Driving automakers and suppliers to grow their ESG standards and initiatives are their potential employees, particularly those classified as millennials and Gen Z.
That’s one takeaway from a wide-ranging panel discussion on the “E in ESG” at the 2022 CAR Management Briefing Seminars in Traverse City, MI.
“I did an (Environmental, Social and Governance) strategy (report) for a Tier 1 auto supplier and the big driver of growing ESG performance was competing for that swath of talent,” Jessica Wollmuth, principal-climate change and sustainability services for E&Y, tells attendees and viewers.
She points out automakers and suppliers are finding – as they vie more than ever for employees with tech companies such as Apple and Google that tend to have great messaging around sustainability – they need to “up their game.”
Moderator and Audi official Spencer Reeder concurs and says inauthentic promises on environmental advocacy could be detrimental to retention.
“We’re going to be held accountable by our young employees,” says Reeder (pictured, left), director-government affairs and sustainability at Audi. “(They’re) looking very carefully at what we’re doing, and you will see these Gen Z folks move companies if they don’t think (an ESG commitment) is legitimate.”
While ESG commitments are voluntary at this point, the U.S. Securities and Exchange Commission, the European Commission and others are trying to put some teeth into the matter.
The EC’s Corporate Sustainability Reporting Directive, from 2024, will require all larger companies, with perhaps as few as 250 employees, to finely detail how well they perform on sustainability metrics.
Brian Matt, head of ESG advisory for the New York Stock Exchange, notes the SEC is pursuing a similar climate proposal to raise exponentially the reporting requirement of emissions and corporate plans for a greenhouse-gas net-zero future, targeting 2023 to be a measurement year and 2024 a reporting year.
Matt says disclosures will fall into three categories, with Scope 1 requiring disclosures on “anything used within your four walls to build out your product or service set,” Scope 2 encompassing the energy used to create products and Scope 3 requiring disclosures on upstream inputs such as capital purchases, as well as downstream usage of products.
Already, poor ESG performance can be a main reason behind credit ratings’ downgrades, with Matt noting Moody’s, S&P and Fitch have at different times said about a third to a half of their ratings downgrades have an ESG component “that’s essentially adding to the cost of capital.” For instance, Moody’s has downgraded, based on wildfire risks, Pacific Gas & Electric in California and other utilities based on their exposure to detrimental effects of climate change.
Matt says the SEC’s forthcoming ESG reporting rules will have the natural byproduct of companies engaging, perhaps pressuring, their supply chain to commit to these types of goals, as well.
That’s already happening in the auto industry, says Dean Kanelos, manager-market development and product applications for Nucor Automotive Group.
Nucor, the third largest auto supplier for sheet steel, says a big push recently has been coming from OEMs to get their suppliers to become more sustainable. Kanelos says Nucor already had a good sustainability record for its steel mills, but the pressure from OEMs has caused it to establish purchase agreements for solar and wind energy to offset the electricity it uses to produce steel.
Jaime Minaro, global sales director for aluminum supplier Nemak, which bills itself as the world’s largest secondary aluminum smelter, also is complying with OEM requests to improve its sustainability targets.
Improving sustainability not only helps from a regulatory perspective, but Minaro notes the supplier also is benefiting financially by keeping ESG at the forefront.
Minaro says he has seen sourcing decisions from major OEMs “where they are willing to pay a differential price for a product that is sustainable and that has low CO2 footprint.”