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Green light
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01/02/2007
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The environment has become a key factor in the OEMs’ marketing programmes. A movement that started as pressure from a minority lobby group has grown to encompass national and international legislation and now consumer pressure. Steve Snook looks at a slow start-up has evolved into a period of rapid change.
As marketing slogans go, “Our car is more environmentally friendly than theirs” was not a winner in the battleground for OEM market share during any part of the 20th century. ‘Cheaper’, ‘faster’, ‘more comfortable’, even plain ‘bigger’ all had their place and brought some success, but ‘greener’ was a non-starter.
A new millennium has seen the beginnings of a new consumer awareness about the softer issues attached to vehicle performance. This was first apparent with regard to safety. Originally driven by national and international regulation – much opposed to start with by the OEMs on the usual additional cost grounds – this soon became a marketing plus for those companies that were regularly receiving good reports from NCAP and EuroNCAP.
Soon there were noticeable shifts in model popularity as the buying public read the simple star ratings published in auto magazines and voted with their wallets for the safety of their families and friends. This was not exactly a shift from the drive to get most bangs for the buck, but rather a redefinition of what constituted the bang. Purchasers were buying safety in response to advertising (government) and marketing (OEM) campaigns that no longer focused on pure driving thrill.
But technology also made engines leaner and more efficient and allowed the onboard capture of the principal by-products of the combustion process. As everyone in the developed world became more aware of terms such as ‘climate change’ and global warming’ the level of general dissatisfaction grew. For the car buyer, environmental impact was added into the decision-making process.
Eco-conscious consumers are today looking for ways to offset their own ‘carbon footprint’ – the impact on the environment due to emission of greenhouse gases, measured in CO2. Green consciousness continues to go mainstream and this will be speeded up by Internet developments such as Yahoo! Auto’s ‘Green Ratings’, a system that provides easy to use environmental scores for all makes and models available in the USA.
“Consumers can think of the Yahoo! Green Rating as a yardstick that measures how well a given car cuts pollution,” says John DeCicco, senior fellow for automotive strategies at Environmental Defense. “The Yahoo! Green Rating covers all of the major environmental impacts associated with a motor vehicle, from health-harming tailpipe pollution to greenhouse gases that cause global warming.”
Rated on a scale of 1 to 100, the Yahoo! Green Rating reflects a vehicle’s total environmental impact. The higher the rating, the greener the car. Shoppers can find the most environmentally friendly model by just picking the car or truck that has the best Green Rating among the models they are considering. The ratings were produced for Yahoo! by Environmental Defense, an organisation with 400,000 members that seeks innovative, equitable and cost-effective solutions to pressing environmental problems, working directly with businesses, governments and communities.
“The Green Ratings provide a lasting way for consumers to act on their values and comparison shop with the environment in mind,” says DeCicco.
Mercedes-Benz has already adopted environmental certification for its new vehicles. This is based on international standards that are accepted by all relevant stakeholders. Compliance with these standards and the accuracy of the information provided have been verified by independent experts
“Our vehicles meet people’s need for mobility and provide a flexible means of transporting goods,” says DaimlerChrysler chairman Dieter Zetsche. “They are therefore the basis of individual choice and independence, an important factor in a modern society and national economy. At the same time the manufacture and use of our vehicles consumes natural resources, and our business activities affect society in many different ways.
“It is established in our environmental guidelines that we will develop products which are environmentally compatible in their respective market segments, and that we comprehensively inform the public about our environmental protection activities. The Environmental Certificate – obtained for the S-Class for the first time in 2005 – is an example of how these guidelines are implemented.”
Even by the end of the 20th century the OEMs were already making great progress in reducing the environmental impact of vehicles that rolled off the production lines. Environmental standards applying to all manufacturing locations were being adopted across the industry in a top-down cascade. Third-party assessments to standards such as ISO 14001 were gradually implemented by the OEMs and they in turn pushed the requirement onto their Tier One suppliers, who spread the message further down the chain.
In September 1999, and within a week of one another, Ford and General Motors released statements requiring their suppliers to implement an Environmental Management System (EMS) based on ISO 14001. Both stated a specific period of time for their suppliers to achieve registration ranging from 14 months for Ford and 26 months for GM. Although Japanese and European OEMs were also moving in the same direction, this huge shift in acceptance of ISO 14001 as the EMS of choice opened the floodgates on interest in ISO 14001 registration.
The ISO 14001 standard specifies requirements for environmental management systems, and requires companies to develop and maintain a system that includes: establishing an environmental policy; determining environmental aspects and impacts of their products, activities and services; planning environmental objectives and measurable targets; implementing programmes to meet objectives and targets; checking and taking corrective action; and conducting a management review.
The Suppliers Partnership was established in the US (with GM as a major instigator) in 2003 to help all companies in the chain share good practice. OEMs and partnership members work together toward eliminating chemicals of concern from automotive parts. In addition, large suppliers mentor smaller suppliers in ISO 14001 implementation.
