A survey of 150 UK-based manufacturers conducted by Make UK and Lloyds Bank has found that smaller firms are struggling to meet the ESG demands of their customers, with lack of resources being found to be a significant contributing factor.
The research found that more than three-quarters (77%) of those surveyed said they are receiving ESG-related requirements from their customers, yet almost half- 48% said they feel that they do not have the resources required to meet customer demands. This raises concern that smaller businesses with fewer resources and less inhouse ESG expertise could fall behind their larger counterparts, despite having genuine intent to increase the sustainable impact of their business[i].
The research, which was published earlier this month, builds on a previous study conducted by Make UK in 2021, which at the time found that just 42% of UK manufacturers had ESG targets or KPIs in place. In the latest survey, this had jumped by 20 percentage points to reach 62% of manufacturers, and the proportion who said their business had a formal ESG strategy also increased from 52% in 2021, to 56% in 2023. However the proportion of businesses who said their ESG reporting is externally audited had fallen by 5 percentage points to under a third (32%) of respondents.
Source: Make UK & Lloyds Bank ESG Survey 2023, and Make UK ESG Survey 2021[ii]
Almost three quarters of firms (74%) in this year’s study said that they have built ESG-related conditions into supplier contracts as part of revamped procurement strategies. It also found that almost half (45%) of respondents said they are not aware of supplier progress, suggesting manufacturers are unequipped or unprepared to assess this. Looking at the drivers for ESG adoption, Make UK & Lloyds Bank found a range of reasons including financial returns and pressures and incentives (including those from government, changing regulation, financial institutions, sector bodies, existing employees, the wider labour market, customers, suppliers, non-governmental organisations (NGOs) and investors). Therefore, the researchers argue, failing to strengthen a firm's ESG credentials could create future challenges for all aspects of its business, including recruitment and retention of skilled labour, access to capital, and access to consumer markets.
Such pressures have already been seen in the UK retail sector, where we previously highlighted how suppliers were seeing their contracts cancelled due to sustainability concerns from retailers. The study published in 2022, found that just over a fifth (21%) of the UK’s largest retailers cancelled contracts with suppliers because they failed to meet ESG (environmental, social and governance) standards. The main reasons for cancelling contracts were the use of unsustainable materials (39%), unfair working hours (37%), and lack of accreditation to an ethical/sustainable membership body (32%)[iii].
These trends tie in with those seen by Make UK’s study, which found that many procurement conditions being set by manufacturers fell within the governance segment of ESG. For example, 40% of firms said that they have enhanced their human rights requirements for suppliers, while a third have boosted labour rights terms. Additionally, just over a quarter (27%) said that they have bolstered requirements on diversity and inclusion[iv]. In comparison, procurement ESG conditions relating to themes such as carbon emissions and biodiversity were less common, scoring 25% and 12% respectively.
[i] ESG-in-Manufacturing-report.pdf (politico.eu)
[ii] Ibid
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
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