SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...

 
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SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...
SUSTAINABILITY TRENDS
AND THE AUTOMOTIVE
INDUSTRY: TRUCKIFICATION
AND ELECTRIFICATION
How did the world’s major automakers
compare on climate impact
management over the past decade?
September 2020
SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...
Contents
Background...........................................................................3

Climate risk analysis model������������������������������������������ 5

Stage 1: Initial engagement on climate
change impact������������������������������������������������������������������ 9

Stage 2: Building the capacity for systematic
management of climate change impacts��������������� 10

Stage 3: Transforming the core����������������������������������12

Stage 4: Competitive differentiation
on decarbonization��������������������������������������������������������21

Integrating the stages to reveal maturity
and momentum �������������������������������������������������������������22

Refinitiv ESG and climate change impact
maturity scores ��������������������������������������������������������������24
SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...
Background

With the truckification story as the backdrop, we now turn
to a broader analysis of how the major global automakers
are positioned to decarbonize their fleets during this
decade. This transformation will be more challenging.
Greater technical and financial risks will need to be taken
and even greater rewards for leaders will accrue to those
automakers that come out on top.

We take a comprehensive look at the climate impact
management performance of the major automakers over
the previous decade.

                                                              3/25
SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...
Background

What’s needed to compare company climate change
impact management capability

                  The approach must include change over time in
 1             company goals and intent, as well as execution on the
                central ESG challenge – in this case decarbonization.

                    The data must be granular, fact-based and

 2
              product-level because in the automobile sector the most
               material climate impacts (and potential improvements)
                 result from product use and product innovations.

               The analysis must be forward-looking that takes past
 3             performance, rate of change and future commitments
                        into a comprehensive assessment.

                                                                        4/25
SUSTAINABILITY TRENDS AND THE AUTOMOTIVE INDUSTRY: TRUCKIFICATION AND ELECTRIFICATION - How did the world's major automakers compare on climate ...
Climate Risk Analysis Model

Climate risk analysis                                          FIGURE 14

                                                                                CONSTELLATION’S MATURITY AND MOMENTUM MODEL INTEGRATES BOTH ESG
model                                                               Figure 14
                                                                                      AND GRANULAR PRODUCT, PROCESS AND ASSET-LEVEL DATA

                                                                                                             Stage 4:
Constellation’s Maturity and Momentum Model                                                                  COMPETITIVE DIFFERENTIATION
                                                                                                             • 2°C Pathway Alignment to 2030
Constellation’s Maturity and Momentum (M2) Model is                                                          • Market Share & Sales Leadership in ZEVs & PHVs
                                                                                                                                                                    Sales, Operational,   TRANSFORMATION
                                                                                                                                                                                          •   Up-to-date
built around the concept of a maturity curve analysis.                                                                                                               and Production       •   Granular product level
Constellation founders Lubin and Esty argued that                                                                                                                     Forecast Data       •
                                                                                                                                                                                          •
                                                                                                                                                                                              Forward-looking
                                                                                                                                                                                              Relied on by regulators
companies face a sustainability imperative similar to                                             Stage 3:
the quality, digitalization and globalization imperatives                                         TRANSFORMING THE CORE
                                                                                                  •   Emission Performance of the Fleet
in previous decades. Adapting to and exploiting such

                                                                                                                                                                           +
                                                                                                  •   Company Projections of Alternative Drive Vehicle Sales

                                                             SCOPE OF VISION
megatrends require companies to build new capabilities                                            •   Current Percentage of Sales from Alternative Drive Vehicles
                                                                                                  •   Company Governance Structures to Decarbonize
that enable competitive differentiation and ultimately
competitive advantage if they are to prosper in a                                         Stage 2:
changing landscape. Toyota did it with quality, Walmart                                   SYSTEMATIC MANAGEMENT
                                                                                          • Energy Intensity of Vehicle Production
with globalization, Amazon with digitalization. They each                                 • Public Emission Reduction Targets                                                             TRANSPARENCY
                                                                                          • Verification of Emissions Impacts                                                             • Accessible historical data
climbed the learning curve by combining vision and                                                                                                                     Refinitiv ESG      • Traceable data
execution.                                                                                                                                                                                • Disclosure levels

                                                                                 Stage 1:
Maturity curve analysis is a widely used technique for
                                                                                 INITIAL ENGAGEMENT
assessing corporate capability development in areas such                         • Reporting Emissions Impacts
                                                                                 • Reporting Policy on Emissions or Climate Change
as information technology, quality, supply chain, human
resources, and other management disciplines. We have
adopted the approach and have developed a four-stage                                                   CAPACITY TO EXECUTE
model that can be used to plot change over time on key
sustainability themes. Moving up the decarbonization           Constellation’s four-stage model represents the typical pathway firms follow as they expand the scope of vision
maturity curve has become imperative for the auto sector.      and capacity to execute a decarbonization strategy. Not all firms seek leadership on decarbonization. Some will
Therefore, it is essential to understand how organizations     take a more defensive wait-and-see position. A firm’s position on the maturity curve and its rate of change provide
are responding to the challenge.                               a good indication of transition risks and opportunities in the emerging decarbonized market.

                                                                                                                                                                                                                         5/25
The automobile
Climate Risk Analysis
               sectorModel
                      transformation

                                                                      FIGURE 15

                                                                                            STAGES 1 AND 2 OF CONSTELLATION’S MATURITY CURVE MODEL FOCUS
                                                                                                           ON ENGAGEMENT AND TRANSPARENCY
                                                                                                                             Stage 4:
Stages 1 and 2 of the model reflect a firm’s initial engagement and
                                                                                                                             COMPETITIVE DIFFERENTIATION
systematic management of climate impacts, assessing the level of                                                             • 2°C Pathway Alignment to 2030
                                                                                                                             • Market Share & Sales Leadership in ZEVs & PHVs
commitment, transparency and external reporting on these factors.                                                                                                                   Sales, Operational,
Refinitiv’s ESG key performance indicators (KPIs) and relevant data                                                                                                                  and Production
                                                                                                                                                                                      Forecast Data
points provide the information necessary to define if and when the
                                                                                                                  Stage 3:
transparency milestones in Stages 1 and 2 were disclosed by each                                                  TRANSFORMING THE CORE
of the automakers, with the data tracked and updated annually.                                                    •   Emission Performance of the Fleet

