Industrial model promises ‘billions in profit’ for sustainable manufacturing

Manufacturers are being urged to adopt a new type of sustainable business model built around profitability, which could potentially generate €100bn (£82.5m) of increased profit for businesses if widely implemented across Europe.

The model involves three stages: non-labour resource efficiency to reduce costs; reinvesting some of these cost savings in sustainable inputs such as renewable energy and recycled materials to improve security of supply; and development of innovative new products to capture market share growth.

The logic for the new model has been endorsed by carpet tile manufacturer Interface, who has used its own operations as a case study for the benefits that can be achieved. The resource efficiency measures it has put in place across its European manufacturing operations so far have reduced its costs by €7.6 million per annum.

The €100bn figure mooted, which equates to increased profit before tax (per annum), would be the result of increased materials efficiency, energy efficiency and renewable energy, at a capex cost of €66bn.

The New Industrial Model report says this figure would represent an average 9% increase in profit for the European manufacturing sector. Market share improvements and new product revenues add to this, but have not been included. Other benefits stated include a potential 20% improvement in energy efficiency and potential 3% saving in materials for companies that apply the model.

According to the study, the model decouples economic success from natural resource consumption. “It goes beyond conventional thinking, which considers sustainability as a compliance activity and cost, to drive revenues and profits by integrating sustainability within a company’s core strategy,” the report states.

New market opportunities

The study outlines a number of corporate actions needed to accelerate transition to this model. These include a commitment by manufacturers to reduce material use by 5% per unit of production from current levels, reduce energy use by 20% per unit of production from current levels and use 100% green energy by 2020.

Looking down the supply chain, manufacturers should be encouraged to ask their suppliers to provide either Environmental Product Declarations (EPDs) or validated life cycle assessment data for their products/materials so that there is continual focus on reducing the impact of raw materials and products. Creating additional value propositions within the business model, for example through servicising, remanufacturing, or shared usage should also be considered.

Governments meanwhile could further assist by shifting taxation from income/labour to virgin resource use and environmental damage, and mandate for greater transparency of inputs and impacts – for example, creating a rating scheme to allow comparison of the embodied energy in energy-intensive products such as steel and glass between different producers.

Commenting on the proposed model, Mark Goldsmith, head of responsible investment at private equity firm Actis, said that the management of non-labour resource constraints such as water and energy will be one of the critical challenges facing manufacturers over the next decade. “Given the right leadership, significant risks can be reduced, money can be saved and new market opportunities can be found across the manufacturing sector,” he said.

Maxine Perella

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