establish connections, and leverage trade benefits. By integrating ESG factors into their decision-making process, manufacturers in Zambia can achieve sustainable growth in the sector, meet the expectations of their stakeholders, and contribute to social economic development of the nation.
In light of this, the Zambia Association of Manufacturers (ZAM) is deliberately promoting ESG practices in the manufacturing sector, through initiatives such as the Sustainability Programme that speaks to the sustainable development goals (SDGs) and ultimately promoting sustainable development in Zambia. Furthermore, the Association recently signed an MOU the USAID ATI- Trade Boost Project to promote ESG in the manufacturing sector.