The importance of an ESG strategy for metals businesses

Christopher McClure
| 9/14/2022
The importance of an ESG strategy for metals businesses

Companies across industries are facing increasing pressure from regulators, investors, and other key stakeholders to operate in socially and environmentally conscious ways. Whether it’s sourcing sustainable products, reducing their carbon footprint, or providing a better work environment, areas for improvement are always available, and these measures can have positive benefits all around.

How are metals businesses joining the movement? How can metals industry leaders play a role in building a more sustainable and responsible future?

For metals leaders, an environmental, social, and governance (ESG) strategy is more than a list of compliance standards – it’s the opportunity to be part of an inflection point in the history of the metals industry – and to build a legacy that positively shapes future generations and the world.

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What is an ESG strategy?

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.

4 steps to developing or improving an ESG strategy

No matter where a metals business is on its ESG journey – whether considering these standards for the first time or looking to grow the processes already in place – these steps can help it reach its ESG goals.

user-group-circle 1. Establish the right ESG team

An ESG strategy should begin by bringing together the right group of leaders.

C-level executives and board members are key to many decision-making processes, but an ESG team shouldn’t stop there. The standards, frameworks, and key performance indicators that the business might begin reporting on should be considered, and the key players in each of those areas should be identified. As a cross-functional initiative, the ESG team should include members adept in risk and compliance, operations, legal matters, supply chain, technology, human resources, financial reporting, internal audit, and more.

The team will need a baseline education on ESG and regular updates on trends in compliance and reporting. They will analyze internal data sources while also dissecting existing processes and proposing new ones. These efforts can draw on every part of the organization in order to add value and perspective to ESG efforts.

circle-speech-bubble 2. Engage key stakeholders

The ESG team should determine who, inside and outside of the organization, the key stakeholders are and undertake the steps to identify and address their needs.

Implementing a successful ESG strategy requires transparency and communication with regulatory agencies, industry groups, and investors as well as with customers, employees, and even activists and community groups. What do those stakeholders see as the biggest risks and greatest areas of opportunity?

Learning the interests of each stakeholder group might require research, meetings, surveys, benchmarking, and other important tools to truly understand and address these important perspectives.

network-lock 3. Identify the most critical and verifiable data

The ESG team should evaluate reporting goals and take an inventory of processes and systems to identify what data will be important to meeting ESG goals and regulatory reporting obligations.

Stakeholders increasingly seek data-driven and verifiable reporting of ESG efforts. Teams should develop a regimented process for gathering data. Internal controls around the processes and the IT systems will be vital to protect the integrity of reporting. This is especially important when managing evolving regulatory requirements.

Additionally, if current technology cannot track and report data effectively, metals companies could be faced with complex manual calculations that are error-prone and difficult to audit. Investments in new technology and expertise could be necessary.

busniss-graph-plot 4. Establish consistent reporting

Once the team understands the company’s ESG obligations and strategy, it should establish a timeline for meeting reporting requirements.

The team should keep detailed documentation of the process and metrics to support the reporting and, if necessary, facilitate external assurance. Reporting should be clear, verifiable, and consistent with other regulatory and investor disclosures. It should offer a firm foundation for comparability and progress across future periods.

Furthermore, the team should consider building in time for additional layers of internal audit and management review, especially in the initial year of the strategy’s implementation.

Metals-specific components of each ESG category

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.

nature-leaf 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.

user-group 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.

coin-receive 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.

Build an ESG strategy that fits your needs with the help of an experienced guide

It’s an exciting time to be a metals leader and to join the movement of positive change happening in the industry.

While meeting mounting ESG standards can feel like an uphill battle, your metals business can take practical and incremental steps to help get there, and you don’t have to do it alone.

At Crowe, we have a deep understanding of the metals industry, ESG, and the implementation of leading technology to help accurately track and report data required by stakeholders. Our team of specialists is passionate about helping metals leaders succeed, and we would love to use our experience to help your metals business craft a sustainable ESG strategy that fits your business goals.

2022 technology in metals survey results

See how metals leaders responded to how ESG fits into the future of the metals industry by downloading our 2022 technology in metals survey results.

Contact us

Connect with a Crowe specialist today to learn more about how we can help you develop an ESG strategy tailored to your business.
Chris McClure - social
Christopher McClure
Partner, ESG Services Leader