The automotive industry’s challenge to remain current, competitive and compliant in ESG

It is no news that the automotive industry has been through many a disruption – but in some ways it really is just the beginning. Over the past few years we have witnessed an exponential transformation in both the mindset and strategy of automotive OEMs with regard to electric vehicles. Is the environmental, social and governance (“ESG”) movement the next big thing?

Tomorrow (14 July), the EU’s “fit for 55” package is due out, expected to set out the ‘stepped up’ 2030 emissions reduction targets – including CO2 emission standards for cars and vans. Then, November brings the United Nations Climate Change Conference (COP26). It feels as though the industry is waiting with bated breath to see just how severe the repercussions will be.

Clearly, regulations are dictating certain developments within the auto industry – with a focus primarily on emissions. What about the broader ESG scope? Is it really relevant? And do consumers care?

Momentum has already been building around ESG in other industries (consumer goods, agriculture and arguably most obviously in the investing industry). There are indications it is starting to seep into automotive, perhaps notably so in battery raw material sourcing. Think: human rights issues raised around cobalt mining in the Democratic Republic of the Congo. Or the water shortages local farmers face in the Chilean Atacama Desert as the scarce resource is being depleted for lithium mining. Looking at changes in other industries and trends within automotive – we think the tides are changing.

So, are we ready to meet the challenges bearing down on us? Is our organisation going to prove cost efficient, regulation compliant and consumer relevant? These are the uncertainties we look to address.

Starting with some of the obvious questions:

• Are we able to scale our battery supply chain to meet the increased demand for EVs?
• Have we equipped our workforce with the skillsets we need to transition to EV?
• What do we do with our unusable engine manufacturing assets?

And then the perhaps less obvious questions:

• Do we have an appropriate monitoring system in place for supply chain emissions and sourcing?
• How do we balance the increasing manufacturing emissions from battery manufacturing?
• Can we meet the whole vehicle recycling requirements with our EVs? Do we have the appropriate recycling management in place for our batteries?

Throughout the coming months, we will be exploring some of the less obvious challenges associated with accelerated emissions reduction targets and banning of non-EVs that automotive organisations face.