In September 2015, the US Environmental Protection Agency charged Volkswagen with installing software in their diesel-powered cars that allowed the vehicles to cheat on EPA emissions tests. The vehicles’ real-world Nitrogen Oxide (NOX) emissions were 40 times higher than U.S. standards permitted. The ensuing scandal, known as “Dieselgate,” proved to be the most expensive – over $30 billion in fines and damages – and largest in the history of the automotive industry. The discovery sent the 80-year-old industry leader into a spiral—its brand was battered, huge fines threatened its survival, VW officials were caught lying in an attempted cover up, and VW’s CEO Martin Winterkorn resigned.
The following summer, in 2016, nine individuals, representing a diverse set of skills and backgrounds, were invited by Volkswagen group to form a Sustainability Council to help the company transform itself into a world-leading provider of sustainable mobility. Of course, some of us were concerned that the Council’s work could devolve into an exercise in greenwashing. However, the challenge of trying to positively impact one of the world’s largest auto companies made the offer hard to pass up. If VW truly committed to zero emission vehicles, other OEMs would likely follow with similar strategies – a huge win for climate change action.
The scandal and its repercussions ran deep, though. As we met for our first meeting, October 24 and 25, a US District Court in California was approving the first partial settlement with a fine of $14.7B. There was rising concern as to whether VW could survive this scandal. The nine members of the Council understood the uncertainty. It was clear to VW’s new leadership that the company had to break away from the past and its diesel-centric strategy, embrace zero emission vehicles, and enshrine ethical practices across its workforce to restore its brand.
As tantalizing as that possibility was, it was never going to be easy to realize. First, given the diversity of the council representatives – former politicians, a UN executive, an environmental regulator and a union representative, along with academics and a Red Cross executive – we faced challenges learning to work with each other in initial meetings. We spent significant time discussing and debating our role and the key priorities to focus as a group. Our discussions were arduous and went in different directions, but we quickly settled on a set of strategic changes to advocate with the VW management, which became the guiding principles for the council’s tenure over the six years.
1. Technology Shift: Decarbonization had to become central to VW’s corporate strategy. Diesels now were “radioactive,” leaving VW with few alternatives. Embracing a fundamental shift to clean, e-mobility technology was the best option for both restoring the brand and complying with tightening emissions regulations across the world.
2. Policy Shift: VW was not viewed as a “partner” by regulators or policymakers. With “Dieselgate,” their reputation had bottomed out. The best option going forward was for VW to change its position with regulators and NGOs in all key markets and become an advocate for ambitious standards that reduce pollution and drive e-mobility, rather than fighting with policymakers and regulators
3. Cultural Shift: The Dieselgate scandal was the product of a corporate culture where financial targets had to be met and failure was not an option. Inability to meet emissions regulations at the target costs could not be reported to leadership – so it was necessary to cheat. VW needed to drive a culture shift towards a more ethical, collaborative, and purpose-driven company that could learn from failures.
In the span of six years, the Sustainability Council met twice a year with the VW CEO and Board of Management and, several times with the Supervisory Board and the Worker’s Council leadership. We served under three different CEOs – Matthias Mueller, Herbert Diess, and Oliver Blume and our efforts as council were respected by all three. We saw ourselves as “sparring partners” with VW leadership. Our exchanges were always constructive, even when we took exception to their actions – or lack thereof. Company leadership remained open to our advice under all three CEOs as we continued to advocate for VW to become a leader in sustainable e-mobility and as independent experts, we felt free to criticize the company along with providing and advice on key sustainability and governance issues.
In the early days of the Council’s engagement with VW leadership on the priorities, there was predictable pushback. High-ranking VW managers—whose entire careers had been linked to diesel engines—were anxious about their future with the company. Similarly, union workers were afraid that e-mobility production and digitization would result in huge job losses.
One year after the Council began, in November 2017, VW announced its first large decarbonization commitment—50 billion euros to launch a comprehensive electrification initiative. In early 2018, Herbert Diess took over as CEO and started a massive change process, accelerating many of the changes that we had been advocating for. Decarbonization became a corporate priority and VW’s new CEO drove a rapid expansion of VW’s e-mobility capacity.
Over the next two years, Diess’ commitment to decarbonization and e-mobility strategies began to bear fruit. In 2019, for example, VW’s strategic plan for overhaul was critical to rebranding the company as a leader in sustainability. The International Council on Clean Transportation’s (ICCT) said the plan was “bigger, bolder, and far more detailed” than those of major rivals. CNN business described VW as having “embraced electrics with the enthusiasm of a religious convert.”[i]
While we advocated for rebuilding the brand with a transition to e-mobility, we also worked closely with the US Department of Justice-appointed monitor, Larry Thompson, to modernize VW’s integrity and compliance programs. With VW’s changing new posture, it was also easier for us to foster a stronger dialogue between VW, NGOs, and environmental groups.
