How to navigate sustainability in the automotive industry

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Lena McKnight, Partner Lead, Automotive and New Mobility and Advanced Manufacturing Industries, World Economic Forum, Stefan Fahrni, Associate Partner, McKinsey & Company

• The automotive industry is responsible for 10% of the world’s carbon dioxide emissions by producing 80 million vehicles yearly.
• The regulatory landscape is complex and fragmented, a barrier to solid yardsticks and benchmarks for maintaining sustainability in the automotive industry.
• The sustainability compass from the Resilient and Sustainable Automotive Value Chain initiative allows a company to navigate the myriad options toward a sustainability framework and to choose those that resonate with its goals.

The global automotive industry stands at a critical juncture. As climate change intensifies and environmental concerns mount, its impact on planetary health has come under increased scrutiny.

So what is the scale of their impact, how can companies navigate the byzantine regulatory landscape and is there scope for collaboration?

The automotive footprint

The statistics are staggering with the automotive industry annually producing approximately 80 million vehicles demanding a colossal 112 million tons of materials and contributing to over 10% of the world’s carbon dioxide emissions, as per McKinsey’s analysis. This casts a shadow over sustainability in the automotive industry.

However, the automotive industry is demonstrating a commitment to change. A relentless focus on driving electric vehicle adoption and supply chain decarbonization redefines the sector’s priorities. While the initial emphasis centred on reducing greenhouse gas emissions, the industry is gradually encompassing several sustainable development goals (SDGs), including those focusing on climate change, air quality, material waste, biodiversity, energy depletion and water depletion.

Navigating complexity for sustainability

While the drive towards sustainability in the automotive industry is commendable, the challenge is that it faces an overwhelming landscape of diverse sustainability initiatives, frameworks and tools. Commitments clash with the absence of standardized guidelines, leading to a fragmented environment and leaving organizations perplexed and unsure how to embark on their sustainability journey.

This complexity is compounded by the need for universally accepted key performance indicators beyond those measuring greenhouse gas emissions. Recognizing this gap, the World Economic Forum’s “Stakeholder Capitalism Metrics” framework endeavours to introduce a more comprehensive set of metrics aligned with various SDGs.

“Simplification of reporting and disclosures, especially on environment-related impact of the automobile industry, is an important leadership agenda, evident from conversations within the Forum’s Automotive and New Mobility industry community. This will also act as a key enabler for investors to understand performance and further unlock climate financing for the sector. While financial performance is easy to compare, the absence of well-defined global guidelines on climate-related reporting currently makes measuring performance tricky”, says Dr Anish Shah, CEO and MD of Mahindra Group. “It is also a time-intensive effort to track and report on multiple standards currently without commensurate value addition from this exercise.”

How the sustainability compass works

There is an opportunity for transformative change, however, if a unified framework assessing sustainability footprints fostering cohesive action emerges. The “sustainability compass” developed by the Resilient and Sustainability Automotive Value Chain (RAVC) initiative in 2023 is a guiding light here. The compass maps existing targets, regulations, tools and collaborative initiatives across the SDGs for a comprehensive overview of the sector’s sustainability landscape.

RAVC has unveiled unexplored opportunities within the automotive sector, including circularity and air quality, where public-private exchanges could help shape regulations. Collaborative efforts to establish auto-specific standards for electronic waste and to set up an auto take-back and recycling network akin to the “Grüner Punkt” system are being explored.

Sustainability footprint compass. Image: World Economic Forum

Navigating sustainability with RAVC

The journey towards sustainability in the automotive industry starts with understanding the landscape and identifying targets most relevant for automotive companies. Regulatory bodies, including across Europe, the United States, China and India have defined policies and targets aligned with environmental SDGs. For instance, the EU and the United States have committed to net-zero carbon car production by 2050 and initiatives like the Science Based Targets initiative provide standardized reporting frameworks.

India is further strengthening its norms on tailpipe emissions (in line with European standards), fiscally incentivizing the transition to electric vehicles and defined guidelines to measure and drive environment, social and governance action in supply chains.

There are regulations and standards for more than carbon emissions, including air quality, material waste and more. RAVC’s sustainability compass allows you to navigate the myriad options and choose those that resonate with your goals.

Collaborate for sustainability in the automotive industry

The path to a sustainable mobility sector is a collective effort. Collaboration becomes more critical as the industry strives to align with environmental SDGs and reshape its practices.

Building on the progress of the RAVC and Stakeholder Capitalism Metrics Framework, the Forum’s Automotive and New Mobility Industry community have prioritized collaborating and aligning on industry-led sustainability metrics as a key focus area for collective action in 2024, working with ISSB-SAAB.