How Manufacturers Navigate ESG Rules to Net Zero

Estimated reading time: 6 minutes · Last updated: 2026-08-19

Prashanth Mysore, Senior Director for Strategic Business Development at DELMIA, lays out how manufacturers can meet new ESG regulations and still reach Net Zero by changing how they run plants. The immediate mechanism is operational measurement: connect meters, machines and manufacturing execution systems so emissions read on the same dashboards as throughput and quality. That matters because Scope 3—supply chain and product use—typically makes up 70–90% of a manufacturer’s footprint and is often 26× larger than a firm’s own operations, so firms should secure Scope 1 and 2 first then treat suppliers as extensions of the factory.

Measure emissions as an operational metric, not an annual checkbox

Most manufacturers discover the same gap: ambitious targets but no operational view of emissions. The fix is straightforward and mechanical—instrument the plant the way you instrument quality. Connect meters, PLCs and the manufacturing execution system so emissions appear alongside cycle time, scrap and yield; when that happens teams can act in hours or shifts instead of waiting for annual estimates.

Operationalising emissions turns reporting into a control problem. That work starts on-site with Scope 1 (fuel burned on-site) and Scope 2 (purchased electricity, heat and steam), because you have authority over those flows. Regulators have sequenced obligations the same way: the commentariat and the mandates cited put Scope 1 and 2 first, then Scope 3.

KeyPhrase: operational emissions data

Regulatory regimes you must plan for now

Three regimes in the material are treated as immediately relevant: California’s SB 253 / SB 261, the EU Corporate Sustainability Reporting Directive (CSRD), and the EU Carbon Border Adjustment Mechanism (CBAM). Together they move disclosure and, in the case of CBAM, direct financial cost from voluntary practice to legally enforced obligation. For example, SB 253 applies to companies doing business in California above $1B revenue and set the first Scope 1 and 2 reports due 10 August 2026, followed by Scope 3 in 2027; penalties are cited up to $500,000 a year.

CBAM began its definitive phase on 1 January 2026 and the material notes certificate purchases will start in 2027; the Commission proposed extending CBAM to roughly 180 downstream products from 2028. The practical implication is this: if you sell into Europe your customers will soon require product-level carbon numbers or face a carbon import price that affects competitiveness.

KeyPhrase: CBAM certificate purchases from 2027

Technology that turns measurement into savings

Three technical capabilities in the material translate measurement into deliverable projects: disciplined process engineering, virtual-factory modelling and industrial AI. Process engineering embeds energy and carbon as variables when equipment and cycle times are defined, which locks in lifetime energy use at design time. The virtual factory lets teams simulate an electrification, layout or scheduling change before any capital is spent; the material cites a documented case that combined digital testing with implementation to cut energy costs by more than $100 million a year and emissions by 200,000 metric tons, though that case is not attributed in the text.

Industrial AI sits on top of the model and plant data to predict high-consumption events, shift work into cleaner hours and flag equipment drift. The IEA estimate cited places potential sector-wide gains at about 8% energy savings in light industry by 2035, while McKinsey is cited for average opportunities to cut 20 to 40% of emissions by 2030 while reducing production costs—projects that pay back and free capital for harder measures.

KeyPhrase: virtual factory

Tackling Scope 3 by treating suppliers as part of the factory

Because most emissions live upstream and in use, the material argues you should treat key suppliers as part of your production system. That starts with identifying the few supplier relationships and downstream usage categories that dominate emissions and then sharing data, setting carbon-intensity requirements and putting emissions beside price and lead time in procurement decisions. The text notes only about 15% of corporates have set a supply-chain emissions target, so the potential advantage for early movers is large.

Finance must be part of this: prioritise projects that cut both cost and carbon, use the savings to fund the harder interventions, and require supplier-level reporting for the items that dominate your Scope 3. That approach converts influence into measurable interventions without assuming full control of third parties.

KeyPhrase: suppliers as part of the factory

How this plays out: the cases for and against rapid decarbonisation

The bottom line

Manufacturers face an operational and regulatory pivot: emissions are no longer a reporting afterthought but a control variable that must be measured, modelled and managed. The practical sequence the material sets out is to instrument plants and fix Scope 1 and 2 first, use virtual‑factory modelling to avoid costly rebuilds, then bring suppliers into the system for the bulk of emissions that live in Scope 3. Regulators — California’s SB 253, the EU CSRD and CBAM — make this sequencing urgent by tying disclosure and financial costs to real dates and thresholds. Firms that link projects to P&L and prioritise cost‑saving carbon reductions will be best placed to meet the mandates and finance the deeper changes.

What to watch

• Watch for first Scope 3 disclosures from companies covered by SB 253 in 2027.
• Watch for CBAM certificate purchases beginning in 2027, which create a direct cost for embedded emissions.
• Watch for any formal EU decision to extend CBAM to roughly 180 downstream products from 2028; the Commission proposed that extension in December 2025.