“We quickly learned that the fastest, most efficient way to make a difference is to focus not on the end result, for example pounds of VOC or incremental increases in recycling rates,” says Deborah Morrissett, vice president regulatory affairs at DaimlerChrysler. “The best way improve the environmental performance of our industry is to focus on the process of eliminating waste. Waste in almost any form has an associated environmental impact. With the help of SP members we have identified wastes associated with transportation, packaging, materials and energy.”
Environmental management systems have acquired even greater importance in Europe with the introduction of further regulations related to the end-of-life vehicle and dangerous chemicals. The ELV Directive requires OEMs (and hence the entire supply chain) to track closely all substances of concern in automotive parts and modules. All suppliers have been affected by the ELV Directive, and are faced with addressing each customer’s unique reporting requirements, which has added cost and complexity to the process. The International Material Data System (IMDS) is one Web-based application that allows suppliers to report this information to the OEMs.
The REACH (Registration, Evaluation and Authorisation of Chemicals) Regulation that passed into European law in December 2006 gives greater responsibility to industry to manage the risks from chemicals and to provide safety information on the substances. Manufacturers and importers will be required to gather information on the properties of their substances, which will help them manage them safely, and to register the information in a central database. REACH will come into force on 1 June 2007.
Registration of chemicals
The regulation will require the registration over a period of 11 years of some 30,000 chemical substances in use today. It is expected that the most dangerous among them will be progressively phased out. The day-to-day management of the requirements will be the responsibility of the new European Chemicals Agency (ECHA) to be set up in Helsinki.
ECHA will run the necessary databases, co-ordinate the in-depth evaluation of suspicious chemicals and run a public database where people can find hazard information.
According to Deloitte Consulting, automotive manufacturers that generate increased value through reduced impact on the environment will draw the most customers, the best talent, and long-term health – even as the dynamics of global conditions continue to change rapidly.
“Companies that build a capability for sustainable transformation will build and lock in competitive advantages as the marketplace, regulation and customer demand move in this direction,” Christopher Park of Deloitte Consulting told a breakfast meeting at last month’s North American International Auto Show in Detroit. “Companies that do not invest now run the risk of being compromised or even eliminated if the effect of sustainability on brand equity drives real and rapid changes in market valuations.”
To drive long-term shareholder value, the definition and application of green principles must be expanded to encompass the entire activity base of the enterprise. According to Deloitte Consulting, ‘green’ can be defined as a set of core principles: waste is reduced, eliminated or reused; net consumption of resources (capital, human or natural) for a specific product or service outcome is reduced; consumed resource is partially or completely replaced; the ratios of natural to man-made and organic to synthetic are increased; the net global impact footprint is reduced.
“Companies need to identify the real issues and relevant facts in opting for a given technology,” said Park. “In fact, just making the choice may be the riskiest piece of this technology shift. Companies that make the right choice will be best poised for success and growth as competition continues to get tougher and green becomes an ever more important component of doing business.”
OEMs in Japan and northern Europe have developed technology in response to local pressures that now position them well to take advantage in other markets. Japanese companies, notably Toyota and Honda, persisted with their loss-making hybrid vehicle programmes while others dithered and now have a lead that the rest are attempting to claw back. The Japanese companies were also among the first to introduce an annual environmental report.
Nissan released its first such report in 1998, followed by a more comprehensive sustainability report in 2004, which covers all of its corporate social responsibility (CSR) practices including environment matters. Nissan Motor has been rated among the top 50 companies in the world in CSR reporting, according to a recent survey. ‘Global Reporters’ is conducted by business strategy consultancy and think-tank SustainAbility, the United Nations Environment Programme (UNEP), and Standard & Poor’s, which evaluates CSR reporting by companies worldwide according to globally accepted standards. Ford was the only other automotive company in the top 50.
“Even small and midsize firms can gain access to scale they couldn’t obtain in the past through the focused application of technology,” said John Mendel, senior vice president of American Honda. “What has changed is the speed with which any company can become competitive. The media used to write about the industry’s rush to invest in China. Now, within just two to three years of that, we see the first efforts of Chinese automakers to invest in our home markets.”
Mendel was speaking at a management briefing seminar organised by the US Center for Automotive Research last August: “The auto industry must do its best to protect the environment, recognising that what we produce today, we must live with tomorrow. But success does not require making tradeoffs – for instance, selling clean cars versus those that our customers want to drive. Our goal is to create new value for the customer through the development of original technology that creates unique products people want to buy, and to do so in a way that reduces our environmental footprint. These goals are not mutually exclusive.
“The energy and environmental challenge involves three critical issues requiring unique technological approaches. We must continue to reduce air pollution with conventional engine technology. We have to further advance the fuel efficiency of the internal combustion engine, including hybrid and diesel technologies. And we must develop alternative fuel technologies, both vehicle and infrastructure, to address energy sustainability and work toward a mode of transport with zero mobile source CO2 emissions.
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A key factor in the implementation of the OEMs’ environmental programmes has been the support from the Tier Ones, but the process does not stop there. In 2006, Denso Corporation announced new ‘green procurement guidelines’ to further reduce the use and release of environmentally hazardous substances in supply chains for global business activities. The guidelines are based on Denso’s long-term environmental policy, EcoVision 2015.
