ESG: Establishing a pathway to success

By Chris Beeson — RS Group

A sound ESG strategy can power electronics organizations to build customer loyalty, attract talent and improve long-term financial performance

By Chris BeesonThe electronic components industry has encountered some turbulent conditions in the past few years. The COVID-19 pandemic, followed in quick succession by global geo-political tensions and economic uncertainty, has put intense pressure on supply chains – making us rethink how we work and the role of business in society at large. Moving forward, the world faces everincreasing complexity, with the threat of climate change and ecosystem loss requiring unified action on a never-before-seen scale. How exactly do we come together to overcome these immense challenges, collaborating for people, planet and profit.

The importance of ESG

The answer, for many organizations, starts with a re-evaluation of ESG (environmental, social and governance) initiatives. ESG is a set of standards measuring a business’ impact on society and the environment and how transparent and accountable it is – based on the understanding that those that operate more responsibly and sustainably will rapidly outperform those that don’t in the years ahead. Increasingly, ESG is a critical driver for companies that want to build customer loyalty, attract new talent and improve their financial performance. The statistics tell the story: research shows that 85 percent of people have shifted their purchasing behavior towards more sustainable choices in the past five years alone. [1] According to a LinkedIn survey, 73 percent of professionals who identify as working for a purpose-driven business are satisfied with their jobs. In addition, companies with a sustainability action plan have considerably higher employee satisfaction ratings than those that don’t. [2] In simple terms, commitment to ESG makes sound business sense.

Building an ESG framework

How are leading companies going about establishing a meaningful ESG action plan? What sort of goals and supporting initiatives might sustain the successful application of such a plan over the long term? These have been pertinent questions recently inside RS Group, which launched its 2030 ESG action plan, “For a Better World,” in 2021. A strong ESG approach can deliver some significant benefits – internally and externally. Crucially, it can drive responsible and sustainable growth while reducing operational costs and promoting resilience. But it is about so much more than that. ESG can help an organization differentiate its brand and provide a commercial advantage. And it can help companies attract, retain and motivate employees. This is particularly true of the younger generation, who often rank working for a purpose-led culture as highly as factors such as remuneration. The exact structure of an ESG action plan will inevitably differ from one company to another – depending on a host of factors such as size and scope and the specific nature of business operations. Some central pillars, though, can be commonly applied across electronics organizations.

First pillar: Advancing sustainability

The first pillar might be advancing sustainability by developing more sustainable operations. For an electronic components manufacturer, this could be underpinned by creating a checklist of pointers worth considering when assessing a new product’s environmental, social and economic impact – from the initial phase to the end of life. These might include:

Materials/traceability. Where have materials come from? Are they ethically extracted and made? Can the embodied energy associated with material extraction, processing, production and delivery be calculated?

Manufacturing efficiency/energy mix. Have your manufacturing processes been optimized to minimize environmental impacts? Has the energy mix been decarbonized to any extent? Have continuous improvement techniques been implemented?

Water usage. Do you have an annually reviewed water management strategy in place? Can a water simulation model be performed to establish a “what-if ” scenario for water reduction? Can wastewater be recycled and reused?

Modularity. Is it possible to design for modularity to encourage component replacement and upgrade? Do you understand the environmental impact of each modular product’s lifecycle stage, including the user’s role, in deciding whether modularity is a suitable sustainable strategy?

Repairability/obsolescence. Can components be easily reached and repaired with readily available replacements that are not likely to become unavailable soon? What impact will repairability have on business models and revenues?

Packaging. Has the packaging design been optimized, and plastic been replaced with biodegradable materials, where possible, to reduce its environmental footprint? Are you keeping ahead of the curve regarding packaging materials development that could deliver any quick wins?

Distribution. Are your products being shipped to market in an environmentally responsible manner, with minimal usage of fossil fuels? Have transport and logistics companies committed to a process of electrification?

Disassembly. Can your products be quickly taken apart at the end of life, encouraging the reuse of relevant components rather than sending them to landfill?

End-of-life reuse. Have you adopted any take-back programs, encouraging recovery and recycling as part of the circular economy? Can you effectively measure the success of extended producer responsibility programs?

Engineering impact assessment. Have you performed any real-world product performance evaluation, feeding back data into a design loop? Can this data increase the durability and performance of existing or future products?

Second pillar: Championing education and innovation

A second pillar of a sound ESG strategy could be championing education and innovation. The aim would be to build the requisite skills to foster new solutions that genuinely improve lives. For this strategy, an enabler might be forming collaborative networks that encourage more sustainable thinking – often at a practical level. RS, for example, has had success with its DesignSpark #ActivistEngineering program – a global initiative launched last year to inspire engineers to put engineering responsibility at the heart of their product designs, using their skills to make a positive impact on the lives of people and the planet. The program encourages engineers to work together to solve specific problems and think about how products can fit harmoniously into the environment with minimal disruption or degradation of natural ecosystems. The first community project using the concept of citizen science to tackle poor air quality resulted in various innovative ideas from the engineering community, exploring unusual ways to monitor or improve air quality.

Third pillar: Empowering people

A third essential pillar of a successful ESG strategy is empowering people – creating a safe, inclusive and dynamic culture where employees can thrive and grow. But that begs the question: how can electronics companies engender a pervasive culture of creative thinking and empower their engineers to think sustainably? The answer comes initially by unlocking the space for critical reflection on “business as usual” and giving engineers the time, space, skills and encouragement they need. Product development is complex and fast-paced, but often companies need to take a step back and give their people the time to self-educate, develop new competencies and question the norm. It is unlikely that traditional practices and processes will work effectively in creating more sustainable and equitable outcomes. People need time and space to come together and think creatively. One important acknowledgement inside organizations looking to embed a culture of more sustainable design is that levels of awareness and understanding of sustainability inside each organization vary dramatically. Many people often have zero knowledge and understanding, progressing from basic to intermediate and advanced. Companies often need to take stock and assess where the expertise resides. Only then can an organization identify the sustainability skills requirement and consider putting new structures in place.

Fourth pillar: Doing business responsibly

Finally, the fourth pillar could involve doing business responsibly and ensuring the highest ethical standards throughout a company and global value chain. This might involve increasing screening and ESG objectives for suppliers while embedding ESG metrics in employee rewards. Companies that have excelled in this area have been shown to provide transparent ESG information as part of the supplier qualification process. Commitment to ethical trading declarations is a vital step, too — underpinning governance, compliance frameworks, and ethical and environmental standards while setting out the minimum mandatory requirements for doing business with the company. This can act as the first point of call regarding how business is conducted with suppliers.

Transforming your business

These approaches to establishing a sound and multi-faceted ESG strategy can reap rewards. These are the sorts of pillars that have underpinned RS Group’s own ESG Action Plan to 2030. But while we have made solid strides, we cannot move forward alone. We rely on our valued partners to provide the 700,000+ products for our global customers daily. By working together, we can help our people to succeed, decarbonize our global supply chain and provide sustainable products and service solutions for customers. Having a meaningful ESG strategy is critical to accelerating action to positively position our industry for the future.

Sources

1 Simon-Kucher & Partners, Global Sustainability Study

2 March McLennan; ESG as a Workforce Strategy

About the author

Chris Beeson is president, electronics and strategic global suppliers, at RS Group. Chris joined RS in 2020 and has been responsible for shaping the electronics strategy and helping to accelerate the performance of the electronics business. Previously, Chris spent 15 years at Digi- Key culminating in the role of executive vice president of sales, supplier management and business development. His extensive experience of the global distribution market also includes roles at Avnet, Kent Electronics and Future Electronics.