Significance of ESG to Stay Ahead of the Game in Electric Passenger Cars Industry
Posted by Manisha S on January 25th, 2023
A notable surge in the adoption of electric mobility, underpinned by developments in autonomous and driver-assistance systems (ADAS), mobility sharing and digitization has fostered the electric passenger cars industry size. The need for decarbonization and uptake in climate-specific funds have boded well for stakeholders promoting ESG goals. With motor vehicles being one of the principal contributors to GHG emissions, automakers are likely to prioritize environmental, social and governance pillars. Moreover, soaring demand for personal vehicles across emerging economies and the need for product safety will remain invaluable to bolster the sustainability quotient.
Stakeholders, such as governments, consumers and investors, are encouraging OEMs to become carbon-free and propel ESG metrics. For instance, investors expect companies to emphasize ESG aspects, with consumers exhibiting traction toward the brand that values ethical and sustainable value chain. Industry leaders are likely to prioritize ESG to simplify compliance, enhance customer trust, foster investor confidence and propel brand reputation. Companies are likely to adopt United Nations Sustainable Development Goals, greenhouse gas protocol, International Labor Organization (ILO), Sustainability Accounting Standards Board (SASB), United Nations Global Compact (UNGC) and International Organization for Standardization (ISO).
Bullish demand for minerals, including aluminum, copper, lithium, cobalt and nickel poses major concerns. High emissions and waste and water pollution from mineral extraction and processing could subside the social and environmental upsides of EVs. Stakeholders are slated to focus on fostering eco-friendly manufacturing and propelling sustainability. For instance, SQM, one of the largest producers of lithium in the world, contemplates boosting capacity two-fold by 2025. It is geared to minimize water usage by 50% and become carbon neutral by 2030.
Government regulations have put pressure on automakers to enhance fuel efficiency amidst emissions stemming from vehicle usage instead of the process of manufacturing vehicles. Climate change regulations have compelled auto companies to bolster fuel efficiency. To illustrate, Toyota aims 30% reduction of global average CO2 emissions by 2025. The company also rolled out Green Purchasing Guidelines to emphasize purchasing low-environmental-footprint parts and equipment. As minimizing carbon emissions has become business-imperative, companies are expected to report Scope 1, 2—mandatory to report— Scope 3—voluntary—to gain a sustainable competitive edge. General Motor Company aims 72% reduction of Scope 1 and 2 emissions by 2035. Besides, MMC uses Total Quality Management tools, such as Plan-Do-Check-Act (PDCA), to monitor the progress of its goals.
Regulators, Investors and stakeholders have exhibited an increased inclination for stringent emission standards as an emphasis on the environmental consequences of their business activities could augur well for society. In September 2022, General Motors Co announced its support for forming rigorous federal emissions standards to help ensure that at least 50% of new vehicles sold would be zero-emission by 2030. The company has an audacious goal of doing away with tailpipe emissions from new light-duty vehicles by 2035. In a bid to expedite its shift to an all-electric future, GM plans to manufacture over one million units of EV capacity in North America and China by 2025.
An uptick in the number of car accidents has posed challenges to automakers to propel product safety for brand value and reputation. Toyota Motor Corporation is at the top with a social disclosure score of 67%. The company has adopted Zero Casualties from Traffic Accidents goal and is offering support to drivers to eliminate traffic fatalities. The automotive giant has ramped up investments in autonomous vehicles with an infusion of USD 500 million in autonomous ridesharing and Uber. Amidst a surge in demand for passenger vehicles, Toyota has introduced programs that can augment the useful life of its models and reuse/recycle end-of-life vehicles.
Auto companies are poised to prioritize a decent work environment and economic growth as a vast supply chain exposes companies to the risk of human rights violations. For instance, in April 2022, General Motors asked suppliers to ink a new ESG Partnership Pledge to commit to human rights, climate and sustainable procurement. The automotive behemoth vies for a certain score by 2025 for issues including diversity and non-discrimination, employee health and safety, and child and forced labor, among others. Meanwhile, MMC witnessed the highest employee turnover—around 3.33%—in the fiscal year 2020. Companies are likely to focus on measures to prevent modern slavery and protect the human rights of foreign workers. Toyota annually issues a statement on “Toyota’s action taken for Forced Labor of Migrant Workers (Statement on the Modern Slavery Acts)” within its report to foster awareness of forced labor at production sites in Japan and across the world.
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Industry partners and other stakeholders prioritize transparency and sustainability reports to analyze and propel, including but not limited to gender diversity, directors’ roles and equity. Stakeholders have reinforced the significance of independent directors in enhancing governance and sustainability portfolios. Needless to say, independent directors act as a watchdog to oversee the operation and functioning of the senior management from a neutral perspective. Notably, GM has 12 independent directors out of 13. Moreover, 54% of its directors are women, with 67% of board committees chaired by women. The company asserted the Audit Committee would review and oversee the Sustainability Report from 2022.
Ford Motor Company and GM have a governance score of more than 70%. The former has a bullish cybersecurity program, while the latter and MMC have a cybersecurity committee. Ford has been complying with global cybersecurity standards for automakers and has adopted the Automotive Consumer Protection Principles. VW has augmented its ESG portfolio following the diesel-engine scandal wherein pervasive cheating was done on emissions tests. Volkswagen Group has underscored its efforts on transparency in the procurement of battery raw materials. For instance, in September 2020, VW joined forces with RCS Global to emphasize auditing suppliers for conformance with safe working conditions, human rights and environmental protection.
The competitive landscape alludes to the infusion of funds into organic and inorganic strategies to foster their sustainability profiles. To illustrate, in April 2022, Mercedes-Benz announced it would cut CO2 emissions by half per passenger car over the lifecycle by the decade-end. It aims for around 50% share of BEVs and plug-in hybrids by 2025. With EVs being an essential part of sustainable transportation, stakeholders expect robust growth. The electric passenger cars market size garnered USD 120.81 billion in 2020 and is expected to depict a 32.5% CAGR from 2021 to 2028. The future of passenger vehicles could be electric and prompt stakeholders to underpin their ESG goals.
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About the AuthorManisha S
Joined: August 2nd, 2017
Articles Posted: 60
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