What Is ESG and Why Does It Matter for Stainless Steels and Special Metals?

In recent years, there’s been an international push toward sustainability, responsible corporate citizenship, and purpose-driven investment strategies. To support this, ESG-led portfolios, business reporting, and marketing messaging have become more and more commonplace across a wide variety of industries. However, there’s also been pushback from some who believe ESG to either be a passing fad or a tactic for “greenwashing” environmentally damaging business practices.

Here at Ulbrich, we just believe it’s good business to act responsibly toward people and our planet.

So, what is ESG? And why does it matter for stainless steel and special metals? Well, it’s part corporate responsibility, part sustainability, and part standardization.

The Basics of ESG

To better understand the basics of ESG, consider each of the three components:

• Environmental. Businesses and organizations must lower their carbon footprint.
• Social. Corporate policies must protect human rights, both for their employees and their communities.
• Governance. Disclosures such as a sustainability report help ensure that companies are following through on their ESG promises.

Metalforming companies, OEMs, and manufacturers throughout the supply chain are increasingly requesting ESG certifications, statistics, and other pertinent information to comply with requests from governmental bodies and their own customers.

Unsure where to start? Fortunately, companies can implement a successful ESG strategy with the help of existing ESG frameworks.

ESG Frameworks

Companies use ESG reporting frameworks to disclose their operations to stakeholders like customers, employees, and investors. Reporting on ESG initiatives helps companies ensure legal compliance, helps employees and customers know that they’re supporting a responsible company, and helps shareholders make socially responsible investing decisions.

There are many ESG frameworks used by companies around the world. Some of the largest are the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Carbon Disclosure Project (CDP). After a company chooses its ideal ESG framework, it can begin the all-important task of implementing its ESG strategy.

Importance of ESG

ESG is important because it spotlights the need to protect the environment and the community—and it has resulted in a conscious international effort to be greener. Metals businesses already have a great start with recycled steel and aluminum, but there’s still much more work to be done and challenges ahead.

Common Challenges in ESG

An ESG initiative can be implemented anytime, but strong ESG performance doesn’t happen overnight. Many companies must perform an energy transition to a greener source, update their supply chain, and upgrade their equipment to more environmentally friendly options. This all takes time, personnel, and money.

Without clearly defined international ESG standards and criteria, companies could also struggle with integrating ESG into their business’s culture and strategy. Although ESG reporting frameworks help, organizations don’t always know what data to collect—or how to analyze it to determine their ESG performance.

One important data decision pertains to the depth of emissions data collected as most ESG frameworks separate a company’s emissions generated into three categories:

• Scope 1: Greenhouse gas emissions that stem directly from sources owned or operated by the organization.
• Scope 2: Indirect emissions caused by the generation of the electricity, heating, cooling, and steam that’s purchased by the company.
• Scope 3: These are even more indirect emissions caused by activities across that company’s entire supply chain. The company doesn’t own or control these sources of emissions.

While ESG frameworks typically require companies to first report on scope 1 and 2, scope 3 emissions can account for a significant percentage of a company’s carbon footprint.

Importance of ESG for Metals Businesses

The metal industry is taking steps toward strong ESG performance and thanks to components like aluminum’s recyclability and stainless steel sustainability, it’s possible to fight climate change while still providing high-quality metal products.

Application of ESG in Metals Businesses

The good news is there are excellent ESG initiatives that the metal industry can use, including:

• Upgrading equipment to emit less fumes and reduce waste
• Recycling scrap metal or unused materials
• Changing corporate culture to focus on ESG initiatives
• Implementing community outreach programs
• Obtaining ESG certifications through training programs
• Setting targets to reduce emissions

To ensure proper application of ESG in metals businesses, there are also regulations that these companies must follow.

Regulations in Metals Businesses

With the evolution of ESG, some governments have enacted regulations that metals businesses must comply with. For example, in the United States, the Securities and Exchange Commission (SEC) requires publicly held companies to disclose ESG risk information in an effort to protect investors.

Environmental Sustainability in Stainless Steel and Special Metals

Sustainable metallurgy involves producing metal products with a focus on ESG standards. Metal businesses might implement a full ESG strategy or incorporate lean manufacturing as a part of sustainable metallurgy. Fortunately, since steel is so versatile and recyclable, it gives the metal industry a leg up.

