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Should the voluntary approach to corporate social responsibility be replaced? A critical review of Volkswagen and the automotive industry
Many would argue that corporate social responsibility (CSR) has become a critical aspect for large multinational companies especially those that are consumer orientated organisations whereby stakeholders expect businesses to actively incorporate social and environmental concerns throughout their decision-making processes (Giovannucci et al, 2014.) However, the term CSR is often used as a broad concept and does not have one universally accepted definition. Consequently, it can be used to describe business activity that does not necessarily reflect the important aspects of CSR. An accurate definition of CSR should be when a company is conscious of their impact on society and actively takes on the responsibility to contribute towards sustainability across all communities.
The four key aspects of which a CSR report can comprise of are sustainability / environment which describes how businesses are working towards being sustainable and usually includes energy usage, efficiency and future targets. Sourcing / supply chain which is how companies work with suppliers to address various issues with responsible sourcing and labour conditions. Community which is how businesses are involved in giving back to the community whether it be investing in local schools, charitable causes or disaster relief. Finally, employee/workplace describes the core values of the company and how they are integrated into achieving employee satisfaction (Bockisch, 2015.) This essay reviews the use of CSR in the automotive industry and primarily focuses on sustainability and environmental aspects of CSR.
Commitment to CSR in the automotive industry is of high importance because of the unsurprisingly destructive nature to the environment caused during the manufacturing processes and obviously from the cars themselves. Consumers are dependent on the automotive manufacturers’ products to function in day-to-day activities which then puts pressure on the companies to not only comply with the minimum legal requirements but to take the initiative to engage in further activities whether it be social, environmental or simply charitable donations. As a result, CSR can be used as a very powerful model for businesses to enhance their reputation, gain market share and increase profits (Zhakypova, 2016.) However, producing these reports does not necessarily mean they are always a reliable source of information on socially responsible behaviour which will become apparent when case studies on Volkswagen, Ford and BMW are discussed and analysed in depth.
Volkswagen are renowned industry leaders when it comes to the automotive industry and have always been associated with German quality and reliability. At least that was until September 2015 when the Volkswagen badge became known to one of the biggest scandals in automotive history, the so called “diesel gate”. However, only a week prior to the rigged emission tests coming to public light Volkswagen were selected as the global leader in the automotive industry for their commitment to the environment by the Dow Jones Sustainability Index and were ranked 11th in the world for their work in CSR according to the Reputation Institute (Kaye, 2014.) This all started around 2009 when Volkswagen had a dominant share in the European market but little presence in the US market and so to achieve their aim of being top of the global market it made sense to expand within the US market. Volkswagen used the unique selling point from their European diesel engines, low carbon dioxide (CO2) emissions and high fuel efficiency, miles per gallon, to market their cars to the US market (Armstrong, 2017.) However, emission testing standards in the US are different to the European standards and at the time the requirement for the Euro 5 regulation was that diesel emissions for nitrogen oxides (NOx) and particulate matter (PM) had to be less than 0.180 and 0.005 g/km respectively. Whereas the maximum acceptable level of NOx in the US is 0.04 g/km. (European Parliament, 2016.) Tests conducted by a non-governmental organisation prompted the Environmental Protection Agency to act which led to Volkswagen admitting to using “defeat devices” to rig emission tests (Rifkhan, 2017.) These devices were not physical devices but rather software built into the cars that could detect when a test was being carried out and subsequently alter the performance to improve emissions. This meant that the actual emissions produced were as much as 40 times the acceptable level and it was estimated that 11 million cars had been fitted with this software (Channel 4 News, 2014.) A possible solution to achieving reduced NOx and air pollutants from exhaust fumes is for the all governing bodies to come together and meet with the car manufacturers to set standardised tests and have one acceptable emission level that applies throughout the world. Then continue to refine the upper allowable limits with advancement in technology to set realistic targets.
