A recent CDP report ranks automakers’ performance in reducing greenhouse gas emissions from their products and operations. But the important discussion isn’t about who is “winning.” After all, many of the company scores are very close, and company performance is driven largely by the markets they sell into. In the United States, for instance, consumers are more likely to buy larger, more powerful, and less fuel-efficient vehicles, placing companies in that market at a disadvantage in the ranking.
While the CDP report lays out a clear and reasonable methodology, the scores (as with many rankings) tell only part of the story; it’s the information behind the scores that is more important. In this context, three things stand out to me:
- Climate is a material issue—in a financial sense, as well as a corporate responsibility sense. The CDP estimates automakers could be subject to billions of dollars in penalties for missing emissions targets in the EU and the United States, while hybrids and electric vehicles may create major revenue-generating opportunities. These gains and losses will not be spread evenly, and some companies face greater risks or are better placed to reap rewards.
- The auto industry’s climate impact isn’t just about vehicle emissions. The CDP notes that some 25 percent of the industry’s impact comes from something other than running a vehicle. With the growth in hybrids and EVs, that proportion is likely to grow. About 17 percent of total industry greenhouse gas emissions lie upstream from the name-brand original equipment manufacturers, while only 3 percent comes from their own manufacturing. It will be critical for companies to understand and address these “upstream” emissions if we are to successfully address climate change. This may present competitive opportunities for auto manufacturers to build relationships with advanced, efficient suppliers, as well as collaborative opportunities to work as an industry to reduce overall upstream emissions.
- The sector faces direct risks from climate change. While this isn’t a major element of the scoring, there will be disruptions in supply chains and operations as a result of changing weather, rising sea levels, and other climate impacts. Companies that increase their resilience to such disruptions will be at an advantage.
Ultimately, the key point of the report is that climate change will play a significant role in creating marketplace winners and losers in the coming years. The industry needs to be prepared, and to think broadly, beyond just vehicle emissions.