ESG in the Automotive Industry Sector

Some of the latest ESG trends in this industry sector are:

• Electric vehicles (EVs): The shift toward electric vehicles has been gaining momentum in the automotive sector, driven by the need to reduce carbon emissions and combat climate change. Many major automobile manufacturers are investing heavily in EVs and have set ambitious targets for electrification of their fleets.
• Sustainable supply chain: The automotive industry is also focusing on creating a sustainable supply chain by sourcing raw materials responsibly, reducing waste, and promoting ethical practices in their supply chain.
• Social responsibility: Automobile companies are also emphasizing their social responsibility by promoting diversity and inclusion, supporting their communities, and improving working conditions for their employees and suppliers.
• Circular economy: The circular economy concept is gaining traction in the automotive industry, where companies are seeking to reduce waste and create a closed-loop system for materials and products. This includes the use of recycled materials and the creation of end-of-life solutions for vehicles.

The automotive industry sector is facing several ESG challenges, which are posing a threat to the industry's sustainability. This industry is not only one of the largest consumers of energy and resources but also a significant contributor to greenhouse gas emissions. Therefore, the need for sustainable business practices has become a critical issue.

Below some ESG reporting drivers in the automotive industry:

• Increased Focus on Emissions Reduction: Many companies in the automotive industry are setting ambitious emissions reduction targets and reporting on their progress towards meeting these goals.
• Disclosure of Supply Chain Impacts: There is growing pressure on automobile companies to disclose the social and environmental impacts of their supply chains, including issues such as forced labor, deforestation, and carbon emissions.
• Emphasis on Diversity and Inclusion: Companies in the automotive industry are also recognizing the importance of diversity and inclusion in driving business success and are reporting on their efforts to promote a more diverse and inclusive workforce.
• Integration of ESG into Business Strategy: Leading companies are integrating ESG considerations into their core business strategies, rather than treating sustainability as a standalone issue.
• Increased Demand for ESG Assurance: Investors and other stakeholders are placing a greater emphasis on the need for independent assurance of ESG reporting, in order to ensure the accuracy and reliability of the information being disclosed.
• Use of Technology: Many companies are using technology to streamline their ESG reporting processes, including the use of software and analytics tools to gather and analyze data.
• Collaboration and Partnerships: Companies are increasingly working together and partnering with stakeholders to address complex sustainability challenges, such as climate change and the transition to electric vehicles.

The ESG reporting in the automotive industry reflects a growing recognition of the importance of sustainability in driving long-term business success and a commitment to transparency and accountability in addressing key sustainability challenges.

The automotive industry has also been under increasing pressure to address environmental, social, and governance (ESG) issues in recent years. As a result, ESG reporting has become a key concern for companies in the industry. However, there are several challenges associated with ESG reporting in this industry sector.

The main challenges in the automotive industry are:

The complex and global nature of the industry's supply chains.

Many companies in the automotive industry rely on a vast network of suppliers, making it difficult to obtain accurate and comprehensive data on their ESG practices. For example, it can be challenging to trace the origin of raw materials, such as minerals and metals, used in the production of vehicles. This lack of transparency makes it challenging for companies to report on their ESG performance accurately.

The lack of standardization in ESG reporting.

Currently, there is no universal standard for ESG reporting, making it difficult for stakeholders to compare the performance of different companies. Many companies in the automotive sector use different reporting frameworks, such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), which can make it difficult to compare their ESG performance accurately.

The lack of consensus on which ESG metrics are most relevant for the automotive industry.

For example, while emissions are a critical ESG issue for the industry, there is still a lack of agreement on how best to measure them. There is also a debate around whether companies should report on their ESG practices at the product level or the company level.

The ESG reporting can be time-consuming and resource-intensive.

Companies in the automotive sector need to gather and analyze large amounts of data to report accurately on their ESG practices. This can be particularly challenging for smaller companies or those with limited resources. This industry has been increasing transparency and reporting on their ESG performance.  Many companies are publishing sustainability reports and setting targets for emissions reductions and other ESG goals.

Data Quality and Availability.

Obtaining accurate and reliable data on ESG issues can be challenging, particularly for supply chain impacts and emissions from vehicle use.

Regulatory Compliance.

The automotive industry is subject to a range of ESG-related regulations, which can be complex and challenging to comply with.

Assurance and Verification.

There is a need for independent assurance and verification of ESG reporting, but this can be challenging and expensive to obtain. However, companies that can effectively report and verify their ESG data will not only be better positioned to manage ESG risks and opportunities but will also build stakeholder trust and enhance their reputation.

DQS Inc. is a competent and independent partner for verification and assurance of sustainability disclosure and reporting. DQS Inc. also has developed a specific program for “small and medium-size suppliers” of the automotive industry to fulfill their ESG compliance and respond to the demand of their stakeholders.

About DQS

DQS Inc. was formed as a strategic partnership between Underwriters Laboratories (UL) and DQS (Germany’s first certification body). As a result of this merger, DQS Inc. is able to provide global resources and highly skilled, local auditors. Currently, we have more than 2,500 leading industry experts with the knowledge and expertise to help you achieve your business objectives.

With customers in 130 countries, we serve a wide spectrum of industry sectors, including automotive, electrical, engine construction, the metal and chemicals industries, services, food, health care, the aviation and aerospace industries and telecommunications. DQS certificates have been issued for more than 65,000 customer sites worldwide from more than 85 offices.