From energy and materials usage to fleet and waste management, the manufacturing sector offers significant opportunities for cost savings and environmental stewardship.
This dual imperative not only highlights the sector’s critical role in reducing global environmental impacts but also underscores how ESG principles are reshaping the industry.
Here’s how manufacturers can embrace ESG principles to stay competitive in 2026 and beyond, with a couple of trends to expect.
What is ESG in manufacturing?
In manufacturing, ESG refers to a strategic framework that integrates sustainability and ethical principles into the core operations of the company. It goes beyond compliance, addressing how manufacturers:
- source materials
- manage energy and water use
- handle waste
- reduce emissions
- ensure worker safety
- support communities
- maintain equitable labor practices
- establish transparent governance structures
- enforce ethical decision-making
- manage risks across the supply chain
As one of the largest consumers of raw materials, energy, and labor, the manufacturing sector naturally relies on complex, multi-national supply chains. This makes achieving ESG goals particularly challenging. However, this complexity does provide a unique opportunity for manufacturers to drive substantial change.
Amy Ryu, Head of Product at Tracera, explains:
“The manufacturing sector holds a unique position in driving sustainability due to its direct control over resource-heavy production processes and their potential for influence on supply chains.”
Manufacturing companies must now demonstrate how they are adopting circular economy practices, improving energy efficiency, and reducing waste—while also showcasing the impact of these efforts on their product footprint.
Innovation remains a crucial driver for manufacturers striving to meet ESG objectives while staying competitive. Investments in technology to drive operational efficiency are already becoming more popular with 60% of companies prioritizing them.
From adopting renewable energy and designing eco-friendly products to implementing circular economy principles, product innovation remains a key differentiator in any market.
ESG in manufacturing: key trends
This space is constantly evolving, and every other aspect of your work is likely to shift this year. Here’s what to prioritize first, based on the most pressing trends.
Product Environmental Footprints
The European Union is advancing sustainability initiatives by implementing digital product passports to enhance transparency and traceability of products’ environmental impacts. The EU’s digital battery passport, for instance, becomes mandatory in February 2027 for electric vehicles and industrial batteries exceeding 2 kWh capacity.
In the construction industry, more Environmental Product Declarations (EPDs) will be used for assessing and sharing the environmental impacts of building materials. As of early 2024, over 23.000 verified EPDs for construction products have been registered. Their growing adoption reflects the industry’s commitment to sustainability as well as the demand for transparency in environmental data analyses.
Setting up a robust data infrastructure is an essential step before you calculate Product Environmental Footprints (PEFs). Such an infrastructure would facilitate the collection, verification, and sharing of comprehensive environmental data across supply chains, enabling more accurate assessments of product impacts and supporting compliance with emerging regulations.
Changing supplier data requirements
The Corporate Sustainability Due Diligence Directive (CSDDD) is just one of the latest directives that highlight the importance of supplier data in accurately calculating embedded emissions and staying compliant with due diligence requirements.
Note: The final Omnibus package, adopted in February 2026, narrowed the CSDDD to the largest companies (more than 5,000 employees and €1.5 billion in turnover) and shifted due diligence to a risk-based approach focused on where adverse impacts are most severe. The fundamental need for supplier data collection remains unchanged — in-scope customers’ obligations begin in July 2029.
On average, scope 3 emissions (i.e. one of the primary focuses on the CSDDD) are 26 times higher than scopes 1 and 2 emissions combined, highlighting the necessity for companies to engage their supply chains to measure and reduce emissions.
Ryu notes that the most effective way of reducing a manufacturing company’s carbon footprint is by addressing supply chain-specific emissions:
“Right now, most companies are reporting value-chain emissions based on how much they spent or the weight of items they purchased. This means that the only way of reducing emissions is to buy less. This simply doesn’t make sense and getting supplier-specific emissions data should be high on manufacturing companies’ priorities.”
However, many companies identify limited control over suppliers as a major obstacle to achieving sustainability objectives.