                                                                                                                                                                                           +
                                                                                                                  •   Company Projections of Alternative Drive Vehicle Sales

                                                                          SCOPE OF VISION
                                                                                                                  •   Current Percentage of Sales from Alternative Drive Vehicles
                                                                                                                  •   Company Governance Structures to Decarbonize
                                                                                                      Intensity
                                                                                                      Stage 2:
                                                                                                      SYSTEMATIC MANAGEMENT                                                                               • Estimated CO2 equivalents
                                                                                                                                                                                                            emission total
                                                                                                      • Energy intensity of Vehicle Production
                                                                                                                                                                                                          • CO2 equivalent emission
                                                                                                      • Public Emission Reduction Targets                                                                   indirect, scope 3
                                                                                                      • Verification of Emissions Impacts
                                                                                                                                                                                                          • CO2 equivalent emission
                                                                                                                                                                                       Refinitiv ESG        indirect, scope 2
                                                                                                                                                                                       Refinitiv ESG      • CO2 equivalent emission
                                                                                                                                                                                                            direct, scope 1
                                                                                             Stage 1:                                                                                                     • Target emissions
                                                                                             INITIAL ENGAGEMENT                                                                                           • Policy emissions
                                                                                             • Reporting Emissions Impacts
                                                                                             • Reporting Policy on Emissions or Climate Change

                                                                                                                       CAPACITY TO EXECUTE

                                                                                                                                                                                                                                        6/25
The automobile
 Climate Risk Analysis
                sectorModel
                       transformation

Historical climate data is easily extracted from Eikon,
building the base for Constellation’s M2 Model

FIGURE
Figure 1616

                                     EXTRACTION OF CLIMATE DATA FROM EIKON

                                              Refinitiv ESG’s climate metrics

Source: Refinitiv Eikon, June 2020

                                                                                7/25
The automobile
                  Climate Risk Analysis
                                 sectorModel
                                        transformation

          FIGURE 17

        STAGES 3 AND 4 OF CONSTELLATION’S MATURITY CURVE MODEL FOR THE AUTO SECTOR
             FOCUS ON THE MANAGEMENT OF TRANSITION RISKS AND OPPORTUNITIES
                                                                                                                                                                      Stages 3 and 4 of the Constellation M2 Model focus
       Figure 17
                                                                                                                                                                      on granular sales and operational data on the current
                                                     Stage 4:
                                                                                                                                                                      and planned fleet of cars and light-duty vehicles in the
                                                     COMPETITIVE DIFFERENTIATION
                                                     • 2°C Pathway Alignment to 2030                                                                                  automobile sector and the emissions they produce – the
                                                     • Market Share & Sales Leadership in ZEVs & PHVs
                                                                                                            Sales, Operational,   •   MarkLines                       source of nearly 90% of total greenhouse gas (GHG)
                                                                                                                                  •   Transition Pathway Initiative
                                                                                                             and Production       •   Urgentem                        emissions impacts in the automobile sector.
                                                                                                              Forecast Data       •   Constellation
                                          Stage 3:                                                                                                                    Current and historical data reflecting the scope of product
                                          TRANSFORMING THE CORE                                                                                                       transformation, alignment with the 2°C Pathway, and
                                          •   Emission Performance of the Fleet                                                                                       leadership in ultra-low and zero-emission production and

                                                                                                                   +
                                          •   Company Projections of Alternative Drive Vehicle Sales
                                                                                                                                                                      sales are captured for each of the automobile majors.
SCOPE OF VISION

                                          •   Current Percentage of Sales from Alternative Drive Vehicles
                                          •   Company Governance Structures to Decarbonize
                                                                                                                                                                      In this way, we can assess both current firm-level maturity
                                 Stage 2:                                                                                                                             and momentum in transitioning to a decarbonized
                                 SYSTEMATIC MANAGEMENT                                                                                                                fleet, and each firm’s exposure to transition risk and
                                 • Energy Intensity of Vehicle Production
                                 • Public Emission Reduction Targets                                                                                                  opportunity. The M2 Model was designed to assess
                                 • Verification of Emissions Impacts
                                                                                                               Refinitiv ESG
                                                                                                                                                                      how incumbents in a sector - in this case, the major ICE
                                                                                                               Refinitiv ESG                                          automobile manufacturers - progress over time to take
                        Stage 1:                                                                                                                                      their large-scale operations on the innovation pathway
                        INITIAL ENGAGEMENT                                                                                                                            to decarbonization. In the analysis, we include the sector
                        • Reporting Emissions Impacts
                        • Reporting Policy on Emissions or Climate Change
                                                                                                                                                                      disruptors, such as Tesla, BYD and BAIC, which already
                                                                                                                                                                      demonstrate product innovation but must now progress on
                                                                                                                                                                      their journey to scale up production.
                                         CAPACITY TO EXECUTE

                                                                                                                                                                                                                                    8/25
Climate Risk Analysis Model - Stage 1

Stage 1 of the
                                                           FIGURE 18

                                                            THE FIRST STEP ON THE JOURNEY
transition journey:
                                                                                                                                                                                                     Stage 4:
                                                            Stage 1 - Initial Engagement on Climate Impact                                                                                           COMPETITIVE DIFFERENTIATION
                                                                                                                                                                                                     • 2°C Pathway Alignment to 2030

Initial engagement on                                       Rank      Company           Step 1

                                                                                        Reported Policy on Emissions
                                                                                                                       Step 2

                                                                                                                       Reporting Emissions Impacts
                                                                                                                                                                                                     • Market Share & Sales Leadership in ZEVs & PHVs

climate change impact                                      1         Toyota
                                                                                        – Refinitiv ESG data
                                                                                       2015 or Earlier
                                                                                                                       – Refinitiv ESG data
                                                                                                                       2015 or Earlier                                                    Stage 3:
                                                           1         Volkswagen        2015 or Earlier                 2015 or Earlier
                                                                                                                                                                                          TRANSFORMING THE CORE
                                                           1         Daimler           2015 or Earlier                 2015 or Earlier                                                    •   Emission Performance of the Fleet

