Managing ESG Changes in CPG Manufacturing - Best Practice Energy, Communications and Green Marketing

CPG manufacturing and related industries have made considerable progress on ESG programs and sustainability in manufacturing with large companies in 2023 showing greater than 95% compliance with ESG programs. Typically, these companies have the necessary internal and external resources to effectively implement change management within their organization to ensure their ESG programs are successful. In this type of environment, both management and investors now have “expectations” that sustainability efforts and programs are now part of the overall company culture.

None the less, large companies can often be guilty of “greenwashing” data and progress. Oftentimes, ESG industry data standardization is lacking, rating agencies standards are non-uniform, and regulatory standards are evolving. The words “sustainable” or “ethical” for one company can differ in meaning to another company. Interpretation of these results can vary too.

For example, those responsible for reporting and driving ESG programs often have a blind eye on data they receive from various vendors or internal manufacturing staffers. Why? Because data can be difficult to obtain due to a lack of effective systems to automatically gather ESG measurements. Or it could simply be a lack of internal resources gathering the required data. This results in “approximating,” which lacks verification, engineering rigor, or data that is simply manipulated to exaggerate positive ESG results.

However, smaller and medium-sized companies face even greater challenges, resulting in less success with their ESG programs. For executives, limited resources force the prioritization of business goals that reflect their product or service offerings. They view ESG programs as a distraction to their core mission and often lack the financial, personnel, and awareness needed to execute an effective ESG program. Consequently, these smaller and medium-sized companies fall into various ESG categories consisting of:

1) Programs that are not mature

2) Programs that are only partially implemented

3) No program at all

Why is Change Management Important to CPG

At its core, successful businesses have always embraced change to remain competitive and grow. ESG is the defining challenge of our time and will require wide and deep changes across the market. The current instability of the global environment is causing unprecedented challenges for businesses impacting the environment. There is a requirement for organizations to become more flexible and responsive to a circular economy which involves integrating innovative designs and technologies in a more risky, costly and more complex environment. Those companies who meet these challenges will have new opportunities to grow their business.

Mapping your ESG and sustainability priorities is important to provide directions on where the company needs to focus. It also ensures the best opportunity for success in its implementation. Beyond ESG mapping, a materiality assessment can help identify the ESG data that needs to be captured and integrated into various analytics workflows. This allows for a baseline to be set for future progress measurements and alleviates the “greenwashing” issue. It is essential these ESG goals be realistic, have measurable timelines with resources available and allocated to ensure success.

Effective ESG change management recognizes that the ownership of sustainability related matters is not a top-down approach, but rather a shared responsibility of all employees across a business. To achieve an impactful sustainability strategy, it is essential to develop a sustainable workforce who embrace and support the same goals and vision about their company’s impact on the environment and climate change. In the following graphic, we have outlined how this “shared” vision for change materializes.

Vision for Change – Shared Responsibility

Development of Change Management Programs

One of the most effective ways to manage changes and alleviate data greenwashing in CPG manufacturing (or any other initiative) is to have an effective ESG change management program.

Change management in ESG (Environmental, Social, and Governance) refers to the process of effectively implementing and integrating sustainable practices, social responsibility initiatives, and good governance principles within an organization. It involves managing the transition from traditional business practices to a more sustainable and responsible approach. Change management programs can be applied specifically to ESG.

In the graphic below, we outline how this process unfolds to ensure continuous improvement including people, process and technology tools within your business organization.

Continuous Improvement

Your change management program design is essential to your success. Below, we have outlined some key elements/attributes you should consider. Note these can vary depending on the granularity of your “change” effort. They include:

Vision and Leadership: Develop a clear and compelling vision for the organization's ESG transformation. Leadership support is essential for driving change, so ensure that top executives champion the ESG initiatives and are actively involved in promoting them.

Stakeholder Analysis: Identify key stakeholders who will be impacted by the ESG changes, such as employees, customers, investors, suppliers, and local communities. Understand their perspectives, concerns, and expectations related to sustainability and social responsibility.

Engagement and Communication: Communicate the reasons for the ESG change and its potential benefits to all stakeholders. Create open channels for feedback, questions, and concerns, and involve stakeholders in the decision-making process. Transparent and continuous communication is critical to gain support and build trust.

