Today's expectations of companies are unprecedented in their social and political dimensions, says our director Wolfram W. Hackbarth. Decision-makers in companies need to act quickly, but with deliberation and a clear concept.

One of our customers, a mechanical engineering company in the Mittelstand, built a plant for a young start-up that manufactures and palletizes wooden assemblies for tiny houses every minute. For this multi-million-dollar order, the manufacturer had to prove to its customer that the working conditions and safety standards on site at its Turkish supplier of welding frames and assemblies were in order: Using audit reports, photo documentation and written confirmations, he had to prove that all parts were manufactured under flawless working conditions.

 

Corporate social responsibility (CSR) is omnipresent in business practice today. The demands placed on products and services have risen significantly in recent years. Especially for small and medium-sized enterprises (SMEs), these new challenges loom large. In the context of emissions reduction and sustainability in a broader sense, the 2020s are characterized by political and social requirements and restrictions - national and European. Many companies will have to quickly and comprehensively adapt or even realign business models.

 

The expectations placed on companies are new in their social and political breadth. For in past decades, it was business itself that drove entrepreneurial upheaval. In the 1980s and 1990s, the automotive and mechanical engineering industries were confronted with demands for quality certification or comprehensive lean and kaizen activities to improve quality and increase productivity. International competitiveness had to be defended.

 

The 2000s witnessed massive cost reductions - to reduce inventory in production or through rationalization measures in workplace organization and optimization of employee ergonomics. The 2010s were predominantly characterized by automation pushes in production to increase capacities and reduce unit labor costs. Initial digitization approaches were pushed, such as the introduction of QR codes for the traceability of production processes.

In recent years, companies have left this "industrial cosmos" and are now confronted with social and political requirements that – thanks in part to the interconnectedness of the world via social media – are changing the foundations of previous business practices. Major customers and consumers are demanding sustainably manufactured products and transparent services, so that environmental and social sustainability are now part of the competitive conditions for companies. Presumably loan interest rates and credit conditions will soon be linked to emission reductions, for example.

This forces companies to realign and adapt their business models, including repositioning their own organization in terms of customer and employee loyalty, identifying supply chain risks, creating efficient and stable processes within supply chains, or integrating sustainable system partnerships into their own production system. And all this with a watchful eye on costs. The best example of new political and social requirements is the European Green Deal (EGD), whose overarching goal is EU-wide climate neutrality by 2050. As a result, there will be many regulations and legislative amendments in the coming years, that companies will have to implement. A year ago, the EU Commission already published the so-called Taxonomy Regulation. It defines whether an economic activity is to be classified as ecologically acceptable to determine the degree of sustainability of future investments.

Also very hotly discussed in Germany is the Supply Chain Act or Due Diligence Act, known in Germany as the Lieferkettengesetz, which makes companies responsible for their suppliers. From 2023, German companies will have to obtain an overview of their internal organizational processes and production systems to rule out human rights violations in supply chains such as child or forced labor. Corporate social responsibility is already part of everyday life for many companies, but with the Lieferkettengesetz they are subject to due diligence obligations to comply with environmental and labor rights conditions at all stages of the production and supply chain. This presents companies with a wide variety of new tasks, some of which are highly complex.

For example, European machine and plant manufacturers used the required specifications as the basis for contractual cooperation with their customers. From electronic and mechanical assemblies for plant control to computer connection, everything was regulated in detail in these specifications. Today, companies must think more sustainably while strictly observing legal requirements. At the same time they must confirm conformity for the ergonomic user-friendliness of the machines, the ventilation of the workplaces, but also for noise protection, low-vibration workstations and lighting.

Similar changes are taking place in all industries. Working with a major international industrial hall builder, we know that customer requirements have also increased enormously compared to the construction industry. From the energy-optimized building envelope to the nature-oriented integration of outdoor facilities, designers must keep everything in mind: Hall roofs with photovoltaic systems, additional green roofs for breathable air exchange or even cascading air-water heat pumps.

The demands from customers, bankers and other stakeholders on products and services have increased significantly in recent years. Customers will increasingly forego products that are obviously harmful to the environment while banks will withhold the best interest rates for the "cleanest" companies. Shareholders and owners will also demand transparency, precisely because a networked world can call a company's good reputation into question at the push of a button.

In general, social media are making a strong contribution to the fact that companies must master the challenges ahead faster and more flawlessly than in previous decades. For example, while a supplier was once able to stretch out quality certification by its major automotive customer for years, today's customers demand quick and clear results when it comes to sustainability. And they are not shy about naming their suppliers' mistakes or deceleration initiatives on the Internet.

What questions do you have about social corporate responsibility? We support you in facing up to these new challenges - with proven concepts and effective implementation support. Please contact me. I look forward to hearing from you.

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