Sustainability in Australian Manufacturing

Rethinking Manufacturing: Insights and opportunities

Our Rethinking Manufacturing Webinar Series explored the key topics of Sustainability, Supply Chain, and Productivity. In each webinar, BDO experts were joined by academics, manufacturers, and industry professionals who provided their valuable insights and perspectives on the current challenges and opportunities for Australian manufacturers.

Our webinar on the topic of sustainability explored the practical steps that small and medium-sized enterprise (SME) manufacturers can take in their approach to environmental, social and governance (ESG) and sustainability matters, including:

  • Understanding the ESG and sustainability journey
  • Moving towards a circular, rather than linear, model
  • Reducing energy consumption and achieving carbon neutrality.

We summarise the key themes from this session below and include relevant findings from our Manufacturing Resilience Review. Together, the webinar series and review provide valuable insights and practical actions for rethinking Australian manufacturing – now and into the future.

Understanding the ESG and sustainability journey

It’s not only large corporates that need to consider sustainability in the context of their business practices but SMEs which, without significant resources, often have questions around where to start and how to navigate this burgeoning field. All organisations, regardless of industry or size, should be thinking not only in terms of the ‘E’ (environmental) aspects, but far more broadly.

A clear understanding of the social (‘S’) and governance (‘G’) aspects of ESG and their materiality for the business is a vital first step. For manufacturers, the greatest drivers for change will come through their role in the supply chain. If not already, ESG considerations will soon drive decision making – meaning manufacturers will need to demonstrate that they are pro-active in this space to maintain supply contracts and be an employer of choice.

Bear in mind that the sustainability journey won’t be completed overnight – it takes planning and considered action over five key stages: Activating, Reactive, Proactive, Strategic and Purpose driven. Watch the webinar recording to learn more about the actions and governance level at each stage.

The opportunity

Manufacturers that demonstrate genuine and holistic efforts in ESG and sustainability will have a clear competitive advantage, and are essentially acting to future-proof their business.

Our sustainability team has a range of tools available to help manufacturers assess whether they are ready for change, benchmark a business’ sustainability efforts and identify opportunities. These tools are particularly useful for businesses with high energy use –including most manufacturers. Get in touch to learn more.

The circular economy in action

What is the circular economy?

Essentially, it involves the decoupling of economic activity from the use of finite resources and is based on three core principles:

  • Design out waste and pollution
  • Keep products and materials in use
  • Regenerate natural systems.

Some of the biggest brands in the world are making moves towards a circular economic model, including Renault, which has introduced a vehicle leasing model and taken steps to re-use some vehicle components in manufacturing.

A local example can be found in the Green Triangle region of South East South Australia and Western Victoria. The Green Triangle is home to a large commercial forestry industry and found that 50 per cent of logs were going to waste.

Working with BDO EconSearch, producers and manufacturers from various industries in the region came together and developed a value chain technology roadmap, identifying waste reduction opportunities including:

  • X-ray scanning of logs for more accurate grading and reduction of unnecessary waste
  • The use of offcuts and low-grade logs for value-add products, such as gluelam timber
  • The production of Biochar for use in agriculture
  • The production of Biocoal (aka woodpellets)
  • The expansion of existing particleboard production.

The opportunity

The manufacturing industry is uniquely positioned to have a positive impact on the use of finite resources and amount of waste generated. While making wholesale changes to a business model, systems and processes may sound daunting, there are numerous examples of manufacturers that have made a successful shift from a linear to circular model while maintaining, or often improving, their commercial outcomes.

Developing an ecosystem with other local industries and businesses can be helpful in the implementation of a circular economy model - leading to new opportunities and creating a more sustainable business model, while maintaining a social licence to operate in a rapidly changing landscape.

Towards zero carbon: A case study in certification

The process of achieving carbon neutral status is similar whether seeking formal certification or not, and follows an annual process of measure, reduce, verify, offset, submit. The key to success is planning and ensuring that businesses are measuring what matters – from both a regulatory and industry standards perspective – taking into account indirect and direct emission scopes across the supply chain.

Ross Hill Wines, based in Orange NSW, were the first Australian winery to achieve carbon neutral certification. While their motivation was initially environmental, the commercial outcomes have far exceeded expectations. They are now a supplier to large companies, including Qantas, which are also prioritising carbon neutrality in their supply chain contracts.

The opportunity

Decarbonisation can not only translate into enormous cost savings for manufacturers, but open the potential for new contracts with organisations that demand certification of their suppliers. Investment firms are also increasingly looking to understand the level of carbon liability in their portfolios – making this a smart move for any business seeking investment now, or into the future.

Manufacturing Resilience Review Insights

Our Manufacturing Resilience Review is designed to help manufacturers assess the impact of key risks facing their business and benchmark against others in the industry.

Key focus areas related to sustainability which have emerged from the results include the following:

Regulatory changes/scrutiny

Deemed a medium-level risk by respondents, this concern reflects a rapidly changing global regulatory and reporting landscape – including ESG. While Australia is yet to move on mandatory ESG reporting requirements, manufacturers have clearly noted international action and increased local regulatory focus in this area, and are concerned about potential impacts. These include increased compliance risks, such as fines, regulatory breaches, loss of investment opportunities and legal risks.

Energy costs/efficiency

While considered a less likely risk by respondents, the potential impact of energy-related risks was rated quite high. Results show that this is informed by unpredictability and volatility in energy markets, as well as price increases and the need for alignment between energy products and operational strategy. Manufacturers that completed the review were concerned by the potential impacts on operational performance.

For more insights from this session and others in the Rethinking Manufacturing series, watch the recordings. Get in touch with your local BDO adviser to discuss how your manufacturing business can seize these opportunities and thrive well into the future.