Role of Steels in Sustainable Metallurgy

Steel can be used countless times. It’s 100 percent recyclable, so it can be reprocessed and reintroduced into the supply chain over and over again. And since steel is used in all sorts of applications, it contributes to both direct and indirect sustainability.

Direct and Indirect Sustainability

The difference between direct and indirect sustainability is simple:

• Direct sustainability sees results created by the action.
• Indirect sustainability also sees results, but instead of being immediate, the results are noticeable either later in time or later in the supply chain.

For example: consider an ESG standard practice of mining minerals to be processed into metal. When this is successfully done in an environmentally friendly way, the direct sustainability result might be that metal companies receive raw material from their supply chain quickly and with a low carbon footprint. The indirect sustainability result might be that the location from which the minerals are mined does not negatively impact the surrounding community or wildlife.

To illustrate further, let’s examine some of the direct and indirect benefits of using stainless steel in manufacturing processes:

• Direct Sustainability:
• Resource Conservation: Steel recycling reduces the demand for newly extracted iron ore and coal, conserving natural resources.
• Energy Savings: Recycling steel typically requires less energy than producing steel from raw materials, which reduces greenhouse gas emissions and energy consumption.
• Waste Reduction: Recycling steel products prevents them from ending up in landfills, reducing waste and associated environmental problems.
• Indirect Sustainability:
• Supporting Sustainable Industries: Steel is a critical material in sustainable industries like renewable energy (e.g., wind turbines and solar panels), electric vehicles, and green building construction. By providing a sustainable material, steel indirectly supports these industries' efforts to reduce environmental impacts.
• Longevity: Steel's durability and long lifespan mean that products made from steel are less likely to require frequent replacement, further reducing resource consumption over time.

Sustainability Considerations for Manufacturers

Perhaps the most important aspect for metal manufacturers to consider is the actual materials they use. Fortunately, extremely popular metals like aluminum, steel, and stainless steel are considered green because they’re easily recycled with a low carbon footprint.

Another aspect is the supply chain. Transporting raw material and finished products across the globe has a high carbon footprint. Thus, manufacturers must find more sustainable ways to handle their supply chain as part of their ESG strategy.

Developing an ESG Strategy

Like with any policy, developing an effective ESG strategy takes time. Fortunately, problem-solving structures like A3 and 8D exist to help guide companies through the process. The metal industry must consider each ESG factor and priority before they can actually implement the strategy.

Factors to Consider for Stainless Steel and Metals Businesses

Without a formal ESG strategy, a company will never attain strong ESG performance. In designing the strategy, there are several ESG factors to consider in particular for stainless steel and metals businesses, including:

• What are the company’s ESG risks?
• In addition to green materials like stainless steel, what is the environmental impact of other metals like chromium, nickel, cobalt, and critical minerals? For example, as nickel demand increases, how will the company keep up with production while still achieving their ESG metrics?
• How will the company’s culture need to change in order to earn buy-in from the employees so that the entire team works together to achieve the business’s ESG goals?
• How will the ESG strategy affect the business financially? ESG can be expensive, so profitability will always be a factor.

In addition to these factors, businesses need to identify the priorities for their ESG strategy development.

Priorities for ESG Strategy

The first of many ESG priorities is likely financial. The business must reduce costs and grow its top line in order to survive. Next comes the company culture. The business needs to prioritize the health and safety of its employees and ensure that other ESG goals like equity, diversity, and inclusivity are met.

Throughout the process of establishing an ESG strategy, the business must cater to each stakeholder. This is particularly important during the implementation phase.

Implementing an ESG Strategy

Once a metal business has designed its ESG strategy, it’s time to implement! Here are a few steps to follow for successfully deploying the strategy:

• Form an ESG team to manage the process.
• Establish a baseline on your current ESG performance.
• Identify KPIs and incorporate them into your ESG report.

Then, start collecting and analyzing your ESG data! Keep in mind that no strategy will ever be perfect. As the company and industry grow and evolve, additional ESG concerns will arise. You’ll need to adjust and revise your strategy to keep up with the times and maintain your edge over your competitors.

Your Premier Materials Partner

Throughout our history, Ulbrich has always focused on making the world a better place by giving back to our community. We proudly support our community and tirelessly strive for a cleaner world. As a company that truly cares about our environmental and social impact, we are working to not only uphold ESG standards but to exceed our ESG goals.

Ulbrich is dedicated to partnering with forward-looking companies to advance precision metals. Contact an Ulbrich specialist today.