Part 1: ESG Implementation for Co-mans and Co-packers

Environment, sustainability, and governance (ESG) goals are increasingly demanded by government and expected by consumers. According to the Manufacturers Alliance for Productivity and Innovation (MAPI) trends report 'Interesting Sustainability: ESG and Smart Manufacturing Trends', “ESG is a set of frameworks used to assess the impact of a company’s sustainable and ethical practices on its financial performance and operations.”

The ESG categories are used to measure and report a company’s progress and include areas often overlooked, such as inequality, climate risk, diversity, and ethics, when uptime and other pressing matters demand more attention. These areas can still affect a company’s bottom line.

The MAPI trends report says research also links high ESG ratings with higher profitability, higher dividend yield and decreased business risks, less volatility, and higher valuations

Considering these benefits, ESG goals can therefore be “useful financial indicators of company performance and of a sound investment … [as] higher scores reflect better management of risks and opportunities by companies,” according to the report.

But in many ways contract manufacturers and packagers (CM/CPs) often have little input as the sustainable nature of the materials, ingredients, and processes used in their facilities are most often controlled by their brand and consumer packaged goods (CPG) customers. But that doesn’t mean they are without options.

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3 ways contract manufacturers and packagers can be environmentally conscious

LEK Consulting, a consulting firm that helps manufacturers and packagers, including CM/CPs, breaks down the efforts contract services can make to reach environmental goals into three categories:

1. Equipment with the flexibility to run virgin or sustainable substrates.
2. Internal ESG initiatives.
3. Providing a suite of sustainable support services to brand owner customers.

Amanda Winters, LEK Consulting partner and managing director.Sustainable substrates, particularly those that include recycled content, historically couldn’t be run on the same equipment as virgin materials, or if they did, the speed of the line needed to decrease significantly. This impacted the rate of production, making sustainable substrates seem like more effort and money than was feasible for most CM/CPs.

But, as LEK Consulting partner and managing director, Amanda Winters points out, “there's more innovative equipment out there where you could run sustainable substrates on similar equipment.”

Thilo Henkes, partner and global packaging practice lead at LEK Consulting.Purchasing equipment that can run substrates with recycled content, bio-based resins, and other eco-friendly alternatives is a difficult decision for a CM/CP to make and one that very often won’t be made until brand owner customers provide an ultimatum. However, deciding to purchase such flexible equipment can also be one of the biggest efforts a CM/CP can make to help its customers meet their sustainability goals, according to Thilo Henkes, partner and global packaging practice lead at LEK Consulting.

Internal sustainability initiatives are easier to commit to as they have no correlation with customers. Internal initiatives can include efforts to reduce landfill waste, increase recycling, or reduce carbon emissions. Many CM/CPs are actively striving to accomplish goals like reducing energy consumption, reducing water consumption within production and sourcing energy from renewable options.

“These are the activity set that manufacturers, agnostic of packaging, can deploy as a means of meeting internal ESG goals, without necessarily needing to do anything that's tied to the behavior of their upstream customers, like equipment purchases mentioned before,” says Jon Moss, partner at LEK Consulting.Jon Moss, partner at LEK Consulting

Sustainable support services are services CM/CPs can offer their brand owner customers and can involve things like support for more sustainable design of packaging and formulation. Though CM/CPs don’t have a direct effect on the packaging or product, they can provide suggestions for a more sustainably sound packaging solution and product formulation. KDC/One is an example of a co-manufacturer who provided such services to smaller brand owners in the beauty packaging space.

Another area of support is freight optimization. This includes efficiency in shipping full truckloads and improving secondary packaging architecture, particularly for non-cube-based products, for more efficient space usage. This is especially applicable in direct-to-consumer packaging in terms of shipping the products in primary packaging versus placing the product inside a larger box with void fill.

Jeff Cloetingh, managing director and partner at LEK Consulting.“Optimizing the freight reduces spend, but also the amount of protective packaging material, and as a consequence, the amount of fuel that’s used in transport,” says Jeff Cloetingh, managing director and partner at LEK Consulting.

Environmental co-man goals in the works

Yellow Emperor, a Eugene, Ore.-based liquid supplement contract manufacturer, has made sustainability a goal and provides insight into how CM/CPs can do their part.

Yellow Emperor’s efforts over the years have led to certifications such as GMP-certified plant and Certified Organic Processor for organic supplement private label manufacturing. The CM undergoes audits and inspections by state and federal regulatory agencies regularly. The certifications aren’t the ultimate point, however.

“You don't have to have a certification to be a sustainable business. You can do things that encourage sustainability without needing a third party,” says Sarah Vito, director of business development at Yellow Emperor.

Sarah Vito, director of business development at Yellow Emperor.Vito explains that third parties can bring many benefits to a company, such as in showing clientele that the CM/CP has been vetted, but they are not necessary to becoming a green business. Sometimes, third parties can even come with a lot of administrative overhead, requiring time and funds that a CM/CP may not be willing to spend. According to Vito, to be sustainable a company just needs to choose an area in which to make effort and start.