ESG Assessment and Goal Setting: Conduct a thorough assessment of the organization's current ESG performance to identify areas for improvement. Set realistic and measurable ESG goals that align with the company's values, industry best practices, and stakeholder expectations.

Cross-Functional Teams: Form cross-functional teams to lead and implement the ESG initiatives. These teams should include representatives from different departments to ensure collaboration and coordination across the organization.

Training and Education: Provide training and educational programs to employees to raise awareness about ESG issues and build their understanding of the organization's sustainability objectives. Empower employees to contribute actively to the ESG transformation.

Piloting and Testing: Consider piloting ESG initiatives in specific areas or departments before scaling them across the organization. This approach allows for testing and refining the strategies before full implementation.

Incentives and Recognition: Establish incentives and recognition programs to reward employees and teams that contribute significantly to achieving ESG targets. Positive reinforcement can motivate employees to actively participate in the change process.

Adaptability and Flexibility: Acknowledge that ESG practices and priorities may evolve over time. Be prepared to adapt to changing circumstances, emerging trends, and new ESG challenges.

Monitoring and Reporting: Implement a robust monitoring and reporting system to track progress toward ESG goals. Regularly assess the effectiveness of ESG initiatives and share progress updates with stakeholders and investors.

Collaboration and Partnerships: Collaborate with industry peers, NGOs, and sustainability-focused organizations to share knowledge, best practices, and resources. Partnerships can accelerate progress and foster innovation.

Celebrate Successes: Celebrate achievements and milestones throughout the ESG change journey. Recognize and acknowledge the collective efforts of the organization in making a positive impact on the environment, society, and governance practices.

In developing your change management model, multiple phases exist: including preparing for the change, managing change and reinforcing the change.

Change Management Model

Industry Success Stories

Below is a sampling of businesses that successfully leveraged change management practices to grow/expand their business.

Cintas, a uniform and business services provider, transformed its culture and operations by adopting a customer-centric approach and investing in digital capabilities. It increased its revenue by 23% and its market capitalization by 216% from 2009 to 2019.

Nestlé, a food and beverage giant, implemented a global business excellence program that streamlined its processes, improved its quality standards, and reduced its costs. It achieved an annual savings of $1.8 billion and increased its operating margin by 2.1 percentage points from 2014 to 2018.

Arena Solutions, a cloud-based product lifecycle management software provider, helped its customers improve their manufacturing change processes by building strong relationships between engineering and manufacturing teams, providing simple ways for communication, and creating effective change review boards.

Capitalizing on ESG Change Management Integration in Small and Medium-Sized CPG Manufacturing

The world is moving fast. Small and medium-sized CPG manufacturing need to revitalize their manufacturing processes to embrace ESG or be at a competitive disadvantage.

ESG transformation requires a substantial effort with a planned program of change management to be successful. Companies cannot approach ESG change from the top down, rather the leadership must deploy change management tools to embed ESG priorities into the culture and fabric of the business. This means all stakeholders must embrace new behaviors favoring a circular and sustainable manufacturing process. Investment into new innovations or processes must be a priority for the business.

The leadership’s role in implementing this vision for change includes assigning ownership and accountability for ESG goals to those closest to the process. It is important to share the why of a decision and reinforce ESG goals and priorities as a best practice to create business value over the long run. This constant communication and sustained positive approach to support ESG changes and sustainability in manufacturing should resonate with both internal and external stakeholders including the supply chains.

Failure to place emphasis or have inconsistency on the importance of ESG will result in confusion over business priorities. People with top or bottom-line responsibilities will continue to focus on short-term profit or their usual routine to produce expected financial results. Little cultural change will result and there will be a failure in meeting ESG sustainability goals or a falling behind in progress.

CPG manufacturing companies that position their teams to lead on ESG will find success in their environmental and social programs, avoiding the pressure to greenwash results. Sustainability reports can then promote with pride their employee teams’ successes in meeting their commitments to improve the environment and reduce their carbon footprint. Customers, investors and stakeholders value this strong ESG performance. This will drive a continuous improvement loop not only in ESG and sustainability in manufacturing but in all aspects of the business enhancing profitability.