Dr. Stephan Krinke is the Head of Sustainability Strategy and Programs in the General Secretariat of the Volkswagen Group. He is responsible for the development of the sustainability strategy and the development and steering of the sustainability program which covers the entire value chain of sustainable mobility.
GlobeScan CEO Chris Coulter spoke to Stephan about their sustainability strategy and bold commitment to decarbonization.
How are you approaching sustainability at Volkswagen?
First of all, our general strategy at Volkswagen is to bring sustainability much closer to the core business than it was in the past. That means that our sustainability strategy must be directly linked to our core business, and that our measures and programs will have a direct impact on our products and services.
Second, the Decarbonization Program that we have launched at Volkswagen is a response to our materiality analysis that showed climate change as the most important issue for our stakeholders. It is also the area where Volkswagen can have a strong impact. The Decarbonization Program was presented to the Management Board in February 2019 with the goal to reduce the overall emissions of carbon dioxide (CO2). The Program was presented within a context of the full lifecycle analysis, from raw materials to emissions, and we learned that Volkswagen is responsible for about 1 percent of the overall anthropogenic CO2 emissions in the world.
While the 1 percent impact was initially surprising to the company, it is now an incentive for us to set ambitious targets. We derived our goals from the Paris Agreement target.
By 2025, we plan to reduce our fleet life cycle CO2-footprint of passenger cars and light duty vehicles by 30 percent compared to 2015.
By 2050, the whole Volkswagen Group will be carbon neutral on the balance sheet.
It is interesting to hear that not only materiality was taken very seriously at the highest levels but also that an engineering company like Volkswagen was able to commit to such long-term 2050 goals of carbon neutrality. How did the Decarbonization Program evolve in Volkswagen and how did you manage to get the management team and the board to support such bold commitments?
We speak about Life Cycle Engineering here at Volkswagen. This approach was developed in the last several years. Life Cycle Engineering means to analyze the environmental and carbon footprint along with the product life cycle and to identify those areas with the highest impact on the environment (called hot spots) and areas where the company can have the highest potential for reduction. For example, when we analyze the supply chain, we may find that only a few commodities along the supply chain have a high potential for CO2 reduction in the future. The same analysis can be done for the production process.
This systematic approach helps to build confidence across the company that we can analyze our operations and impacts and find solutions to them over time. It certainly helps in having a clear focus on the areas with the biggest potential for reduction or the highest impact.
How specifically are you approaching the decarbonization strategy?
It is important to say that we have started a very ambitious journey and we are still at the beginning of this journey. But one of the important things we are trying to achieve is connecting our strategy with a customer promise: the first electric vehicle in the European market will be delivered CO2 neutral to the customer.
This can only be achieved with systematic measures across the supply chain and manufacturing process. It means that the CO2 emissions during the entire production process from raw materials to delivery to the customer are neutral by 2020 thanks to: i) a minimization of CO2 emissions in our production sites through energy efficiency and the usage of renewable energy in our own production sites for electric vehicles; ii) the use of renewable energy in the battery production which is a hot spot in our analysis; and iii) compensation for the remaining CO2 emissions which cannot be avoided with climate projects.
The overall priority line for the Decarbonization Program is to have sustainable and meaningful CO2 reductions. This will be achieved by converting the remaining energy needed for processing to renewable energy whenever possible (through the use of renewable energy in the production sites and supply chain) and by compensating for the remaining unavoidable CO2 emissions. The process behind decarbonization is therefore a three–step process that starts with CO2 reduction and then progressively moves to converting to renewable energy for the rest of the energy needed, and finally compensation for the unavoidable emissions.
There was a headline in the Financial Times a few months ago that read “Volkswagen gives suppliers ultimatum on emissions.” How are you approaching and engaging your suppliers in that decarbonization strategy and what are the challenges?
We have been meeting and working with our suppliers to identify a number of potential opportunities to decarbonize. Our supply chain is now looking in a much more detailed way into its own operations and into its own footprint.
We currently have 40,000 suppliers and we enrolled them in the program following a clear priority list that is a result of our hot spot analysis. So, we focused first on those suppliers that show the highest reduction potential or the highest impact. These key suppliers went through a bi-lateral workshop with the Volkswagen supply chain department which detailed and identified the hot spots for CO2 reductions.
For the success of the Decarbonization Program, however, governmental support is essential. The government should support a strategy that guarantees a homogenization of CO2 reduction systems in every value chain and every step of the value chain.
So, for instance, if a company invests in CO2 reductions in other stages of the supply chain like production or the end of life, it won’t get any benefits. Nature doesn’t care where the CO2 reductions come from. Nature only cares about the overall CO2 reduction. Therefore, we are also working with all our partners and other associations of car manufacturers to harmonize the climate strategy because this will be at the core of the success of the strategy in the future.
Do you see collaboration as an important part of executing the Decarbonization Program?
Definitely. It will be essential because these reductions can only be done in collaboration with suppliers. Another example is CO2 reductions in other areas like electricity supply, for example. We need green and renewable electricity not only for our operations but also for our electric vehicles. Elli (“Electric for Life”) is one of the new companies within the Volkswagen group that will support that strategy.
I would like to highlight that the energy transition and the mobility transition are linked. In other words, as long as we have a strategy that is based on the burning of fossil fuels, we cannot be successful in addressing climate change. For that reason, we want to be an active partner supporting that energy transition because our success on the mobility transition depends on the success of the energy transition, not only in Germany but worldwide.
How much do you think the reputation crisis around the diesel issue has played a role in the level of ambition that the company has on sustainability or decarbonization?
The diesel crisis was a catalyst for a transformation process that was necessary in the automobile industry with a clear focus on electric mobility. The diesel crisis was one of the catalysts to bring Volkswagen much faster in the direction of electric mobility.
Our ambition level is extraordinarily high. Volkswagen is focusing on an e-mobility strategy supported by a decarbonization strategy. In other words, if we want the e-mobility strategy to be successful, we need the decarbonization strategy because it solves the strategic risks linked to CO2 reduction in a holistic way. If the strategy only focuses on producing electric vehicles, without a focus on CO2 reductions in the production process and without a focus on the source of the electricity used, then the problem has only been shifted and has not been fixed.
The success of the decarbonization strategy depends on the velocity of the transformation process we have in the company in general.
We are currently in a very intense transformation process that is heading in the direction where we will not sell traditional vehicles anymore; only e-mobility solutions. We will look at the product and e-mobility solutions in a much broader sense than in the past and this fits with the life cycle approach and decarbonization strategy. In a nutshell, the velocity of the decarbonization strategy is directly linked to the velocity of the transformation process in the company.