In recent years, Volkswagen has worked effectively with policymakers to address the planet’s biggest challenge, climate change, by encouraging a more rapid decarbonization of the automotive sector. In the European Union, for example, VW has supported banning the sale of new internal combustion engines (ICE) by 2035. We also supported cross-industry collaboration in the form of a CEO Alliance to support the EU Green New Deal. We met multiple times with EU policymakers and paved the way for industry collaborations, including partnerships between VW and leading energy companies, such as Italy’s Enel and Spain’s Iberdola. These collaborations helped build the foundation for clean energy supply infrastructure for EV charging stations as well as for battery cell production.
In an American political context, Volkswagen also played an important role in protecting existing decarbonization efforts. During the Trump administration, VW put its support behind California’s ambitious car greenhouse gas (GHG) standards—despite legal threats made by the White House. More recently, VW took a firm stand against the legal challenges by oil industry and conservative states in support of President Biden’s GHG car policies.
The council also commissioned several studies around sustainability. An important study conducted with the input of the VW workers’ council analyzed the effects of electric mobility and digitalization on employment and how these changes can be managed. Results showed the transition to e-mobility and digitalization would have a much more modest impact on jobs. The study also revealed that most VW employees were excited about the transformation.
Convincing VW’s CFO and other executives to take environmental, social, and governance (ESG) issues more seriously was another step in the company’s transformation. The Council invested in a better data infrastructure, extended ESG analysis into the supply chain, and integrated sustainability issues into investment analysis, corporate finance, and dialogue with investors. Two specific initiatives included a research project on the effects of fiscal policies for climate protection, and support for local efforts towards a sustainable cobalt supply chain.
Rebuilding the brand took time. But the efforts started to pay off in 2019 when VW was re-admitted to the UN Global Compact, a voluntary agreement from businesses to embrace sustainability issues. Later, VW’s climate leadership was acknowledged by the Science Based Target initiative, an international group that determines best practices in greenhouse gas emissions reductions.
Since 2018, VW has staked out a world leadership position in e-mobility. With “New Auto,” VW now has a compelling strategy in place to shape the future of sustainable mobility and its emerging value chain which includes cell production, energy and charging, new forms of mobility and digital integration into mobility. But one of the challenges in becoming a leader is that the market expects you to continue to lead. So, for all VW has accomplished, the world is catching up. More specifically, we believe the following needs to be done:
· Maintaining a consistency of purpose, with a sense of urgency: Keep the focus on delivering the bold e-mobility strategy that was developed under CEO Herbert Diess. As the industry matures and other legacy manufacturers catch up, VW must continue to move rapidly, while also adopting a more agile approach.
· Creating state of the art ESG policies, operations, and data infrastructure: Drive valuation prospects with capital markets while at the same time motivating structural changes necessary to accelerate the transformation across all brands and business activities.
· Doubling down on innovation and digitalization across all activities: Accelerate the technologically-driven change in the company in pursuit of aggressive sustainability targets. One example is new investment in battery cell production that incorporates circular material flow in the design phase to maximize recovery of valuable materials to improve resilience and environmental footprints. A recent Council report illustrates how digital solutions offer particularly excellent potential.
· Delivering on Commitments: Move systematically towards carbon neutrality by 2050, including the use of renewable energy, and low emission materials produced in ethical and sustainable ways, with interim performance milestones, and sharing of progress on an annual basis.
· Collaborating with Policymakers, NGOs, and other stakeholders: Continue the collaboration with policymakers in developing ambitious policies and standards to decarbonize cars and trucks, as well as expand and strengthen the collaboration with NGOs and other stakeholders.
· Building a World Class EV Infrastructure: Work together with EV charging companies, cities, and governments to build out the easiest to use, ubiquitous, and reliable charging infrastructure across VW’s markets.
The Sustainability Council’s operations will draw to a close at the end of 2022. It is, of course, difficult to ascertain the exact value we added to the transformation of the company, although Diess credited us as “a driver and a corrective for our strategy.” We hope that our participation has added value to the transformation of the company from diesel cheater to e-mobility leader with more ethical practices.
To successfully complete its massive transformation, VW will have to activate its full potential by reviving a spirit of innovation, motivation, and collaboration. Sustainability must be an important driver towards that end. The latest study initiated by the Council on workplace transformation confirms that VW employees are highly sensitized and ready and that they trust management on economic decisions.
VW is on the right track now and we hope the company under CEO Oliver Blume will accelerate the pace of change—especially given the increasingly horrific impacts of climate change-driven human and ecological suffering around the globe. As the world struggles to reduce greenhouse gas emissions quickly enough to stave off the worst impacts of climate change, VW’s strategies like New Auto can lead the way.
This article was written in cooperation with Margo Oge, a member of VW’s Sustainability Council.