💡Related: How La-Z-Boy Incorporated achieved greater transparency in their sustainability data reporting.
A study published in 2024 highlights challenges such as higher procurement costs, limited availability of green materials, quality assurance issues, and difficulties in verifying green practices when integrating green suppliers into supply chains.
Regulatory reporting demands
Regulatory reporting on sustainability is increasingly driven by standards and frameworks that aim to create uniformity and transparency. The ESG framework landscape is vast, but key regulations include:
- The Corporate Sustainability Reporting Directive
- California Climate Disclosure Regulations
- The EU Taxonomy
The CSRD originally mandated extensive ESG disclosures for thousands of manufacturing firms. That includes detailed scope 3 emissions, supply chain mapping and site-by-site data. Under the final Omnibus directive, adopted in February 2026, small and mid-sized manufacturers are exempt from mandatory CSRD reporting. Applicability is now limited to companies with more than 1,000 employees and €450 million in turnover.
Total exemption in the future though remains impractical. Large customers and investors demand CSRD-aligned disclosures across the entire supply chain. Multi-site operations add even more complexity. These call for standardized data collection and innovative digital tools to keep you compliant.
As a manufacturer, you should continue investing in supply chain transparency, automated data platforms, and emissions tracking to meet customer expectations and prepare for any future regulatory shifts.
On this, Ryu adds:
“Adopting software and engaging with experts early can ensure that these activities are done properly and efficiently so that sustainability team members can focus on actually driving change rather than spending their time on reporting tasks.”
Implementing the right ESG tools and practices can help organizations comply with complex regulations while enabling sustainability teams to dedicate their efforts to impactful actions rather than administrative burdens.
Customer and investor pressure
Increased customer and investor expectations also fuel the need for a higher sustainability focus.
Surveys show that 79% of consumers of consumers now consider sustainability attributes when choosing products, significantly increasing pressure on manufacturers to adopt greener practices.⁸ Customers are no longer just passive participants. They actively evaluate companies’ sustainability efforts when making purchasing decisions.
Investors are equally influential, as sustainability ratings from organizations such as EcoVadis and the Carbon Disclosure Project play a critical role in shaping a company’s financial health. More financial institutions use these ratings to determine debt terms and stock valuations. Higher sustainability scores can lead to preferential terms, while poor ratings may result in increased borrowing costs or reduced investor confidence.
Tracera for manufacturing
For manufacturers, the stakes are high—complex supply chains, resource-intensive production processes, and growing regulatory pressures make ESG compliance both a challenge and an opportunity. That’s where Tracera comes in.
Supporting comprehensive ESG data infrastructure
Tracera supports companies in calculating their Product Environmental Footprint and staying compliant with existing and new regulatory demands. This involves tracking granular data, including carbon emissions and water use, supply chain origin, and compliance with ethical standards such as the absence of human rights violations.
A bottom-up data system enables manufacturers to leverage detailed information on individual components, environmental and social footprints and manufacturing processes. Tracera helps you build this infrastructure by providing tools to collect, analyze, and manage this data seamlessly. The platform enables companies to align with regulatory frameworks while offering detailed insights that inform product design and sustainability strategies.
Handling supplier engagement and data collection
Beyond internal data management, Tracera acts as a supplier portal where you can address both due diligence and emissions tracking.
Engaging suppliers is critical for meeting due diligence requirements, such as documenting human rights practices and environmental policies. This collaboration also improves the accuracy of Scope 3 emissions inventories, which typically rely on generalized assumptions about emissions.
For example, instead of using industry averages for steel emissions, manufacturers can use Tracera to gather supplier-specific data.
By engaging suppliers directly, they can identify those using green energy or innovative technologies that lower carbon footprints. This enhances emissions reporting accuracy and helps prioritize partnerships with sustainable suppliers, fostering improvements across the supply chain.
Take the first step toward streamlined ESG compliance and sustainable manufacturing. Book a demo with Tracera today to see how our platform can transform your data processes, enhance supplier collaboration, and align your business with regulatory demands.