Decarbonizing the auto industry can significantly lower greenhouse gas emissions. Robeco belongs to an engagement program that encourages carmakers to switch to zero-carbon models such as electric vehicles.
The Transition Pathway Initiative (TPI) was launched by the UK Environment Agency and the Church of England in 2017 to assess the preparedness of high-carbon producers – including the automakers – for moving to a low-carbon economy. It is backed by asset owners and asset managers, including Robeco, which helps to fund its research.
“There is still a lot that carmakers need to figure out in the short term, but overall the direction of travel is certainly towards a low-carbon world, to which carmakers have to adapt,” says Engagement Specialist Cristina Cedillo Torres, who is working with TPI on this project.
“According to the latest TPI report, ‘Management quality and carbon performance of transport companies’, the quality of governance around climate-related issues among carmakers is improving. This signals an increased level of awareness and responsiveness to climate-related issues in corporate boards. However, the research also finds that only two out of 22 (9%) companies assessed have set emissions reduction targets that are aligned with low-carbon scenarios by 2030.”
“They are one of the sectors that are most under the eye of the regulator; the transition to building lower-emissions vehicles is mostly regulatory driven. The transportation sector is a major contributor to global warming – passenger vehicles account for about 7% of global CO2 emissions (12% in the EU), and about 45% of world oil demand.”
“For regulators who want to tackle climate change – plus other issues such as air pollution, traffic and road safety – this is therefore one of the key sectors that needs to be addressed. This is not only from the emissions perspective, but also from an overall mobility perspective on how people can go from A to B in a way that is less impactful to the environment and to society.”
“Carmakers have to take that into account in their business models, where they need to not only work on cars that are lower in emissions, but also on other trends in the industry and wider society.”
The engagement work is already seeing some successes. “We had a few breakthroughs earlier this year,” says Cedillo Torres. “Two major carmakers have set a long-term ambition of achieving net zero emissions by 2039 and 2040 respectively.”
“One of them went as far as to bet on a single drivetrain technology – the only carmaker so far to have done that. There are many different technologies, such as hybrid, plug-in, fuel cell and battery electric, but in order to be successful, you need to be able to focus your capital. This company has chosen to focus on battery electric vehicles and has committed substantial capital expenditure to this technology over the next few years.”
In a question and answer session, Cedillo Torres updates investors on the work that Robeco is doing in this arena, as part of a wider commitment to combating climate change and meeting the goals of the Paris Agreement.