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Announcer

Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.

Moderator

For today's session, we're going to be discussing a crucial topic on the automotive industry agenda: sustainability, and the environmental, social and governance agenda — known as ESG — and why automotive companies need to embrace and accelerate their progress against a much wider ESG agenda, if they are to thrive and create a more sustainable future for themselves and the people and communities they serve.

Here with us today to discuss this important topic is Andrea Weinberger, EY Partner, Sustainability Strategy and Transactions for the automotive sector. Andrea, thanks for joining us today.

Andrea Weinberger

Yeah, thanks for having me.

Moderator

When we talk about sustainability in the automotive industry, the talk immediately turns to electric vehicles (EVs) and how the transition is a major part of the global decarbonization. However, in your recently published article on ey.com — Why decarbonization alone won't make automotive companies sustainable — you say there's so much more to sustainability for the auto industry than just building EVs. Can you share with the audience what the auto companies are overlooking when it comes to sustainability?

Weinberger

Right. Everybody's talking about the electrification of the vehicles. And yes, this is one of the crucial steps toward decarbonization in the automotive industry. But to achieve a really more sustainable future, it needs a broader agenda that goes beyond the electrification of the vehicle, which is addressing basically the tail pipe emissions. So, this is why it needs a broader agenda, even in the environmental piece, but also on the social and governance agenda.

Moderator

So, while the EV transition is a critical step for the industry, it's not enough to transform the industry for a more sustainable future. Also, beyond EVs, what is the broader ESG agenda that needs to be addressed?

Weinberger

When we use the framework of ESG and when we have a look at environmental decarbonization, there is a major piece in there. But to name a bit of the other topics which should be on that broader agenda that I just mentioned is minimizing resource extraction and depletion.

We should speak about reducing waste and water usage. We should speak about promoting more circular economy and circular business models and practices around the complete lifecycle of a vehicle, and also, the effect of the complete industry — the impact on biodiversity and on ecosystems. And this involves more than just a transition to cleaner energy, which is one important piece in there, but it also needs speaking about waste management, waste generation and the entire lifecycle of vehicles, including recycling and disposal, not just about the new vehicles.

Let's then move to the social front — to social piece. And there, it needs speaking about labor practices throughout the supply chain. It's about human rights. And this is also one of the topics which is already addressed broadly. But I believe that speaking about creating a positive social impact in the communities where a company is operating, this would be a really valuable step forward. So, to think beyond the supply chain, to think about positive impact and not just avoiding a negative impact on the social aspects.

And then finally, to the governance perspective, this is basically about transparency and being accountable for what you're doing. What does it mean for a more sustainable future for the automotive industry companies? It means being transparent on what you're doing, being accountable, taking yourself accountable for your processes, which also includes thinking about your main decision-making process internally, align ESG completely with your corporate strategy, don't have the parallel world of corporate strategy and ESG, and fostering a culture of sustainability and responsible business practices along the entire value chain of a company.

Moderator

Interesting. Another area you discuss in the report, Andrea, is you say that ESG and profitability do not have to be mutually exclusive. Companies can do the right thing and be profitable, adding long-term value. How can a company achieve this balancing act? And what are the benefits of aligning sustainability goals with profitability and value creation in the long run?

Weinberger

I think it's very important to overcome that misconception that profitability and sustainability are mutually exclusive. Because if we have a look at what value means, you can have a look from different time perspectives. You just have to look at a very long-term perspective.

What does value creation really mean in that long-term perspective? And that means that you're able to have people working for your company, that you produce sustainable products, that you have a valuable impact on the society you’re living in, because you're a good employer, you are paying taxes. And so, there is a broader understanding of value than just making profits.

This is one of the topics where I fully agree that this is the long-term perspective on value creation, and that needs to include sustainability, definitely, because this is the future way of thinking, not just in shareholder value, but in a positive and long-run impact on society, on the environment to have that positive value creation. But when we speak about the concept of profitability vs. sustainability, and this is what we still often see, I think it's important to see one or two examples. When we have a look at the move to electrification, again, it's one of the most important topics when it comes to decarbonization. One of the big challenges there is the battery, and you need a lot of resources to create and to produce the batteries — for example, lithium, one of the resources that you need to have. And when we speak about circularity and then, we speak about a sustainable way of sourcing lithium, then it could turn up that we don't need so much in a sustainable future — so much first material of lithium for a new battery. But we can reuse old materials – secondary battery materials. So, the idea would be: you could improve the resilience of your supply chain by reusing something that you already have in your value chain. And you could also reduce probably the costs because a secondary material could be even cheaper. So, this closed-loop recycling process is reimagining maintenance and services, thinking about how a company could make a business model out of the extended lifecycle of a vehicle. So, this is the thinking that I would love to promote that sustainability is also a different thinking about profitability and that it's definitely not mutually exclusive, but it can help each other by embracing sustainability and, for example, circularity that you can navigate,

also, toward a profitable future, which is as well as more profitable, as well as more sustainable.