As part of Volkswagen’s Strategy 2018 documented in the sustainability report from the year preceding the emission scandal their goal was “to be the world’s most successful, fascinating and sustainable automobile manufacturer” (Volkswagen, 2014.) From reading through the report it’s easy to see not only why Volkswagen were ranked so highly regarding CSR behaviour but also that statement was convincingly achievable. Volkswagen’s approach to CSR was broken up into three main sections economy, people and environment, as shown in Figure 1, and support over 100 projects across these sections.
Figure 1: Volkswagen sustainability action areas taken from (Volkswagen, 2015.).
It is now known that data provided in the 2014 sustainability report claiming to meet emission targets was false which can be used as proof that voluntary CSR does not always portray the truth. This allows businesses to “greenwash” stakeholders into buying into their businesses leading them to believe they are acting socially responsible which was the case for Volkswagen and since has exposed questions to the whole of the automotive industry. This is possibly the biggest problem with voluntary approach to CSR as it works on the basis that data is self-reported and therefore any major issues will not be addressed since they want to positively influence stakeholders. An obvious answer is to include an external audit to question the CSR activity of each business, but this takes time and money, so it could have negative impact as businesses may not choose to commit to CSR at all.
Naturally, it would be easy to assume a mandatory approach in the automotive industry to overcome the flawed voluntary system but even then, the issues would not be solved. For instance, a law could be created stating that a minimum percentage of net profit has to be allocated to CSR but this allows businesses to participate in the same activities year upon year, like most are currently doing, and not deal with the crucial social and environmental matters that they should be working towards improving such as sustainability in the supply chain, reducing overall CO2 emissions etc. To get around this loophole legislation or a governing body could be created specifically for certain industries, in this case automotive, that evaluates the most critical matters in sustainability and sets minimum targets which must be achieved. Less important issues could still be addressed but would not be compulsory. The advantages of this method are that each industry will have different aspects of CSR that are mandatory therefore all aspects of CSR will be covered across all industries.
Just because the voluntary approach was exploited by Volkswagen does not make it a bad concept as both BMW and Ford have shown in recent years. In 2010 Ford set a goal to reduce factory CO2 emissions per vehicle produced by 30% in 2025 and by 2017 this was achieved reaching a reduction of 32%. Not only that but they are working towards minimising manufacturing waste by focusing on reducing single use plastics and incorporating more recyclable materials to achieve zero waste to landfill (Ford, 2017.) BMW have set targets to reduce the average CO2 emissions across the whole of their European car fleet by 50% in 2020 compared to 1995. BMW are on track to meet this target as they have reduced CO2 emissions from 212 to 122 g/km in 2017, a reduction of 42% (BMW, 2018.) The detail that is important to note is that this is the average level of CO2 produced from their car fleet, so it fails to state that there are cars produced by all manufacturers, Volkswagen, Ford and BMW, which will be well above this value and due to the introduction of smaller hybrid and electric cars this level can be reduced accordingly. This is apparent when looking at Ford as their F-series pickup truck is the bestselling car in 2018 which is not fuel efficient compared to say the Fiesta.
To overcome this issue realistic targets could be set for manufacturers to shift to fully electric fleet by a certain date which is like the current European regulations where the average fleet CO2 emissions must reduce to 95 g/km by 2021 (European Commission, n.d.) However, shifting to fully electric cars right now is also not the answer as there are implications with the infrastructure in that there are not nearly enough charging points, issues with battery mileage and even generating enough electricity to charge them. In addition, the increase of production of electric cars puts a demand for cobalt, a material used in the production of lithium ion batteries which poses severe sustainability and supply chain issues as almost 60% of cobalt is mined in the Democratic Republic of Congo and there are not only poor labour conditions, but children are also used (Mehta, 2018.)
Whilst CSR has the potential to become a decisive aid to achieve social and environmental sustainability, it is currently misused as a marketing tool to improve reputation and public image to increase share and profits. The voluntary approach has at times only benefitted businesses rather than the society but even the other extreme approach of mandatory CSR has implications associated with it. For the automotive industry a compromise between the two approaches would be best as it still allows manufacturers to voluntarily contribute to causes they believe in whilst meeting standards for certain crucial subjects.
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