Rise in ESG-Driven by Nearshoring and Reshoring.

Probability: Very high

Financial Impact: Mixed

As more companies worldwide become more invested in ESG performance, manufacturers seek nearshore production closer to their customers to control environmental impacts better and support local communities. Nearshoring allows companies to reduce their carbon footprint by minimizing long-distance transportation and associated emissions. It enables manufacturers to adopt more sustainable practices and utilize cleaner energy sources. It can also create local jobs, positively impacting the economy and reducing unemployment rates¹. It provides opportunities for fair wages, safe working conditions, and adherence to labor laws, promoting social well-being. It allows for better-quality control processes, reduces lead times, and increases agility to meet customer demands.

Nevertheless, according to the Savills Nearshoring Index, there can be a trade-off between labor cost and ESG performance in developed markets and the higher cost of holding inventory there². Returns may be lower, and costs may not be cheaper, but “you can service your customers better. You are closer by so you can have more innovation. And you have a better ESG score.” Van den Bossche claims³. All these factors ultimately result in higher customer satisfaction, allowing companies to leverage their ESG initiatives further.

Companies should prepare for these changes by:

• Assessing the Trade-offs between labor cost and ESG performance in developed markets, as well as the potential drawbacks and benefits of nearshoring. 
• Proactively incorporate ESG considerations into their nearshoring strategy to stay ahead of regulations
• Developing a clear and coherent ESG strategy that aligns with their nearshoring objectives, and communicating it to their internal and external stakeholders, including investors, customers, suppliers, employees, and communities.
• Implementing best practices of nearshoring that enhance their ESG performance, such as developing ethical sourcing guidelines, adopting renewable energy sources, selecting sustainable suppliers, and utilizing emerging technologies.

Sources:

1. https://www.linkedin.com/pulse/role-esg-reshoring-manufacturing-robin-conklen ↩︎
2. https://www.savills.com/impacts/market-trends/can-nearshoring-solve-supply-chain-resilience.html ↩︎
3. https://www.supplychaindive.com/news/6-reasons-supply-chain-shifts-reshoring-nearshoring-friendshoring/700724/ ↩︎

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