The importance of an ESG strategy for metals businesses

An ESG strategy prescribes how an organization interacts and communicates with key stakeholders, how business operations affect the environment (and vice versa), how an organization’s operations affect its people and communities, and how an organization is governed.

In the past, public proclamations about corporate responsibility and sustainability were largely voluntary efforts highlighted on an organization’s website – separate from its regulatory and investor disclosures. But today, regulators equate ESG reporting with investor disclosures, and stakeholder demands for data-driven transparency into a company’s ESG programs and goals continue to increase.

While much of the public discourse on ESG is centered on large, multinational organizations, the impact of new standards also is affecting small and medium-size privately held companies.

Metals companies of all sizes that are downstream in the supply chain increasingly will find themselves required to align with or commit to the ESG policies and goals of their customers to protect their reputations and business partnerships. Metals suppliers working with automotive manufacturers, aerospace companies, and infrastructure contractors, for instance, often are required to adjust their operations to adhere to the ESG strategies of their partners. One recent example is General Motors (GM) requesting that all suppliers sign onto its Environmental, Social, and Governance Partnership Pledge. Additionally, applying forward-thinking ESG standards can open up new opportunities to work with larger companies that require such standards.

As metals businesses, large and small, are challenged to operate in a way that meets rapidly evolving ESG standards, glossing over the importance of ESG might be a common mistake, but those that fail to make it a priority risk losing customers, investors, and their place in the market.

An effective ESG strategy for metals businesses should take into account the intersection of broader ESG industry trends with the goals of the business to allow for a tailored strategic approach.

 Environmental

The environmental impact of metals manufacturing is vast and includes greenhouse gas emissions, water and waste management, and more. Metals leaders need to consider how they’re sourcing materials and the impact their waste disposal and emissions are having both locally and regionally.

Smaller metals businesses might believe themselves immune from ESG requirements. However, to work with public or government agencies, privately held metals businesses of any size often must meet the strategic ESG needs of the contracts they sign. Considering the earlier GM example, GM’s commitment to “bringing everybody along” is indicative of the need for businesses throughout the supply chain to reflect those commitments and provide the appropriate documentation.

 Social

Many metals businesses already are taking steps toward improving social policies through incorporating better diversity, equity, and inclusion standards into hiring practices as well as working with the Occupational Safety and Health Administration to monitor workplace safety. But what else can be done?

Due to the globalization of supply chains within the industry, metals leaders also should consider global issues like child labor and forced labor laws. For example, the United Kingdom’s Modern Slavery Act 2015 (MSA) reporting requirement might seem like a regulatory issue, but the MSA recommends that organizations’ comprehensive statements include policies on modern slavery and human trafficking and actions that are taken to prevent slavery and human trafficking. Additionally, as demographics and markets change, customers and employees consider ESG a priority and consider a company’s social impact when determining which companies to work with.

 Governance

Governance demands for metals businesses are perhaps the most understood aspect of ESG. For years, metals businesses have worked to meet the requirements of organizations like the Securities and Exchange Commission and other financial reporting agencies.

But governance also refers to how a company’s board of directors steers investments, how investments are disclosed to shareholders, and whether or not investor privacy and operational data are protected. On this front, metals businesses need to consider emerging governance standards and how these are affecting the organizational structure of metals businesses.