Despite controversy surrounding ESG, UK manufacturers have intensified their environmental, social and governance commitments, though they struggle to measure the ESG performance of their suppliers.

According to new research, the number of manufacturing companies setting ESG targets has increased by 48% since 2021.

However, the number now requiring ESG undertakings from suppliers has increased by a weighty 74%. But there is a worry: 45% are not clear of their suppliers’ performance against ESG targets.

The research comes from Make UK, the industry body for UK manufacturers (formerly EEF), in a joint study with Lloyds Bank.

The figures come as many companies push towards publishing plans for transitioning to “net zero”, which include targets for reducing greenhouse gas emissions and the procedures for achieving them.

Taking the pledge

The UK is also currently consulting on the introduction of two new sustainability standards developed by a sister body to the IFRS Foundation, the organisation that writes international financial reporting standards.

Although there have been pledges, there is currently no timescale on when they might be introduced, though recommendations are expected some time in 2024.

Some investors have already begun calling on companies to use the new standards. Guidelines for “gold standard” transition plans have been published by the Transition Plan Taskforce, a body created by the UK Treasury.

Faye Skelton, head of policy at Make UK, says: “Manufacturers are raising their ambitions and commitments to ESG as the issue moves beyond solely environmental issues.

“Customers, suppliers, investors and employees are now increasingly expecting that companies make the issue as core to their strategy as any other business objective.”

Independent scrutiny falls

Perhaps one worrying trend, however, is the drop-off in firms having their ESG data independently audited. In 2021, the figure for manufacturers stood at 37%; by 2022, the figure had declined to 32%.

Figures suggest commissioning independent audits depends on the scale of companies. Among firms with of 10-249 employees, only 21.5% bring in independent audits. At the 500-999 employee mark, the figure is 76.9%. At more than 1,000 staff, the number is 55%.

The Make UK report suggests the drop-off among the largest firms may be because they have their “own dedicated ESG department” and are therefore less likely to use external ESG auditing.

There are no requirements for mandatory audit of non-financial disclosures in the UK at this time.

Currently, there is no firm agreement now which reporting framework to use for ESG information. The survey finds manufacturers using guidelines from the Taskforce for Climate-related Financial Disclosures, the Sustainability Accounting Standards Board and the Global Reporting Initiative.

ESG reporting is still an emerging discipline in the UK. Last year, the Financial Reporting Council concluded that many companies struggle to deliver effective climate risk reporting. This latest report shows manufacturers keen to develop their sustainability credentials.