Automotive firms facing a sustainability execution gap

As consumers increasingly expect the automotive industry to improve its sustainability profile, many in the sector have admitted it needs to step up and take collective responsibility for its contribution to escalating greenhouse gas emissions. However, despite improved efforts, new research has found that automotive firms are still lagging to meet global sustainability targets

The automotive sector has a long history of flouting sustainability efforts – with scandals stretching well into the last decade. One example, known as Dieselgate, first came to light in September 2015, when the US Environmental Protection Agency issued a notice of violation of the Clean Air Act to the Volkswagen Group. According to research from the Radboud University Nijmegen, considerably more noxious pollutants, particularly nitrogen oxide, were pumped into the air than legally permitted. The researchers contended this resulted in the loss of 45,000 healthy life years globally, and €29 billion in public health damages.

While companies in the sector had for the longest time been able to shrug off such scandals due to their profitability, however, this position has rapidly become untenable in recent years. On top of the hefty climate-related fines which are now eating into automotive firm’s revenues, the majority of consumers now expect companies to support purposes with their profits, and may abandon those who do not. Studies suggest around 62% of consumers now want companies to take a stand on issues such as sustainability, transparency and fair employment practices.

Due to this new pressure, automotive firms have already notably upped their sustainability game. According to a 2018 survey, while just 40% of the world’s businesses were reporting according to the UN’s sustainable development goals, 58% of automotive firms did – making the industry a joint leader in sustainability reporting along with the utilities sector. Supporting this, new research from Capgemini suggests that the automotive scene remains ahead of the game in terms of sustainability – however it was also found that automotive firms are worryingly complacent due to that fact, and still need to do more.

At present, Capgemini found that 46% of sustainability experts state that the automotive industry has made more progress than other industries on sustainability, and 62% of automotive organisations now have a comprehensive sustainability strategy. Meanwhile, 75% state the sector has done more than required by law on the matter. The problem is that what is required by law still remains a relatively low bar to clear – with many nations still setting distant targets for the sector with 2040 or even 2050 as an end-point.

As a result, the automotive industry’s sustainability implementation levels, investments and governance of sustainability are still lagging to meet global sustainability targets. The focus across different initiatives in the sector is uneven, with 52% of firms working on circular economy programs, but just 8% on sustainability in IT. At the same time, just 19% have at least four quantifiable targets aligned with areas identified as having maximum impact on sustainability performance.

Investment in sustainability also remains too low to fully realise the automotive industry’s sustainability potential. While the number of investor events discussing sustainability has more than doubled in the last five years, sitting at 320 in 2019 according to Capgemini, experts believe the automotive industry needs to invest $50 billion more in sustainability. Half of all experts believe current investment in this regard is insufficient, compared to automotive executives, whose awareness that they are leading the field means 77% believe their investment is already enough.

One area of improvement could come from investing fully in a circular economy mode of production. This touches upon many key areas of sustainability, from supply chain to recycling, procurement and after-sales. According to Capgemini, of those surveyed only 32% said their supply chain currently contributes to the circular economy, with this share expected to rise to 51% in the next five years.

Markus Winkler, Global Head of the Automotive Sector at Capgemini, said, “The automotive industry has made steady progress on sustainability, but a more rapid acceleration towards a systemic approach is now needed. To catch up and become a more environment-friendly industry, auto companies need to have a clearer focus on two key priorities: the need for them to more closely link their sustainability and electric vehicle strategies, and to increase investment in circular economy initiatives.”