Sustainable manufacturing: Challenges and opportunities

For decades, there has been talk about sustainable production. Since the 2000s, representatives of market giants have been bragging that by a certain year, their products will be 100 percent recyclable. This trend used to be shown mainly by the extractive and energy sectors (in accordance with the law on environmental protection, the owners of such facilities are obligated to minimize the impact on the environment), but now it concerns the consumer goods manufacturing industry as well.

How customers made business become eco-friendly

The environmental agenda is becoming relevant for everyone, including business. According to a poll held by the Higher School of Economics National Research University, almost 40% of Russians want goods to be environmentally friendly. And according to The Economist Intelligence Unit, in the past five years, the popularity of searches for sustainable goods has increased by 71%. The media and independent organizations are developing rankings of the most sustainable companies, while “socially irresponsible” firms are gradually disappearing from the media space.

How sustainability became magnet for investments

The main term that describes sustainable investing is the ESG philosophy. It relates to the sustainable development of business and is based on a company’s environmental (impact on the environment), social (impact on society) and governance (high level of corporate governance) practices. These criteria are currently affecting investors’ decisions as to whether the company deserves to receive their support, and whether its activity is useful or harmful for society.

The trend towards ESG investing (or responsible investing) has a positive impact on business and at the same time creates certain new challenges. On the one hand, this policy has turned the romantic idea of a socially responsible business into reality due to a significant financial support. On the other hand, it left no choice for the companies that did not include the sustainable policy in their plans. Now, it is not the issue of values and competitiveness but a way to survive.

Companies with a poor sustainable performance are facing rejection of funding, increased taxes in their sector in the Western countries, and reduced demand for their products. Russian banks are already introducing (and some have already done so, like Sber, VTB, Rosselkhozbank, Gazprombank, and others) the ESG assessment of companies into their lending process. The interest rate and the accessibility of a loan are now depending on the company’s sustainable performance.

New business: A pencil portrait

It is a company that meets the requirements of stockholders. It cares about the environment and strives to reduce polluting emissions, deals with waste processing, and does not make a secret of its manufacturing process. The new type of business is socially responsible, and it cannot be accused of discrimination, bad working conditions and disregard of social problems. And finally, it adheres to the legal and ethical norms, promotes an anti-corruption policy and ensures the transparency of accounting. Such companies already exist and more will appear as long as there is demand from scrupulous investors.

The reaction of manufacturers

The sustainability trend is more popular in the West, where requirements for businesses are enshrined in law. However, Russian companies are beginning to join in. They not only engage in waste management, but also work on other ESG criteria such as planting trees around their facilities and investing in environmentally friendly technologies. For instance, the Karelia-based Segezha Group has become an investor in a project to develop regulations for intensive forestry. They produce pellet fuels that emit 3-4 times more heat than wood and use waste for producing biofuels. In 2023, the company’s tree nursery grew 4 million conifer seedlings to be provided to forest funds in the Kostroma, Kirov and Vologda regions. Every year, the company restores about 70,000 hectares of forests through this practice.

Sustainable forestry is a focus for furniture business as well. Our company recycles over 60% of production waste. We undergo certification to ensure that the wood is purchased from responsibly managed forests and efforts are taken to restore woodlands, preserve biodiversity and avoid labor law violations; otherwise we use secondary sources. In 2022, following the suspension of FSC trade certification that marked materials sustainability and helped manage proper use of forests, Russia developed its own Forest Etalon system launched by the former FSC Russia team.

After the material has been received and processed, the next task is disposal of waste, which totals 30-40% of the initial production volume. It contains synthetic toxic substances that were used in gluing and processing and require proper disposal. A prospective solution involves introduction of sawmill and woodworking waste treatment equipment or cooperation with specialized plants.

Challenges of transitioning to sustainable production in Russia

Taking care of the environment requires efforts from manufacturers, who have to face new tasks.

  1. Russia currently lacks infrastructure for inexpensive and high-quality waste management. Companies will have to invest large amounts of money in upgrading production facilities and introducing eco-friendly technologies before they begin receiving investments from funds. Few brands have sufficient resources to make such a move.
  2. Not all companies can use recycled materials to create a product on par with others in their catalogue as regards quality and price. Organizing a recycling process always comes with substantial additional costs. A company may question whether it is ready to invest in such production: manufacturing park benches or garbage bags from recycled plastic would essentially mean building a separate production line.
  3. Not all materials are recyclable. For instance, we hand over all common plastics for disposal at specialized plants, but mixed fabric waste is difficult to recycle. We are currently seeking a solution to this problem.
  4. In response to clients and investors’ demands for making business sustainable, сompanies emerge that engage in the so-called greenwashing, or green camouflage – a process of conveying a false impression about company products being eco-friendly instead of taking actual efforts to introduce quality and expensive changes in manufacturing process. Normally, such deception ends in a scandal directly proportional to the company’s popularity. In Russia, greenwashing companies face fines.
  5. So far, we lack applicable laws to regulate furniture materials recycling and disposal. The only available option is the certification system Product Ecological Certificate, which ensures furniture products safety. It is up to manufacturers to decide on ways to handle product residues.

A few years back, the media and bloggers began talking about the sustainability trend. Essentially, this is not a fleeting phenomenon but an actual response to society’s demand for taking care of our planet. Businesses need to come up not only with new practices of handling materials but also ways to stand out from competitors to attract investors. This is becoming increasingly difficult, with the focus on sustainability no longer an innovation, but a necessity.

By Andrei Ishkov, Executive Director,

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