Dr. Stephan Krinke is the Head of Sustainability Strategy and Programs?in the General Secretariat of the Volkswagen Group.?He is responsible for the development of the sustainability strategy and the development and steering of the sustainability program which covers the entire value chain of sustainable mobility.??
GlobeScan?CEO?Chris Coulter?spoke to Stephan about their sustainability strategy and bold commitment to decarbonization.?
How are you approaching sustainability at Volkswagen??
First of all, our general strategy at Volkswagen is to bring sustainability?much closer to the core business than it was in the past. That means that our sustainability strategy must be directly linked?to?our core business,?and that our?measures and?programs will have a direct impact on our products?and services.??
Second,?the?Decarbonization Program?that we have launched at Volkswagen?is a?response to?our materiality analysis?that?showed?climate change?as the most important issue?for our stakeholders. It?is also the area where?Volkswagen?can have?a strong?impact.?The?Decarbonization?Program was presented to the?Management?Board in?February 2019?with the goal to reduce the overall emissions of carbon dioxide (CO2).?The Program was presented within a context of the full lifecycle analysis,?from raw materials to?emissions,?and we learned that?Volkswagen?is responsible for?about?1?percent?of the overall?anthropogenic?CO2 emissions?in the world.?
While?the 1?percent?impact was initially surprising?to the company, it is now an incentive for?us?to set ambitious targets. We?derived?our goals?from?the?Paris?Agreement?target.??
By 2025, we plan to reduce our fleet life cycle CO2-footprint of passenger cars and light duty vehicles by 30?percent?compared to 2015.??
By 2050, the whole Volkswagen Group will be carbon neutral on the balance sheet.?
It is interesting to hear that not only materiality was taken very seriously?at the highest levels?but also?that?an engineering company like Volkswagen?was able to commit to such long-term 2050 goals of carbon neutrality. How did?the?Decarbonization?Program?evolve in?Volkswagen?and how did you?manage to get the?management team?and the?board?to support such bold commitments??
We?speak about Life?Cycle?Engineering?here at Volkswagen.?This approach was developed in the last?several?years. Life?Cycle Engineering means?to?analyze the environmental?and?carbon footprint along?with?the?product?life cycle?and?to identify those areas with the highest impact on?the?environment?(called?hot spots) and areas where the company?can have?the highest potential for reduction.?For example, when?we?analyze the supply?chain,?we may find that?only a few commodities along the?supply chain have?a high?potential for?CO2?reduction?in the future.?The same?analysis can be done?for?the?production?process.??
This systematic approach?helps?to?build confidence across the company that we can analyze our operations and impacts and find solutions to them over time. It certainly?helps?in?having?a clear focus on the areas?with?the biggest potential for reduction or the highest impact.??
How specifically are you approaching the decarbonization strategy???
It is important to say that we?have?started a very ambitious journey and we are still at the beginning of?this?journey.?But one of the important things we are trying to achieve is connecting?our strategy with?a customer promise:?the first?electric vehicle in the European market will?be?delivered?CO2 neutral?to the customer.??
This can only be?achieved?with?systematic?measures?across?the supply chain?and manufacturing process.?It?means that?the CO2 emissions during the entire production?process?from?raw materials?to delivery to the customer are neutral by 2020 thanks?to:?i)?a minimization of CO2 emissions?in our production sites through energy efficiency?and the usage of renewable energy in our own production sites for electric vehicles;?ii) the use of renewable energy in the battery production which is a?hot spot?in our analysis;?and iii) compensation?for the remaining CO2 emissions?which cannot be avoided?with climate projects.?
The?overall?priority line for the?Decarbonization?Program?is to have sustainable?and meaningful?CO2 reductions. This will be achieved by converting?the remaining energy needed for processing to renewable energy whenever possible (through?the use of?renewable?energy in the production sites?and?supply?chain) and by compensating for the remaining unavoidable CO2 emissions. The process behind decarbonization?is therefore?a three–step process that starts?with?CO2 reduction and?then?progressively moves to?converting to renewable energy for the rest of the energy needed,?and finally compensation for the unavoidable emissions.?
There was a headline in the?Financial Times a few months ago?that read?“Volkswagen gives suppliers ultimatum on emissions.”?How are you approaching and engaging your suppliers in that decarbonization strategy and what are the challenges??
We have?been meeting and working with our suppliers?to identify?a number of?potential opportunities to decarbonize. Our supply chain is now looking in a much more detailed way into?its?own operations and into?its?own footprint.?
We?currently have?40,000 suppliers?and we?enrolled them in the program following a?clear priority list that?is a result?of?our?hot spot analysis. So,?we focused first on?those suppliers that show the highest reduction potential or the highest impact.?These?key suppliers went through a?bi-lateral workshop?with?the?Volkswagen?supply chain department which detailed?and identified?the hot spots for CO2 reductions.??
For the success of the?Decarbonization?Program, however, governmental support is essential. The?government?should?support a?strategy?that guarantees a homogenization of?CO2 reduction?systems?in every value chain and every step of the value chain.??
So, for instance, if a company invests in CO2 reductions in?other?stages of the supply chain like?production or the end of life,?it?won’t get any benefits. Nature doesn’t care where the CO2 reductions come?from. Nature?only cares?about the?overall?CO2 reduction.?Therefore,?we are also working with all our partners and other associations of car manufacturers to harmonize?the?climate strategy because this will be at the core of the success of the strategy in the future.?
Do you see?collaboration as an important part of executing the?Decarbonization?Program??
Definitely. It will be essential because?these reductions can only be done in collaboration?with suppliers. Another example?is?CO2 reductions in other areas like?electricity supply, for example. We?need green and renewable electricity not only for our operations but also for our electric vehicles.?Elli (“Electric for Life”) is one of the new companies within the Volkswagen?group that will support that strategy.??
I would like to highlight that the energy transition and the mobility transition are linked. In other words,?as long as?we have a strategy that is based on the burning of fossil fuels,?we?cannot?be?successful in?addressing?climate?change. For that reason, we want to be an active partner supporting that energy transition because our success on the mobility transition depends on the success of the energy transition, not only in Germany but worldwide.?
How much do you think the reputation crisis around the?diesel issue has played?a role?in the level of ambition that the company?has?on sustainability or decarbonization??
The diesel crisis?was a catalyst for a transformation process that was necessary in the automobile industry with a clear focus on electric?mobility. The diesel crisis was one of the?catalysts?to bring Volkswagen?much faster in the direction of electric?mobility.?
Our ambition level?is?extraordinarily high.?Volkswagen?is focusing on?an?e-mobility strategy supported by a?decarbonization strategy. In other words, if we want the e-mobility?strategy?to be successful,?we need?the?decarbonization strategy?because it solves?the strategic risks linked to CO2?reduction?in a?holistic way. If the strategy only focuses on producing electric vehicles,?without a focus on CO2?reductions?in the production?process and without a focus on the source of the electricity?used, then?the problem?has?only?been?shifted?and?has?not?been?fixed.?
The?success of the?decarbonization strategy depends on the velocity of the?transformation process we have in the company in general.??
We?are?currently?in?a very?intense?transformation process that?is heading?in the direction where we will?not sell traditional vehicles anymore; only?e-mobility solutions. We will look at the?product and e-mobility solutions?in a?much?broader sense than in the past?and this fits with the life cycle approach and decarbonization strategy. In a nutshell, the velocity of the decarbonization strategy is directly linked to the velocity of the transformation process in the company.?