                                                                                                                                                      SCOPE OF VISION
                                                           1         Hyundai           2015 or Earlier                 2015 or Earlier                                                    •   Company Projections of Alternative Drive Vehicle Sales
                                                                                                                                                                                          •   Current Percentage of Sales from Alternative Drive Vehicles
The Refinitiv data for Stage 1 – Initial engagement        1         Honda             2015 or Earlier                 2015 or Earlier                                                    •   Company Governance Structures to Decarbonize
                                                           1         Renault           2015 or Earlier                 2015 or Earlier
on climate change – indicates the first year in            1         Kia               2015 or Earlier                 Partial 2016 / Complete 2017
which the company disclosed information relevant                                                                                                                                 Stage 2:
                                                           1         Peugeot           2015 or Earlier                 2015 or Earlier
                                                                                                                                                                                 SYSTEMATIC MANAGEMENT
to each transparency milestone. For each column,           1         Nissan            2015 or Earlier                 2015 or Earlier                                           • Energy Intensity of Vehicle Production
                                                           1         Mazda             2015 or Earlier                 2015 or Earlier                                           • Public Emission Reduction Targets
the year indicates when reporting began and the                                                                                                                                  • Verification of Emissions Impacts
                                                           1         BMW               2015 or Earlier                 2015 or Earlier
green color signifies that disclosure continues to         1         Suzuki            2015 or Earlier                 Partial 2015 or Earlier
the current period. As shown in figure 18, having a        1         GM                2015 or Earlier                 2015 or Earlier
                                                                                                                                                                        Stage 1:
                                                           1         Ford              2015 or Earlier                 2015 or Earlier
policy (Step 1) is now and has been table stakes for all                                                                                                                INITIAL ENGAGEMENT
                                                           1         Mitsubishi        2015 or Earlier                 2016
major developed and almost all emerging economy            1         FCA               2015 or Earlier                 2015 or Earlier
                                                                                                                                                                        • Reporting Emissions Impacts – Refinitiv data
                                                                                                                                                                        • Reporting Policy on Emissions or Climate Change – Refinitiv data
automakers.                                                1         Isuzu             2015 or Earlier                 2015 or Earlier
                                                           1         Tata              2015 or Earlier                 2015 or Earlier
Step 2 – Reporting GHG emissions is now and has                                                                                                                                               CAPACITY TO EXECUTE
                                                           1         Subaru            2015 or Earlier                 2015 or Earlier
been standard procedure for all developed economy          1         Mahindra          2015 or Earlier                 2015 or Earlier
                                                           21        Tesla             2015 or Earlier                 Partial 2018
incumbents.
                                                           21        Geely             2015 or Earlier                 Partial 2016
                                                           21        BAIC              2016                            Partial 2017
Of note, electric vehicle “disruptors” such as Tesla in
                                                           21        BYD               2015 or Earlier                 No Reporting
the U.S. and Geely in China, are just getting started      21        Dongfeng          2015 or Earlier                 No Reporting
on the reporting and transparency agenda, despite          21        GAC               2015 or Earlier                 Partial 2018
their product innovations. This may reflect their          27        Great Wall        No Policy                       No Reporting

relative management maturity, as well as emerging
governance practices in the APEC region.                   Best                                                                         Worst

                                                           Source: Constellation, Refinitiv ESG, and Urgentem 2020

                                                                                                                                                                                                                                                            9/25
Climate Risk Analysis Model - Stage 2

                                          - Stage 2

Stage 2: Building the                                     FIGURE 19

                                                          THE NEXT STEP UP THE CURVE
capacity for systematic
                                                                                                                                                                                                                        Stage 4:
                                                           Stage 2 - Building the Capacity for Systematic Management of Climate Impacts                                                                                 COMPETITIVE DIFFERENTIATION
                                                                                                                                                                                                                        • 2°C Pathway Alignment to 2030

management of climate
                                                                               Step 3                             Step 4                         Step 5
                                                                                                                                                                                                                        • Market Share & Sales Leadership in ZEVs & PHVs
                                                           Rank    Company     Verification of Emissions          Public Emissions Reduction     Emissions Intensity
                                                                               Impacts – Refinitiv ESG data       Targets – Refinitiv ESG data   of Vehicle Production

change impacts                                            1
                                                          2
                                                                  Peugeot
                                                                  Renault
                                                                               Partial 2015 / Complete 2017
                                                                               2015 or Earlier
                                                                                                                  2015 or Earlier
                                                                                                                  2015 or Earlier
                                                                                                                                                 100
                                                                                                                                                 97
                                                                                                                                                                                                             Stage 3:
                                                          3       Tata         2015 or Earlier                    2015 or Earlier                95
                                                                                                                                                                                                             TRANSFORMING THE CORE
                                                          4       BMW          2015 or Earlier                    2015 or Earlier                95                                                          •   Emission Performance of the Fleet

                                                                                                                                                                         SCOPE OF VISION
                                                          5       Kia          2018                               2015 or Earlier                94                                                          •   Company Projections of Alternative Drive Vehicle Sales
                                                                                                                                                                                                             •   Current Percentage of Sales from Alternative Drive Vehicles
As companies mature into Stage 2, they recognize          6       Mahindra     2015 or Earlier                    2015 or Earlier                93                                                          •   Company Governance Structures to Decarbonize

and respond to the need for greater transparency on       7       Mazda        Partial Pre 2015 / Complete 2017   2015 or Earlier                91
                                                          8       Isuzu        2016                               2015 or Earlier                89
key issues including external verification of complete                                                                                                                                              Stage 2:
                                                          9       Nissan       2015 or Earlier                    2015 or Earlier                81
                                                                                                                                                                                                    SYSTEMATIC MANAGEMENT
emissions reporting, publicly announced improvement       10      Hyundai      Partial Pre 2015 / Complete 2017   2015 or Earlier                80                                                 • Energy Intensity of Vehicle Production
targets, and progress on becoming more energy-            11      GM           2015 or Earlier                    2015 or Earlier                78                                                 • Public Emission Reduction Targets
                                                                                                                                                                                                    • Verification of Emissions Impacts
                                                          12      VW           2015 or Earlier                    2015 or Earlier                73
efficient operators.
                                                          13      Toyota       2015 or Earlier                    2015 or Earlier                71

