Why Manufacturers Are Thinking About Sustainability

Manufacturers have begun to realize the benefits to sustainable manufacturing, and they aren’t limited to helping our planet.

What is sustainable manufacturing? According to the Environmental Protection Agency, sustainable manufacturing is the creation of manufactured products through economically-sound processes that minimize negative environmental impacts while conserving energy and natural resources. Sustainable manufacturing also benefits your employees, communities, and consumers.

In today’s world, sustainability is becoming less of a choice and more of an obligation. This is being driven in part by consumers who care about more than price tags, and increased governmental regulations aimed at protecting human and environmental health.

Manufacturers have traditionally shied away from implementing sustainable practices under the belief that this will reduce their profitability. When implemented successfully, manufacturers have seen reductions in their operational costs and waste with a direct improvement to their bottom line.

In addition to the production cost savings, sustainable practices have led to significant intangible benefits. Sustainable manufacturers have increased their employee satisfaction by challenging them to be innovative, allowing them to identify areas for improvement, and leading them to feel a sense of pride that they are working at a company that has a sense of corporate responsibility. Practicing sustainability is also a tool for top talent attraction and retention. Additionally, being sustainable may make your company more marketable. Using social media to highlight green initiatives improves overall brand recognition and may help attract new customers or open your business up to new markets.

Here are ways you can transform your business into a more sustainable one:

• Switch to more energy efficient lighting options, such as LED lights.
• Use sensors and timers to control lights.
• Install solar panels or consider other alternative energy sources.
• Reduce the use of plastics or consider using plant-based plastics.
• Update existing machinery and equipment to newer, more energy-efficient models.
• Prevent or limit costly repairs and production downtime by leveraging machine learning to predict maintenance needs.
• Review your supply chain; source materials from local suppliers, suppliers who practice sustainability, or choose green logistics companies.
• Regularly review your product designs for opportunities to make production more efficient; consider using a generative design tool which utilizes artificial intelligence to generate and evaluate hundreds of potential designs for an existing product or new product idea, allowing you find the ones that best meet your needs .
• Consider the use of additive manufacturing or 3D printing to reduce waste and improve product consistency.
• Automate repetitive tasks using industrial robots, allowing your human workforce to perform more value-added tasks.
• Use cobots, or collaborative robots, that work alongside human workers to automate part of a production line. Cobots provide flexibility; they can learn new tasks in a short amount of time, can be used across departments, and allow manufacturers to increase production during peak times.

Keep in mind that many of the sustainability improvements described above may also qualify your company for tax benefits which could help offset some of the startup costs of implementation. The first area for potential savings is through R&D tax credits. Manufacturers may qualify for this credit when attempting to develop or improve a process, product, or software. Eligible qualifying costs may include employee wages, supplies used in the creation of prototypes and testing materials, and even a percentage of costs paid to outside contractors. The Solar Investment Tax Credit (ITC) is another potential tax credit available for businesses that purchase and install a qualifying solar energy system. Currently, the ITC is 26% of the cost of the system if you begin construction in 2022. However, the ITC will decrease to 22% in 2023 and 10% for 2024 onwards.

Our Manufacturing and Distribution Practice professionals have the depth of expertise to assist your company with evaluating your options regarding tax savings with sustainability projects. Please reach out to your Citrin Cooperman advisors if you have questions.