Automotive News Europe - September 2019 - 7

AUTOMOTIVE NEWS EUROPE

COVER STORY

automakers are willing to pay extra to
tackle CO2 emissions along every link
of the value chain, including the purchase of carbon offsets or instructing
suppliers to only use renewable energy
-- in part because it could soon be necessary. "I expect a carbon tax to arrive
in one form or other," said a top Volkswagen Group executive who asked to
remain anonymous.
Still grappling with the aftermath of VW
Group's diesel-cheating scandal, the VW
brand began the new trend by promising
that its first mass-market electric vehicle, the ID3, will be the first car delivered
to European customers entirely carbon
neutral. Any CO2 produced that cannot
be avoided will be offset at additional
cost via certified programs. VW has already set up a carbon fund financed with
an initial tranche of 50 million euros.
Management is even considering playing an active role. "Eventually, we really want to co-develop these projects
and define their goals jointly," Michael
Liebert, head of sustainability for the
brand, told Automotive News Europe.
Daimler, which reports say will face a
German fine of more than 1 billion euros
for diesel emissions fraud, has pledged
that all new Mercedes-Benz plants will
be carbon neutral from the start of operation while existing European sites will
reach the same goal by 2022. Källenius
aims to link a portion of management
pay to the achievement of these goals,
even if the CEO won't specify how much.
A common first step is sourcing electricity from renewable sources, with BMW
going the furthest among automakers.
Already next year, all 31 global manufacturing plants from Mexico to Malaysia will
source only green energy. "Our vision is
clear: sustainable mobility produced in a
sustainable manner," former BMW CEO
Harald Krüger told reporters shortly before
stepping down last month. The company is
due to update its long-term sustainability
strategy next year.

Prove it
Specialists such as consultancy South
Pole, which counts VW Group as a client, can come to the aid of automakers looking to decarbonize their operations. "We help create transparency by
collecting CO2 data and ensuring it is
reported properly. That way management can more easily target hotspots
in their supply chain," said Michael We-

SEPTEMBER 2019

ber, director of business development
at South Pole. Figures are based on
the GHG Protocol Corporate Accounting and Reporting Standard and are often audited by firms such as PwC and
Deloitte just like a company's annual
accounts, even if there are no laws in
place to criminalize falsification.
After the diesel scandal, experts argue
automakers cannot afford another instance of lying about emissions. "All
the discussions I have heard internally
about sustainability and environment,
automakers say they need to make sure
it's real and can be proved -- otherwise
it's not worth it," said Arthur Kipferler,

We don't need one
strategy for running our
business and a
separate one for
sustainability.
We need our business
model itself to be
sustainable.
-- Ola Källenius, Daimler CEO

a partner at automotive industry consultant Berylls Strategy Advisors.
The timing coincides with European
cities stepping up restrictions on combustion engine vehicles or planning
their outright ban. Industry reforms
could rebuild lost trust at a time when
senior auto executives privately complain about an "asymmetric war waged
against individual mobility." Part of
the problem automakers face is that
tailpipe emissions from road transport
comprise about a fifth of the EU's overall greenhouse gas footprint. Making
matter worse, it remains the only sec-

tor to thus far fail to curtail its carbon
emissions since 1990.

Investor backlash
This has caused even central banks to put
pressure on the industry indirectly, experts
argue. Worried about significant effects on
the economy from climate change, regulators are warning lenders and asset managers to take action to reduce their portfolio
exposure to high-carbon clients.
"There's a revolution going on, because
investors are now realizing that climate
risks aren't at some distant point in the
future but are affecting us now," said
Georg Kell, who advises Volkswagen as
head of its independent sustainability
council. The former founding director of
the world's largest voluntary corporate
sustainability initiative, the UN Global
Compact, argues that financial markets
have finally woken up to the hidden
costs inherent in the fossil fuel economy. "They want to know whether companies are fit for the future and whether
they have a plan to deal with the constraints of a low-carbon world," Kell told
Automotive News Europe.
Fletcher's CDP estimates $4 trillion worth
of assets are at risk from climate change
by 2030. To help investors make more
informed choices when allocating their
capital along CO2 criteria, it surveys companies on their environmental impact. To
do this they take the raw data produced
by companies such as South Pole and
make it comparable via standardized questionnaires. More than 7,000 companies
worldwide report to CDP on everything
from deforestation and water security to
greenhouse gases. These can include an
exact breakdown according to three widely
comparable metrics, called scopes, that
measure emissions produced both directly
by the company as well as indirectly from
suppliers or retailers.
"Take upstream Scope 3 emissions in
the supply chain, for example. This data
may not be entirely accurate given the
methodology is still evolving," Fletcher
said. "But it's important to remember
that this is primarily used by investors
for benchmarking purposes, and from
that perspective it is very robust as one
company's data is directly comparable
with another."
Experts say this will be crucial for European companies in the future. Calling
last year's IPCC report a "wake-up call,"

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Automotive News Europe - September 2019

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