As the data indicate, Verification of emissions impacts   14      FCA          2015 or Earlier                    2015 or Earlier                70                                        Stage 1:
(Step 3) has also become a sector norm among
                                                          15      Ford         Partial Pre 2015 / Complete 2017   2015 or Earlier                66                                        INITIAL ENGAGEMENT
                                                          16      Honda        2015 or Earlier                    2015 or Earlier                52                                        • Reporting Emissions Impacts
the automobile majors. Figure 19 reports the year         17      Daimler      2015 or Earlier                    2015 or Earlier                51
                                                                                                                                                                                           • Reporting Policy on Emissions or Climate Change

verification began and the color reflects the current     18      Subaru       Partial 2018                       2015 or Earlier                78

status, with those in green having complete and           19      Suzuki       No Verification                    2015 or Earlier                96                                                               CAPACITY TO EXECUTE
                                                          20      Mitsubishi   No Verification                    2015 or Earlier                93
verified scopes 1, 2 and 3 emissions reported.            21      BAIC         No Verification                    No Targets                     50
                                                          22      Geely        No Verification                    2015 or Earlier                0
                                                          22      BYD          No Verification                    2017                           0
                                                          22      Dongfeng     No Verification                    2017                           0
                                                          25      Tesla        No Verification                    No Targets                     39
                                                          26      GAC          No Verification                    No Targets                     0
                                                          26      Great Wall   No Verification                    No Targets                     0

                                                          Best                                                                                         Worst

                                                          Source: Constellation, Refinitiv ESG, and Urgentem 2020

                                                                                                                                                                                                                                                                           10/25
Climate Risk Analysis Model - Stage 2

On Step 4 – Public emissions reduction targets – all
major original equipment manufacturers (OEMs) have
at least near-term targets. Here too, APEC firms and
disruptors such as Tesla are generally less mature in
their reporting, despite the disruptors’ obvious market-
leading emissions performance.
While energy consumption and related manufacturing
emissions, Step 5 – Emissions intensity of vehicle
production, only account for approximately 10% of
the total automobile sector footprint, some OEMs,
such as BMW, have invested in reducing their energy
intensity. Other OEMs’ products simply require less

                                                           “Transparency was the starting point
energy to produce on a unit basis, such as Tata and
Mahindra. Others have low-emissions intensities due
to production location, such as Renault and Peugeot
in France which utilizes low-carbon electricity. While       but managing climate impact is about
accurate performance on this factor may not represent
a real difference in management maturity, the data are
                                                             transformation”
useful to see the range in intensity.
As Schroder’ Global Head of Sustainable Investment
Andrew Howard points out, transparency and
disclosure are the starting points for firms making the
journey to a sustainable future, but the challenge has                 Andrew Howard
now shifted to transformation. For Howard, getting                     Global Head of Sustainable Investment, Schroders
a read on transformation is critical. Read the full
interview with Andrew Howard here.

                                                                                                                          11/25
Prospects
 Climate Risk
            forAnalysis
                the future
                        Model - Stage 3

Stage 3: Transforming the
                                                             FIGURE 20

                                                              MANAGING CLIMATE IMPACT
core – strategy becomes
                                                                                                                                                              Stage 4:
                                                              TAKES SHAPE                                                                                     COMPETITIVE DIFFERENTIATION
                                                                                                                                                              • 2°C Pathway Alignment to 2030

execution in the drive to                                     Stage 3 - Transforming the Core

                                                                                   Step 6
                                                                                                                                                              • Market Share & Sales Leadership in ZEVs & PHVs

decarbonize                                                   Rank    Company      Company Governance
                                                                                   Structures to Decarbonize                                       Stage 3:
                                                              1      VW           100.0                                                            TRANSFORMING THE CORE
                                                              1      BMW          100.0                                                            •   Emission Performance of the Fleet

                                                                                                               SCOPE OF VISION
                                                                                                                                                   •   Company Projections of Alternative Drive Vehicle Sales
                                                              3      Renault      97.4                                                             •   Current Percentage of Sales from Alternative Drive Vehicles
Stage 3 of the maturity curve is focused on metrics that      4      Mahindra     75.0                                                             •   Company Governance Structures to Decarbonize

indicate the level of ambition and progress on executing a    5      Nissan       62.5
                                                              6      Hyundai      53.6                                                    Stage 2:
transition strategy, and Stage 4 gauges current and future    6      Kia          53.6
                                                                                                                                          SYSTEMATIC MANAGEMENT
competitiveness in the emerging sustainable auto maker        8      Tata         51.3                                                    • Energy Intensity of Vehicle Production
race.                                                         9      GM           51.1                                                    • Public Emission Reduction Targets
                                                                                                                                          • Verification of Emissions Impacts
                                                              10     Peugeot      51.0
                                                              11     FCA          50.3
                                                              12     Daimler      50.2                                           Stage 1:
                                                              13     Tesla        50.0                                           INITIAL ENGAGEMENT
                                                              13     Ford         50.0                                           • Reporting Emissions Impacts
                                                                                                                                 • Reporting Policy on Emissions or Climate Change
                                                              13     Honda        50.0
                                                              13     Mazda        50.0
                                                              17     Toyota       25.0                                                                 CAPACITY TO EXECUTE
                                                              17     Isuzu        25.0
                                                              19     Geely        0.0
                                                              19     BYD          0.0
                                                              19     Suzuki       0.0
                                                              19     GAC          0.0
                                                              19     BAIC         0.0
                                                              19     Mitsubishi   0.0
                                                              19     Subaru       0.0
                                                              19     Dongfeng     0.0
                                                              19     Great Wall   0.0

                                                             Best                                                                   Worst

                                                             Source: Constellation, 2020
                                                                                                                                                                                                                     12/25
Climate Risk Analysis Model - Stage 3

Step 6: Evolving governance to support changing priorities                    It is becoming standard practice among the major automakers to establish
Progress on climate impact management in the automobile sector                governance policy that supports the decarbonization agenda by:
requires the transformation of core processes, including supplier             1. Linking executive compensation to achieving climate goals.
networks, manufacturing processes, and most importantly, product
innovation to achieve decarbonization.                                        2. Using an internal price on carbon as a planning mechanism.

