From the chaos caused by the pandemic to increasing competition, China’s manufacturing industry has experienced its fair share of challenges in recent years. Entering 2024, manufacturers must address these challenges while also preparing for the Corporate Sustainability Reporting Directive (CSRD). CSRD is a new piece of legislation from the European Commission that aims to move the global economy towards more sustainable business practices. Although it originated in the EU, any Chinese company intending to generate more than 150 million euros in annual revenue in the EU must comply. In addition, any Chinese company that is listed on an EU regulated market, has a subsidiary or branch in the EU, or has an EU subsidiary in China will need to comply with this regulation. Starting in 2024, more than 50,000 companies will need to comply with CSRD emission reduction and reporting requirements.

IS200EDCFG1BAA To date, we have seen many companies set ambitious decarbonisation commitments. More than 6,000 companies have signed up through the SciEnce-Based Goals initiative, 66 percent of Fortune 500 companies have committed to net zero emissions, and the net zero goal covers 65 percent of the annual revenue of the world’s largest 2,000 companies. However, the analysis shows that these commitments have not yet been translated into action. The Net Zero Tracker found that only 4% of companies’ net zero commitments are accompanied by a clear plan on how to achieve that goal.

Among discrete manufacturers, opportunities to decarbonize supply chains and products are reaching an inflection point. In the coming year, we expect CSRD to be a driving force in changing the way sustainability is developed, setting off a positive wave of decarbonisation. This is possible because of the rapid development of digital technology over the past few years. Technologies such as AI, iot, and PLM will play a leading role in turning the promises of discrete manufacturers into reality, and those IS200EDCFG1BAA that prioritize digital transformation and product innovation now will be able to capture billions of dollars in potential annual sales by 2030.

As we head into the New Year, we expect this shift to manifest itself in five ways.

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1. Sustainability and profitability go hand in hand

For too long, sustainability has been viewed as a cost center rather than a value center. Research conducted by Capgemini in 2022 found that 53% of respondents believe that the costs of implementing sustainability measures outweigh the potential benefits. IS200EDCFG1BAA Contrary to this view, the same report found that organizations that prioritize sustainability have outpaced those that don’t.

While implementing sustainability practices does incur upfront costs, the long-term benefits often outweigh these initial investments. Sustainability can improve efficiency, save costs, promote innovation, reduce risk and enhance competitiveness, making it an integral part of a manufacturer’s overall strategy, rather than just a cost center. In fact, as McKinsey notes, “Companies that reduce costs and emissions at the same time can gain market share and fund further decarbonization efforts through the additional revenue they generate.” Leading companies typically decarbonize the first 20 to 40 percent while reducing costs, resulting in improved earnings before interest, tax, depreciation and amortization (EBITDA).”

In 2024, we expect this idea to take root and manufacturers will take IS200EDCFG1BAA advantage of the fact that sustainability and profitability can go hand in hand. Thanks to the acceleration of digital transformation over the past three years, discrete manufacturers are now at a stage of digital maturity where they can leverage a variety of tools to align their financial goals with product decarbonization.

One such example is generative design, which utilizes generative artificial intelligence to create an optimal design based on a set of requirements and constraints. The user defines the design problem, and then the engine determines a series of optimal solutions, often with many solutions that humans cannot determine. It can do in hours or days what designers would take weeks or months to do, opening the door to previously unfeasible designs. Manufacturers such as Cummins are leading by example, using generative design and three-dimensional simulation in their computer-aided design (CAD) software to create and test parts that use 10-15% less material than conventionally designed parts.