Introduction
Sustainability is one of core Volkswagen’s business strategies for future growth and development. The company has set strong and measurable goals for decarbonization, responsible supply chain practices, e-mobility, and digitalization (Diess & Osteloh, 2021). The company is faced with multiple threats to its financial well-being and has incurred some costs associated with its environmental efforts. Nevertheless, it continues to be one of the greatest philanthropists in the world and strives to obtain a larger market share in the future.
Organizing for Sustainability
There are four organizational levels in the company, and the highest one is the Board of Management level. The Chairman of the Board of Management of Volkswagen AG is in charge of sustainability (Diess & Osteloh, 2021). Members of the Board of Management take additional responsibility for systems related to the sustainable development of the company. Office of the Corporate Secretary, Group Strategy coordinates group functions, and brand sustainability managers are in charge of production and HR at the brand level. Meanwhile, regional-level managers solve problems related to their region (Diess & Osteloh, 2021). Sustainability issues are discussed via the Group Steering Committee and the annual Summit. The corporation is building digital and dialogue-oriented platforms to achieve a faster information flow and better communications across its regions and brands. The company managers have established key performance indicators (KPIs) to measure progress on reaching environmental goals.
The company tends to work with socially committed suppliers and sees an economic advantage in having safe partners. Volkswagen has established sustainable supply chains with a focus on decarbonization and responsible procurement of resources. The company raises awareness about environmental issues among partners and assesses risks in the supply chain. Volkswagen rates the sustainability level of potential suppliers and reviews breaches of protocols. The company also ensures that suppliers do not abuse the human rights of their workers. Volkswagen is committed to the goal of reducing carbon emissions and works with suppliers on reducing the harm to the environment. For example, the company uses renewable energy in the production of HV battery cells and aluminum parts.
Volkswagen strives to remain a competitive company in the automobile market. However, some of Volkswagen’s competitors perform just as well as the company in terms of sustainability (Hay, 2020). Toyota’s Lexus and PSA’s Peugeot were ranked higher than Volkswagen vehicles in terms of environmental impact (Hay, 2020). Meanwhile, BMW has been strongly committed to the production of hydrogen cars (Vergrart & Brown, 2007). The company offers innovative car technologies and mobility services to solve environmental issues.
Volkswagen Group supports educational and community projects. They established cooperation with partners outside the company such as society and politicians. Volkswagen works on the decarbonization of the European economy with external parties. They plan to cooperate with Microsoft in increasing people’s access to digital education and technologies (Diess & Osteloh, 2021). The company supported 700 projects in education, science, and sports and donated €42.2 million to NGOs in 2020 alone. Volkswagen gave 7.9 million face masks and medical equipment to healthcare facilities costing €40 million. The company’s employees donated €1,188,600 to child relief programs in 2020 (Diess & Osteloh, 2021). Moreover, they have partnered with Siemens to provide support for refugee camps and build a hospital in South Africa.
Capital Investments, Costing, and the Sustainability Risks
The corporation invests to achieve profitable growth and increase competitiveness. Its sustainability performance often becomes the basis of financial decisions made by investors and has an impact on capital prices and costs. The company created the Green Finance Committee which selects and assesses appropriate sustainable projects. The impact of sustainability initiatives can be hard to estimate in monetary terms. “Impact Valuation@VW Group” was created to analyze and summarize the benefits of sustainability initiatives for the economy, environment, and society. A triple bottom line is a comprehensive approach to calculating costs and benefits, which accounts for contributions to the environment, society, and the economy. Volkswagen has given equal priority to these three areas. The company has created a decarbonization index to calculate the effects of its operations on climate change. The company calculates the gross value and jobs added due to decarbonization, estimates accident frequency, and the ratio of biodiversity to employee diversity.
Dealing with sustainability issues costs significantly for Volkswagen Group. The company has a fund for projects reducing greenhouse gas emissions across its brands and spends €25 million annually on decarbonization efforts (Diess & Osteloh, 2021). The company incurs an abatement cost of €20 per tonne of CO2 (Diess & Osteloh, 2021). The environmental protection costs of the company comprised €229 million in 2020. The company is planning to spend €73 billion on digitalization and e-mobility in the following five years to increase production efficiency. The company makes investments to achieve profitable growth and aims to achieve a 14% return on investment and a 30% payout ratio by 2025 (Diess & Osteloh, 2021). However, Volkswagen’s operations were not cost-efficient in 2015 as the company experienced a negative return on investments.
The company lists three types of risks: diesel-related, macroeconomic, and sector-specific. The production of diesel-based vehicles poses legal and environmental threats. Lower market prices and a decrease in demand for diesel may create a financial strain for the company. New statutory requirements for diesel cars and administrative proceedings can be costly (Risk, n.d.). As a result, the company risks selling some of its assets to cover the expenditures. The perceived risk is that protectionism policies of countries and turbulent financial markets may threaten the global economy. The company may be affected by Brexit and tariffs, while violent conflicts, infectious diseases, and changes in commodity prices may cause a decline in economic growth and make the company vulnerable (Risk, n.d.). The company’s main markets are Western Europe and China; therefore, a decline in sales in these regions may negatively affect the company’s profit (Risk, n.d.). The real risks are high price pressure in established markets and regional regulations that may restrict the use of diesel vehicles. This would require the automobile producers to create diesel-free automobiles and increase production costs.
Overall, the Volkswagen Group aims to become a market leader through its sustainability strategy. It has incurred significant financial losses in 2015 but sees the potential to reduce financial risks through digitalization and lowering its carbon footprint. The company views new environmental and social standards as an opportunity to decrease market threats (Diess & Osteloh, 2021). Volkswagen achieves its sustainability goals through collaborative dialogue between the various levels of the organization. Moreover, the company is planning to partner with leading technology companies to gain competitive advantages in the future.
References
Diess, H. & Osterloh, B. (2020). Sustainability report. Volkswagen. Web.
Hay, M. (2020). Ranking of the most sustainable car and tyre makers. Eupedia. Web.
Risk and opportunities. (n.d.). Volkswagenag. Web.
Sustainability in supplier relations – Volkswagen Group management concept. (n.d.). Volkswagenag. Web.
Vergrart, P. J. & Brown, H. S. (2007). Sustainable mobility: from technological innovation to societal learning. Journal of Cleaner Production, 15(11), 1104-1115. Web.