Stage 3 metrics reveal the scope of progress and contribute to                3. Supporting a strong climate policy.
understanding the transition risks and opportunities for each firm. The       Among the organizations that now stand at the top of the sector on
major automakers performing well on Stage 3 metrics, as a whole, likely       climate-related governance are:
will have less transition risk and increased exposure to business benefits
from the decarbonization opportunity.                                         1.	VW, making a comeback from diesel-gate, along with BMW
                                                                                  and Renault.
Step 6 – Company governance structures to decarbonize
                                                                              2.	Toyota and most Japanese OEMs have historically not reported
An early and important signal to the organization regarding the case for          utilizing (or have not utilized) these change mechanisms, aside
change among the traditional ICE automakers is changes in corporate               from Nissan showing moderate performance.
governance that reflect the strategic priority of managing climate impacts.
While the disruptors (companies challenging the incumbents with product       Like emissions transparency, many companies in emerging markets
innovation) may have less need for these change management tools, the         do not have as strong or transparent governance structures despite
incumbents need to drive change.                                              leadership on decarbonization.

                                                                                                                                                         13/25
Prospects
 Climate Risk
            forAnalysis
                the future
                        Model - Stage 3

Step 7: Gaining experience in building and selling                           FIGURE 21

alternative drive vehicles                                                    MANAGING CLIMATE IMPACT                                                                               Stage 4:
Transforming the core in the auto sector is about product innovation – and    TAKES SHAPE                                                                                           COMPETITIVE DIFFERENTIATION
                                                                                                                                                                                    • 2°C Pathway Alignment to 2030
in the next step up the maturity curve, we observe the degree to which        Stage 3 - Transforming the Core                                                                       • Market Share & Sales Leadership in ZEVs & PHVs

each automaker is delivering product innovation that reduces climate                               Step 7
impacts. The Stage 3, Step 7 metric measures current sales of alternative     Rank    Company      Current Percentage of Sales
drive vehicles, including HVs, PHVs and ZEVs, by assessing the degree                              from Alternative Drive Vehicles                                       Stage 3:
to which the automakers have successfully integrated alternative drive          1    Tesla        100.0                                                                  TRANSFORMING THE CORE
                                                                                1    BYD          100.0                                                                  •   Emission Performance of the Fleet

                                                                                                                                     SCOPE OF VISION
vehicles into their product lines and built an experience base with these       3    BAIC         49.1
                                                                                                                                                                         •   Company Projections of Alternative Drive Vehicle Sales
                                                                                                                                                                         •   Current Percentage of Sales from Alternative Drive Vehicles
vehicles. The scoring generates points for each automaker based on the          4    GAC          33.3                                                                   •   Company Governance Structures to Decarbonize
                                                                                5    Toyota       10.1
percentage of 2019 production among ZEVs, PHVs and HVs, with the
                                                                                6    Geely        7.5                                                           Stage 2:
highest unit value given to ZEV, then PHVs and HVs, respectively. Not           7    BMW          6.5
                                                                                                                                                                SYSTEMATIC MANAGEMENT
surprisingly, the disruptors are in the lead. Tesla and BMW are the only        8    Great Wall   5.7                                                           • Energy Intensity of Vehicle Production
                                                                                                                                                                • Public Emission Reduction Targets
makers outside of the APEC companies to be among the top 10 leaders             9    Nissan       5.4
                                                                                                                                                                • Verification of Emissions Impacts
                                                                               10    Dongfeng     5.0
on delivering alternative drive vehicles.                                      11    Kia          4.5

1.	Except for Tesla, EVs have been largely produced and sold in APEC.         12    Mitsubishi   4.0                                                  Stage 1:
                                                                               13    Honda        3.7                                                  INITIAL ENGAGEMENT
                                                                               14    Hyundai      3.5
2.	Toyota, though the long-term leader in HVs, has sold relatively few                                                                                • Reporting Emissions Impacts
                                                                                                                                                       • Reporting Policy on Emissions or Climate Change
                                                                               15    Tata         3.0
    EV products.                                                               16    Renault      2.9
                                                                               17    Suzuki       2.1
3.	Chinese automobile makers – BYD, BAIC, GAC and Geely – are                 18    GM           2.0
                                                                                                                                                                             CAPACITY TO EXECUTE

    positioned to become major alternative drive vehicle producers.            18    Subaru       2.0
                                                                               20    Daimler      1.9
4.	Among the majors, Ford, GM, VW, Daimler and FCA are still selling very     21    VW           1.6
    small numbers of alternative drive vehicles.                               22    Ford         0.9
                                                                               23    Peugeot      0.6
                                                                               24    FCA          0.2
                                                                               25    Mazda        0.1
                                                                               26    Mahindra     0.0
                                                                               26    Isuzu        0.0

                                                                             Best                                                                          Worst

                                                                             Source: Constellation, 2020

                                                                                                                                                                                                                                           14/25
Climate Risk Analysis Model - Stage 3

A closer look at production breakouts
    A CLOSER LOOK AT SOME OF THE ACTUAL PRODUCTION BREAKOUTS
FIGURE 22
  #1    Tesla                #2        BYD                #3       BAIC            #4       GAC                 #5      Toyota             #6      Geely            #7        BMW
                                                                           15.4%                  10.5%                          15.1%              2.6%     3.5%      1.7%           4.0%   While disruptors such as Tesla, BYD,
                                                      31.5%                                              0.5%                       0.5%                                                     BAIC and GAC have material alternative
                           53.1%                                                                                                   0.05%
                                                                                                                                                                                             drive vehicles sales, and a few of the
                                                                                                                                                                                             incumbents have significant hybrid
           100.0%                               15.4%              84.6%                    89.0%                       84.4%                      93.9%                      94.3%          production experience, the market remains
                                                                                                                                                                                             overwhelmingly dominated by ICE vehicles.
  #8 Great Wall              #9    Nissan                 #10 Dongfeng             #11       Kia                #12 Mitsubishi             #13 Honda                #14 Hyundai              Figure 22 shows where the transformation
           3.5%                    4.1%        1.8%             3.13%      0.02%         3.3%     0.9%           0.5%   0.1%    3.6%               5.4%     0.1%              1.8% 1.3%
                    0.1%
                                                                                                         1.0%                                                                         0.2%
                                                                                                                                                                                             journey is and how far there is to go.
                                                                                                                                                             0.2%
                                                                                                                                                                                             Companies are ranked based on their
                                                                                                                                                                                             scoring for Step 7, the current percentage
                                                                                                                                                                                             of sales from alternative drive vehicles. In
           96.4%                        94.2%                     96.84%                    94.8%                       95.8%                      94.3%                      96.7%
                                                                                                                                                                                             this step, ZEV sales are weighted greater
                                                                                                                                                                                             than PHV sales, which in turn are weighted
  #15      Tata              #16 Renault                  #17     Suzuki           #18       GM                 #19     Subaru             #20 Daimler              #21       VW
           1.6%                         1.8%                    3.2%       0.01%     0.1%       1.1%     0.1%            2.7%    0.3%              0.7%                       0.7%           greater than HV sales.
    0.1%            0.4%                                                                                                                    0.1%            0.9%    0.001%            0.5%

