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Navigating new ESG regulations with configuration technology

March 6, 2024
Manufacturers of configurable products must navigate new and changing rules amid the ever-increasing complexity they’re already dealing with.

We’re seeing increased interest in sustainability at a global level. The uptick in demand for electric and hybrid vehicles is just one indicator of this, as consumers become more concerned with their own carbon footprint and that of the organizations with which they do business. This isn’t a new conversation, but it is taking a stronger hold, especially as new regulations are introduced internationally.

Environmental, social and governance (ESG) standards are growing, leading to recommendations like the International Sustainability Standards Board (ISSB) and the United States-Mexico-Canada Agreement (USMCA) of 2020.

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ISSB is working to create a unified set of globally recognized practices and make the disclosure process transparent, and the USMCA has already created standards that require thresholds for locally sourced materials. In the U.S., the Securities and Exchange Commission has also proposed new ESG-related rules that would require publicly traded companies to provide information about their “ESG footprint” as part of their annual reports.

Manufacturers of configurable products must navigate these new and changing rules and regulations amid the ever-increasing complexity they’re already dealing with. Taking a closer look at an organization’s configuration approach can be a key step to addressing these twin challenges.

From regulatory requirement to competitive advantage

The ruling bodies of the European Union and the U.S. are thinking about imposing tariffs to encourage greater ESG involvement. Affected manufacturers will have to grasp the organizational and supply chain environmental impact of their products and share that impact to comply with these standards and regulations. If they create highly complex products, they’ll need to know how each product component and choice—and the total impact of potential product combinations—could impact the environment.

This level of transparency will demand greater effort. But instead of adopting a defensive stance regarding sustainability, manufacturers can choose to be proactive. That could mean a competitive edge, revenue growth, higher profitability, and a bigger market share.

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By being proactive about sustainability, manufacturers can draw in a loyal base of customers who are deeply committed to this issue. Manufacturers can include sustainability metrics in their business metrics and integrate them into their daily operational priorities. This is possible by using key performance indicators, ESG rating measurements and Global Reporting Initiative (GRI) standard sustainability reporting.

How configuration technology can help

A product configurator can play an important role in helping a customer understand the choices they make and guide them toward more sustainable choices.

For example, in the EU, there’s a scale (from A-G) used to rate household appliances based on their energy consumption. This helps consumers choose a product that uses less energy. A similar type of scale could be used with a product configurator. As the consumer examines the different options and variances for the product they want to buy, this type of scale could easily be integrated.

If a customer decided upfront that they wanted their final product to have a C-rating or higher, a product configurator could help steer them in the right direction based on the other choices they make. Want to raise it to a B or an A? The product configurator could show what would need to change in terms of the other options selected to make this so.  

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According to a recent study by IDC, organizations that are using product configuration tools are already seeing results in terms of their sustainability goals:

  • 30% of survey participants state that their current product configuration tools and applications contribute to waste reduction in the manufacturing process.
  • 27% of respondents indicate that their current product configuration tools and applications assist them in meeting government regulations.


Best practices for navigating ESG and sustainability compliance

Navigating these rules and moving toward a more sustainable approach begins with first determining an organization’s objectives and priorities for sustainability information. This will provide insight into the types of information needed, the purposes for which it’s needed, and when it needs to be provided.

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Next is the collection of relevant data. This is the information needed to help customers see the full impact of their product configuration choices. It can also be shared with regulators and investors. Typically, carbon footprint cost information will be the most important data related to sustainability. This kind of information can be sourced from government agencies like the U.S. Department of Energy and can be added to the product configurator, to show information related to each product choice, enabling customers to see how sustainable the product options they’ve selected are.

Meeting customer and regulatory demands

Product configuration management plays a pivotal role in ensuring adherence to ESG standards, from the initial phases of product development all the way through to the point of retirement.

Reexamining an organization’s approach to product configuration can help not only ensure compliance with regulatory requirements but also helps customers find the optimal product configuration they desire—while also ensuring products are manufactured and commissioned without errors.

As sustainability becomes a larger consumer demand and ESG regulations mount, building these options into the product configuration process can go a long way to helping reduce complexity while also contributing to more sustainable products.

About the Author

Henrik Hulgaard

Henrik Hulgaard is VP of product management and co-founder of Configit, provider of Configuration Lifecycle Management (CLM) solutions and a supplier of software for the configuration of complex products. Hulgaard is an associate professor of computer science and has published more than 25 articles internationally.