Masatohi Ano, senior managing director of Denso, introduced the guidelines to suppliers in Japan at a meeting last year. They will apply to suppliers of Denso group companies in and outside Japan, with some local modifications for each region.
“One of the four key management principles of the Denso Philosophy, which directs our global activities is: ‘Environmental preservation and harmony with society’,” said Ano.
“Every five years we set a clear strategy for what we want to accomplish. With our most recent strategy, EcoVision 2015, our goals are: expansion of environmental management into group companies; product development and design that takes into consideration performance improvement as well as the environment; steady reduction of environmental impact in global production; and enhancement of external relationships and information disclosure regarding environmental actions.”
The new guidelines expand Denso’s targets to all suppliers, including equipment, construction, and distribution suppliers. They also increase the areas suppliers are required to follow from two to five, while adding further requirements in the original two areas: establishing an environmental management system and managing and reducing the use of environmentally hazardous substances.
Denso previously required suppliers of parts and materials (including secondary raw materials) to establish an environmental management system with the intent of acquiring external certifications such as ISO14001 and, when necessary, has provided support in establishing the system. The same requirements and support will now be targeted to all suppliers.
To manage and reduce environmentally hazardous substances contained in products, Denso has prohibited the use of such substances in parts and materials delivered, and has requested reports from suppliers on the types and quantities of chemical substances included in deliveries.
In addition, the new guidelines require that analyses be conducted for the four environmentally hazardous substances subjected to abolition under the EU ELV Directive (lead, mercury, cadmium and hexavalent chromium).
With regard to hazardous substances not included within products but used within the company, Denso requires either the prohibition or reduction of 44 substances, as well as reports from suppliers on the types and quantities of chemicals included in new deliveries. The guidelines prohibit the use of 464 environmentally hazardous substances, and will now target all suppliers including equipment and construction suppliers.
Denso now requires suppliers to improve their own environmental performance by reducing CO2 emissions, emissions of substances subject to the Pollutant Release and Transfer Register (PRTR) in Japan or REACH in Europe, emissions of volatile organic compounds, and waste.
The company also plans to introduce LCA indicators to identify the effects that products have on the environment throughout the entire life cycle from materials procurement to manufacture, use and discard.
DuPont’s 2015 sustainability goals span all of its operations, chief executive Chad Holliday told journalists in October 2006. “The 2015 goals span every sector of our operations from R&D to manufacturing to marketing. They go beyond traditional footprint reductions to include goals that tie our business growth even more directly to the development of safer and environmentally improved products for the global markets we serve. They also make sense from a business performance perspective because revenues from our current safety and environmental offerings are increasing at double our average revenue growth rate.
The business case
“DuPont has to keep pace with the evolving idea of sustainability and we accept that society expects transparency and responsiveness on such issues. In the 1970s and 1980s our focus was on internal safety and meeting environmental regulations. In the late 1980s and 1990s we added voluntary footprint reductions. We looked to increase shareholder value with a goal of zero safety and environmental incidents as we decreased raw material and energy inputs into our products and reduced emissions at our manufacturing sites.
“Now we see ourselves in a third phase of sustainable growth, characterised by a holistic approach that is fully integrated into our business models. In this phase, sustainability is broadened to include human safety as well as environmental protection, and it becomes our market-driven business priority throughout the value chain.
“We never forget that we are a business, and our first job is to create value for our shareholders. Sustainable growth means creating value for our shareholders and for society by developing products that the market demands - and which also are good for the environment and for the health, safety and wellbeing of people everywhere. Many companies say that what’s good for the environment can also be good for business. We have the view that what’s good for business must be good for the environment and for people worldwide or you are not moving toward sustainable growth.”
The business case is increasingly being recognised by economists. A study by the former chief economist of the World Bank, Sir Nicholas Stern, calls climate change “the greatest and widest-ranging market failure ever seen”. He warns that climate change could shrink the global economy by 20%, and cause economic and social disruption on a par with the two world wars and the Great Depression.
DaimlerChrysler’s Dieter Zetsche spoke in a similar vein last month: “We are convinced that corporate success and social responsibility go hand in hand, and that value creation also always requires value orientation in the social environment. We can only achieve business success if we have the confidence of the people in the countries where we are active. We have many activities aimed at further continuous improvements to the environmental compatibility of our products, with the environmental effects of these products over their entire lifecycle firmly in mind.”
The RECY concept from Mercedes-Benz Advanced Design was one of the entries in the 2006 Los Angeles Auto Show’s Design Challenge. Wood, alloys, glass and rubber combine to create a 100% recyclable California roadster
Mercedes-Benz has been using its ‘Design for Environment’ as part of the development process of cars for 12 years. Experts in lifecycle assessment, dismantling and recycling planning, materials and process engineering are involved in the development of new models from the start
Peugeot's 207 ‘pure’ demonstrator uses a 20kW Genepac proton exchange membrane fuel cell developed in partnership with the Atomic Energy Commission. The company describes the vehicle as proof of Peugeot’s ongoing desire to reconcile the car with the environment
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Author
Steve Snook
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