           97.9%                       98.2%                       96.8%                    98.7%                        97.0%                     98.4%                      98.8%

  #22      Ford              #23 Peugeot                  #24      FCA             #25 Mazda                    #26 Mahindra               #27     Isuzu
            1.2% 0.2%          0.01%           0.20%            0.12%   0.04%                0.1%                        0.01%
                                                                                                                                                                              = ZEV
0.0002%                                                                                                                                                                       = HV
                                                                                                                                                                              = PHV
                                                                                                                                                                              = ICE
           98.6%                       99.79%                      99.84%                   99.9%                       99.9%                      100.0%

Source: MarkLines Data; Constellation Analysis

                                                                                                                                                                                                                                            15/25
Climate Risk Analysis Model - Stage 3

Step 8: Emissions performance of the sold fleet – where                      FIGURE 23

the rubber meets the road                                                      MANAGING CLIMATE IMPACT                                                                        Stage 4:
The critical indicator of progress is what comes out of the aggregate          TAKES SHAPE                                                                                    COMPETITIVE DIFFERENTIATION
                                                                                                                                                                              • 2°C Pathway Alignment to 2030
tailpipes of each automaker’s fleet. This calculation is made up of the        Stage 3 - Transforming the Core                                                                • Market Share & Sales Leadership in ZEVs & PHVs

grams of CO2 per kilometer of the 2019 sold fleet of each automaker                                 Step 8
(Step 8), which provides the most relevant benchmark to assess the             Rank    Company      Emissions Performance of
size of the gap between where companies are today and where they                                    the Fleet                                                      Stage 3:
will need to go to meet the decarbonization challenge.                           1    Tesla        100.0                                                           TRANSFORMING THE CORE
                                                                                 1    BYD          100.0                                                           •   Emission Performance of the Fleet

                                                                                                                               SCOPE OF VISION
                                                                                                                                                                   •   Company Projections of Alternative Drive Vehicle Sales
                                                                                 1    BAIC         100.0
Key observations:                                                                                                                                                  •   Current Percentage of Sales from Alternative Drive Vehicles
                                                                                 1    Geely        100.0                                                           •   Company Governance Structures to Decarbonize

1.	The disruptors (EV leader Tesla, plus the group of APEC innovators           5    Suzuki       92.9
                                                                                 6    Peugeot      80.4                                                   Stage 2:
    including BYD, BAIC and Geely) are as expected at the top of the             7    GAC          75.0
                                                                                                                                                          SYSTEMATIC MANAGEMENT
    chart.                                                                       8    Toyota       74.4                                                   • Energy Intensity of Vehicle Production
                                                                                 9    Renault      72.4                                                   • Public Emission Reduction Targets
2.	Most of the top 10 leaders on emissions performance of the sold             10    Hyundai      63.2
                                                                                                                                                          • Verification of Emissions Impacts

    fleet achieve their results by building a large percentage of smaller,      11    Kia          59.4
                                                                                12    Honda        58.1                                          Stage 1:
    fuel-efficient ICE vehicles. Suzuki, Peugeot and Renault do not
                                                                                13    Mazda        54.9
    have significant current sales of alternative drive vehicles and may                                                                         INITIAL ENGAGEMENT
                                                                                14    Nissan       54.6                                          • Reporting Emissions Impacts
    have difficulty extending fleet emissions gains without significant         15    VW           52.7                                          • Reporting Policy on Emissions or Climate Change

    technology advances.                                                        16    Daimler      52.3
                                                                                17    BMW          46.7
                                                                                                                                                                       CAPACITY TO EXECUTE
3.	Toyota’s long success with hybrids puts it towards the top of               18    Mitsubishi   36.4
                                                                                19    GM           36.2
    the major automakers, but will the company’s dominance and
                                                                                20    Subaru       22.4
    commitment to this older technology be a help or barrier to true EV         21    Ford         16.0
    leadership?                                                                 22    Great Wall   1.8
                                                                                23    Dongfeng     1.6
4.	Near the bottom are well-known brands such as Subaru, Ford and              24    Tata         0.9
    FCA that generally lack the technology and production experience            25    Mahindra     0.0
                                                                                25    FCA          0.0
    with alternative vehicles. Without significant new investments and          25    Isuzu        0.0
    partnerships with innovators, they have a long, steep climb ahead.

                                                                             Best                                                                    Worst
                                                                             Source: Constellation, 2020

                                                                                                                                                                                                                                     16/25
Climate Risk Analysis Model - Stage 3

Step 9: Setting future targets for alternative vehicle                     FIGURE 24
production – where the rubber meets the sky                                 MANAGING CLIMATE IMPACT                                                                            Stage 4:
Step 9 – Company projections for future alternative drive vehicle           TAKES SHAPE                                                                                        COMPETITIVE DIFFERENTIATION
                                                                                                                                                                               • 2°C Pathway Alignment to 2030
sales                                                                       Stage 3 - Transforming the Core                                                                    • Market Share & Sales Leadership in ZEVs & PHVs

                                                                                                 Step 9
A clear indicator of increasing maturity in managing climate risk is
                                                                            Rank    Company
the strength and clarity of publicly disclosed plans to shift production                         Current Projections For
                                                                                                 Alternative Drive Production                                       Stage 3:
of alternative drive vehicles (Step 9). We have developed a rule-             1    Tesla        100.0                                                               TRANSFORMING THE CORE
based quantitative method to assess the announced plans from the              1    BAIC         100.0                                                               •   Emission Performance of the Fleet