Moderator

Another interesting topic you bring up in the report is the importance of authenticity when it comes to sustainability. What do you mean by this? Why is authenticity important for companies’ sustainability strategy?

Weinberger

Authenticity is one of the factors that distinguishes a good and real and authentic and credible sustainable strategy of a corporate vs. a not-so-good strategy around sustainability. And what does that mean as a company? You have a heritage. You have a business model that is existing. You have leadership. And if you take what is already there and translate that into sustainability, then it becomes credible. Then it becomes concrete, because then you're transferring what that the buzzword sustainability into what it means for your corporate — for your company specifically. Like this, it becomes more authentic when you are speaking about sustainability, because otherwise, there is always a bit of the danger, like sustainability is just nice wording or it's just speaking about philanthropy. But in the end, it's a different way of thinking your business and in thinking your company. And this is why, we are so convinced that authenticity is one of the good sources that you have to have in that recipe of sustainability in your company. So, you really have to translate who you are into sustainability. That does also mean that leaders have to have to challenge assumptions, which have been true probably for many years in the company. And this will then really create the momentum for real change in that company, as well as in the complete industry.

Moderator

Andrea, in the report, you also talk about the importance of transforming faster by making sustainability simple. How do you go about making it simple? What are the most important aspects to make it simple?

Weinberger

Sustainability seems so often to be overwhelming to companies. It's complex. It's many things. It's still many things that are changing in terms of regulation and new topics are coming up constantly. So, in a first step, I always hear sustainability is so complex and this is why I always say, “Yeah, let's try to make it simple again.” And what we have in company, it's important to create the right focus on certain topics.

It's also important not to speak about sustainability being like a separate project. You really have to integrate it into your operating model to bring it step by step into the right processes, into the core of what you are doing so that it's no longer a new topic or a parallel project, but it becomes part of your everyday operations, because then you also gain, step by step, more capabilities, more skills, more people are working on that topic because you integrate it step by step into what you're doing in your company anyways. So, into the processes, into the organization, that's really a topic that it becomes your normal business step by step with the sustainability. And also, it is important because that progress takes time that you demonstrate and report about the positive impact and also about the progress that you're achieving.

So, make it simple does also mean speak about what is going well, what is taking actions, who is really driving that meaningful transformation in the company, and also, showcasing value creation opportunities. So, this is not just, again, imposed from the outset, but this is a chance for the company. So, make that overload of things manageable by focusing on the right topics and then integrate it step by step into everything that you are doing, because then it's not a parallel world anymore, but it's your new normal that you should seek for as a company.

Moderator

So, Andrea, what recommendations do you have for automotive executives in order to change the existing mindset when it comes to taking on ESG initiatives?

Weinberger

I guess there would be three recommendations I would love to give. One is break the thinking habit ingrained in many parts of the auto industry that more sustainability always means less profitability. The two can and should go hand in hand in the future. This is number one. Number two would be: own your future. See this as the transformation you need to drive. You need to stay in the driver's seat. Don't let it be something which is externally imposed on you and stay up with your own

change, with your own transformation. Third is direct focus on day-to-day actions taken make sustainability more normal and therefore, more simple for your company to proceed with it. Get away from treating it like a separate project and like a new topic. Step by step, integrate it into the fundamental processes and parts of your organization, and then it will really become a fundamental transformation.

Moderator

Fantastic, Andrea, thank you. How can listeners find out more about this topic?

Weinberger

Yes, you mentioned that there was a recently published article, which is on our EY global website, which is titled “Why decarbonization alone won't make automotive companies sustainable.” And that includes more information on the hypotheses that we have and also, please feel free to reach out and to ask for further discussions and information. We would be delighted to engage in meaningful conversations on this topic.

Moderator

Thanks for joining us today and for the great discussion on this important topic.

Weinberger

Thank you for having me today.

Announcer

Thanks for listening to today's EY Advanced Manufacturing and Mobility Business Minute podcast. We hope you found it engaging and informative. To listen to other Business Minute podcasts, you can find them at ey.com/ammpodcasts.

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