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Study: Automotive Manufacturers Still Missing Out on ESG Opportunities

By: Michael Diegelmann, Founder, General Manager, cometis AG and Justus Fischer, Consultant, cometis AG

The Global ESG Monitor (GEM), the result of an international collaboration between communication and research agencies cometis, KOHORTEN, Xenophon Strategies and currie, examined the sustainability reporting of 140 companies from DAX, EUROSTOXX-50, Dow Jones and ASX-50. The results were shocking: the world’s largest companies provide non-transparent and incomplete ESG reports.

The German car manufacturers Volkswagen, Daimler and BMW rank in the middle compared to other industries and companies. But mediocre is not good enough – especially not when it comes to globally pressing ESG issues. The good news is that the path to improvement is wide open – but the automotive industry has to start walking the talk.

ESG is the future – especially in the automotive industry

In the GEM, Daimler comes out on top among the car manufacturers, ranking 13th out of 83 in integrated non-financial reports (I‑NFR) and 29th out of 100 in separate non-financial reports (S‑NFR). Volkswagen achieves 16th place in the I-NFR and 33rd place in the S-NFR. BMW ranks 43rd in the S-NFRs. Solid results, all in all – but considering the great importance of ESG issues, especially in the automotive industry, not enough.

Everyone is talking about electromobility and it is essential for a climate-neutral economy. Electric cars continue to develop: Tesla is the absolute forerunner in this respect and is not leaving the traditional car brands in a good position. Elon Musk’s comparatively young company is already worth more than VW, Daimler and BMW combined. The three traditional brands would do well not to leave the field to Tesla alone, but to push ahead with their own innovations and recognize that advances in ESG are their great opportunity to remain successful in the future. And with new all-electric innovations like the Volkswagen ID.3 or the new Mercedes EQS coming out strong German car manufacturers try to catch up quickly.

Words must be followed by deeds

VW recently showed that continued sustainability efforts are important. Since 2002, the company had been a member of the United Nations Global Compact (UNGC), a worldwide initiative for an inclusive and sustainable global economy. In 2015, the VW Group came into disrepute: the diesel emissions scandal came to light and significantly damaged the reputation of VW for many years as well. As a result of the scandal, the UNGC removed the automotive group from its membership list. But VW was not deterred by this. Members of the UNGC are required to submit an annual report, for companies a so-called Communication on Progress (COP), in which they document the progress made in implementing the various goals (e.g., environmental protection, prevention of corruption). VW worked towards its reinstatement from the beginning and published it annual COP anyway.

In addition, Volkswagen took further steps. It conducted an extensive compliance monitorship under the supervision of the U.S. Department of Justice, established an independent sustainability advisory board in 2016 and committed to a comprehensive climate protection program. By 2050, the company aims to be carbon neutral on balance. In 2020, VW applied for re-admission to the UNGC – with success. The UNGC confirmed its readmission in 2021. VW has thus learned from its mistakes and recognized that words must urgently be followed by deeds – a commitment that was rewarded.

Auto suppliers will be challenged, too!

So what should companies do now? They should definitely make sustainability their banner. It’s not just the car manufacturers themselves that need to do this – suppliers should also familiarize themselves with the various ESG issues as soon as possible. As automakers need to prove that their supply chain also complies with ESG claims, they will soon approach their suppliers and ask for data, e.g. how much CO₂ their supplier emits in the production of the part they manufacture for the client or what systems are in place to assure full compliance with human rights in the supply chain. This is data that is not always easy to measure and obtain – so it’s best to start setting up the data gathering processes as soon as possible.

The best way to present the information well is to have a detailed ESG report tailored to one’s own industry and containing all the relevant information (e.g. by following SASB standards). All in all, auto manufacturers will be expected to make a major contribution to a greener future by working on more climate-friendly ways of transportation. So as their clients are becoming ever more climate-sensitive, more and more auto manufacturers will turn to their suppliers and the information they provide to make sure their cars have been produced in an ecologically and socially responsible manner.

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