                                                                                                                                SCOPE OF VISION
                                                                                                                                                                    •   Company Projections of Alternative Drive Vehicle Sales
automakers for production and sales of new and existing alternative           1    VW           100.0                                                               •   Current Percentage of Sales from Alternative Drive Vehicles
                                                                              4    Daimler      77.8                                                                •   Company Governance Structures to Decarbonize
drive vehicles. As previously calculated, the ranking considers the           5    Geely        68.1
type of vehicles being forecast (HV, PHV and ZEV), the specificity            6    Honda        57.6                                                       Stage 2:
of volumes and time frame of the forecast. The highest weight is              7    Toyota       56.5
                                                                                                                                                           SYSTEMATIC MANAGEMENT
                                                                              8    Mazda        41.7
given to ZEVs, PHVs and HVs, respectively, while shorter timelines                                                                                         • Energy Intensity of Vehicle Production
                                                                                                                                                           • Public Emission Reduction Targets
                                                                              9    Hyundai      37.6
of production and sales are also weighted higher than long-term              10    Kia          36.9
                                                                                                                                                           • Verification of Emissions Impacts

projections.                                                                 11    Ford         30.5
                                                                             12    BMW          29.7                                              Stage 1:
                                                                             13    Renault      22.7
                                                                                                                                                  INITIAL ENGAGEMENT
                                                                             14    GAC          22.3                                              • Reporting Emissions Impacts
                                                                             15    Nissan       20.6                                              • Reporting Policy on Emissions or Climate Change

                                                                             16    Dongfeng     18.7
                                                                             17    Peugeot      13.5
                                                                                                                                                                        CAPACITY TO EXECUTE
                                                                             18    FCA          13.4
                                                                             19    GM           11.8
                                                                             20    Mahindra     7.1
                                                                             21    Subaru       4.6
                                                                             22    Mitsubishi   4.4
                                                                             23    Tata         3.2
                                                                             24    Suzuki       2.4
                                                                             25    BYD          0.0
                                                                             25    Isuzu        0.0
                                                                             25    Great Wall   0.0

                                                                           Best                                                                       Worst
                                                                           Source: Constellation, 2020

                                                                                                                                                                                                                                      17/25
Climate Risk Analysis Model - Stage 3

Looking at the relationship between planned versus actual sales of               FIGURE
                                                                                 Figure 2525
alternative drive vehicles, we can make some key observations:
                                                                                                               ALTERNATIVE DRIVE VEHICLES: 2019 PROJECTIONS & SALES
1.	Among the ICE majors, VW and Daimler are making the strongest
    commitment to a relatively rapid fleet-wide transformation, but are
    starting from a relatively low base of alternative drive experience.                                                            #1                                                                                            #2
    Given the recent market turmoil due to the COVID-19 pandemic                                                                                                                                                             BAIC Tesla
    shutdown, careful attention should be paid to plan changes from these                                                                   VW                      100

    would-be alternative drive leaders.

                                                                               COMPANY PROJECTIONS OF ALTERNATIVE
2.	Tesla and BAIC are fully committed to ZEV, but can they profitably                                                           Daimler
                                                                                                                                                                    80
    scale up production?
                                                                                                                                                                                                     #3

                                                                                      DRIVE VEHICLE SALES
                                                                                                                                                                                        Geely
3.	Toyota, the most experienced alternative drive automobile major, has                                                                         Honda

    not yet asserted its future leadership strategy and plans in the ZEV                                                                                            60
                                                                                                                                                                                            Toyota
    market.                                                                                                                                                                                                        //        //        //
                                                                                                                    0               2      Hyundai 4                      6             8            10                 35        50        100
                                                                                                                                                              KIA
4.	Among the incumbents, FCA, GM, Subaru and Mitsubishi are near                                                        Mazda                                      40

    the bottom of the laggard quadrant in terms of both current sales of                                                          Ford
                                                                                                                                                         Renault                  BMW
    alternative drive vehicles and announced plans for fleet transformation,                                                              #4                                                    Dongfeng
                                                                                                                        FCA                        Nissan
    posing especially significant transition risks. While some are beginning                                                    Peugeot
                                                                                                                                                                    20
                                                                                                                                                       GM                                                              GAC
    to invest more heavily (e.g., Ford), there is a big gap to close on                                                        Suburu                    Mitsubishi                                                                    #5
                                                                                                                         Mahindra                                                                         Great Wall
    decarbonization execution.                                                                                                      Suzuki
                                                                                                                         Isuzu                         Tata          0                                                                 BYD
5.	Disruptors like BYD are already bringing many alternative drive
    vehicles to market, but their projections are unknown.                                                                 CURRENT PERCENTAGE OF SALES FROM ALTERNATIVE DRIVE VEHICLES

                                                                                                                        CHINA           FRANCE      GERMANY               INDIA     JAPAN       SOUTH KOREA       ITALY/U.S.                 U.S.

                                                                                   Source: MarkLines Data; Constellation Analysis

                                                                                                                                                                                                                                                    18/25
Climate Risk Analysis Model - Stage 3

As automakers begin to execute on their projections, increasing their
sales of alternative drive vehicles, it is important to understand the
total life cycle emissions of their fleets
As figure 26 shows, petrol and diesel ICE vehicles emit     Figure 26
                                                            FIGURE  26
much greater CO2 than electric vehicles, but how much             TODAY PETROL AND DIESEL CARS EMIT ALMOST 3 TIMES
greater depends heavily on the carbon intensity of the
                                                                  MORE CO₂ THAN THE AVERAGE EU ELECTRIC CAR
electricity that charges an EV. Taking battery production
into account, a vehicle charged in Poland is emitting 3.5   300
times more CO2 than one charged on the cleaner energy                                                                          Driving (fuel/electricity production and use)
grid in Sweden.                                                                                                                Car production
                                                                                                                               Battery production
Realizing the full potential benefit of electrification
                                                                                                                               CO₂ emissions in 2030
will require transforming our electricity generation        200
and distribution system. Progress on this front varies                               -29%*
significantly within and across country boundaries.

