Maybe it Is Too Easy Being Green for Automakers
(Bloomberg Opinion) -- Some of the world’s biggest emitters of carbon are also becoming the loudest advocates of climate change, frequently spouting all the buzzwords that go with it: net-zero, decarbonization and neutrality. Most earnings calls and various corporate sustainability reports are now peppered with this jargon. The plans sound lofty but the reality for shareholders is vague, at best.
In recent months, global automakers have proclaimed their ambitions to be carbon neutral: They want only to add the same amount of greenhouse gases into the atmosphere as they remove. Net zero.
India’s Tata Motors Ltd-owned Jaguar Land Rover plans to reach the target by 2039. General Motors Co. wants to get there by 2040. One of the world’s largest automakers, Toyota Motor Corp. expects to be carbon neutral by 2050. The Japanese company recently put out a press release saying 70% of Toyota and Lexus vehicle sales (including hybirds) would be electrified by 2030. Others have made similarly bold promises too.
You can’t fault the auto industry for trying. The targets aren’t just about being good corporate citizens and helping with a greener future. Regulators are setting stringent emissions standards and investors are chasing anything that ticks the ESG boxes. But shareholders need to start paying attention to what all these promises mean.
Automakers have little incentive to be green. Their carbon footprint is more like a sprawling maze. It goes beyond tailpipe emissions. There are indirect greenhouse gases generated in the process of making vehicles, using them and then recycling them.
Investors seem to be buying into the industry’s tenet that electrification is a path to net-zero. But green vehicles won’t bring fast results. The cost of ownership, battery technology and charging infrastructure continue to hold back the pace of adoption. It’s clearly not going to be enough.
The costs of the industry’s targets are high. Firms either have to invest large sums of money to meet these goals or pay fines for missing requirements. The hefty outlays put pressure on margins and cash flows. If automakers don’t meet ESG standards then, sooner or later, their cost of capital will get elevated.
The electric car solution also seems to ignore the fact that the materials needed to make these vehicles — aluminum, plastics or rare earth elements like lithium and cobalt used for batteries — generate substantial amounts of carbon emissions. By 2040, these could account for a larger share of the total than those from tailpipes. Few carmakers are talking about that part.
The industry is looking away from the supply chain and manufacturing line for ways to be climate-conscious. Carbon offsets, for instance, allow companies to lower their overall emission level by, say, planting trees and getting credits: No carmaking involved, more about buying time than actually cutting greenhouse gases. The carmakers can also buy credits but the price of carbon, in places like Europe, has already started shooting up, making this an expensive exercise as well.
It’s difficult to tell how much progress is actually being made because automakers don’t give shareholders much granular information on emissions. Even with all the talk of big, green investments, details about where the money is being spent are scant. Investors don’t get much on the carbon accounting side of things either.
The science-based targets make an industry that's intrinsically full of soot sound environmentally-friendly. The lingo at least makes it seem like they’re thinking about the problem; and the rhetoric gives investors hope that the companies might one day reach their goals. Shareholders can feel virtuous. But how do they hold the automakers accountable in 10, 20 or 30 years? Who will be measuring their emissions in that long term?
With little disclosure from the auto industry, investors are effectively operating in the dark. Shareholders need to push for more information. They can’t sit around waiting for carmakers to give them details. They’ve got to put their time, actions and consciences where their money is. If they really believe.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
©2021 Bloomberg L.P.