                                                                                                  -56%    -57%      -58%
                                                            100                                                            -62%                                                   -63%
                                                                                                                                         -65%     -67%
                                                                                                                                                              -77%        -79%

                                                              0

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                                                                                      l                                               gi        Sp                     ed

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                                                              SCENARIO WHERE AVERAGE EU ELECTRICITY IS USED TO PRODUCE THE BATTERIES AND THE CARS

                                                              *CO₂ savings compared to the average of both diesel and petrol emissions          Souce: transev.eu/lca

                                                              Source: Transport & Environment, 2020
                                                                                                                                                                                         19/25
Climate Risk Analysis Model - Stage 3

As EV, PHV and HV growth
continues, so will battery                                                             FIGURE 27

recovery, reuse and recycling                                                                                 ELECTRIC-VEHICLE (EV) BATTERY LIFE CYCLE, ILLUSTRATIVE

EV performance standards usually require batteries to retain 80% of                                                    New battery                                                Battery
their total usable capacity. Once they fall below this threshold, they can            When an EV battery                     pack                                                 manufacturing
still be reused to provide significant value for stationary energy storage            can no longer meet
                                                                                      its performance
markets where less-frequent cycling is required. From grid storage to data            requirement, it is
center backup power to EV charging stations, second-life applications                 replaced by a new                      Electric
                                                                                      battery pack. The                      vehicle
for EV batteries will continue to expand alongside the EV market. Current
                                                                                      used battery pack
estimates have second-life batteries lasting for an additional 7-10 years.            is removed from
For batteries that cannot be reused, recycling is the next best thing.                the car for one of                                                                                              Recycling Packs can
                                                                                      three destinations.                                                                         Raw-material
Though current recycling rates are only at 50%, new innovative processes,                                             Used battery                                                                    be processed to
                                                                                                                                                                                  extraction and
                                                                                                                             pack                                                                     extract valuable
such as the one developed by Fortum with a recovery rate of 80%, show                                                                                                             reprocessing
                                                                                                                                                                                                      rare-earth materials.
promise for the future.1

                                                                                      Disposal If packs
                                                                                                                                                                                              Recycling Packs can be
                                                                                      are damaged or in
                                                                                                                                                                                              repurposed for a
                                                                                      regions without
                                                                                                                                                                                              second-life application in
                                                                                      proper market
                                                                                                                                                                                              energy-storage services
                                                                                      structures or
                                                                                                                                                                                              that is suitable to their
                                                                                      regulations, packs               Junkyard            Battery              second-life application
                                                                                                                                                                                              reduced performance
                                                                                      may be thrown away.                               refurbishing             in stationary strorage1
                                                                                                                                                                                              capabilities.
                                                                                                                                         company

                                                                                       1 Eg, improve grid performance, integrate renewables, charge EVs, etc.
                                                                                       Source: Expert interviews; market research reports; McKinsey analysis

                                                                                       Source: McKinsey & Company, 2020
1 https://www.fortum.com/products-and-services/fortum-battery-solutions/recycling/
   lithium-ion-battery-recycling-solution

                                                                                                                                                                                                                              20/25
Climate Risk Analysis Model - Stage 4

Stage 4: Competitive                                                               FIGURE 28

                                                                                    REALIZING SUSTAINABLE VALUE
differentiation on decarbonization
                                                                                                                                                                                              Stage 4:
                                                                                    Stage 4 - Competitive Differentiation on Decarbonization                                                  COMPETITIVE DIFFERENTIATION
                                                                                                                                                                                              • 2°C Pathway Alignment to 2030

– realizing sustainable value                                                                            Step 10

                                                                                                         Market Share
                                                                                                                            Step 11

                                                                                                                            2°C Pathway
                                                                                                                                                                                              • Market Share & Sales Leadership in ZEVs & PHVs

                                                                                    Rank    Company      & Sales            Alignment to
Companies that score well on the Stage 4 criteria are positioned to realize                              Leadership in      2030
                                                                                                         ZEVs & PHVs                                                               Stage 3:
enhanced business value as the vehicle marketplace decarbonizes.                                                                                                                   TRANSFORMING THE CORE
                                                                                      1    Tesla        100.0              100.0
                                                                                                                                                                                   •   Emission Performance of the Fleet

                                                                                                                                               SCOPE OF VISION
Step 10: Capturing market share and sales growth from ZEVs                            2    BYD          100.0              100.0                                                   •
                                                                                                                                                                                   •
                                                                                                                                                                                       Company Projections of Alternative Drive Vehicle Sales
                                                                                                                                                                                       Current Percentage of Sales from Alternative Drive Vehicles
                                                                                      3    BAIC         47.7               100.0
and PHVs                                                                              4    Geely        37.3               100.0
                                                                                                                                                                                   •   Company Governance Structures to Decarbonize

While company market share and sales rankings (Step 10) are important                 5    VW           30.1               92.8
                                                                                      6    GAC          20.6               100.0                                          Stage 2:
indicators of the ability to compete, they represent leadership in the currently      7    Daimler      12.5               100.0                                          SYSTEMATIC MANAGEMENT
small market for PHVs and ZEVs. Also, they may not indicate whether firms             8    Hyundai      16.0               96.1
                                                                                                                                                                          • Energy Intensity of Vehicle Production
                                                                                                                                                                          • Public Emission Reduction Targets
have the capacity to scale up production as the alternative drive market grows        9    Renault      14.0               94.4                                           • Verification of Emissions Impacts
                                                                                     10    Peugeot      1.8                100.0
to become a major component of total sales.
                                                                                     11    Nissan       19.9               83.4
                                                                                                                                                                 Stage 1:
Step 11: Alignment with the 2°C Pathway                                              12
                                                                                     13
                                                                                           Mazda
                                                                                           Kia
                                                                                                        0.0
                                                                                                        13.8
                                                                                                                           97.7
                                                                                                                           84.0                                  INITIAL ENGAGEMENT
The top 10 companies in green are on or will be on the pathway to 2°C GHG            14    Toyota       14.5               82.8
                                                                                                                                                                 • Reporting Emissions Impacts
                                                                                                                                                                 • Reporting Policy on Emissions or Climate Change
emissions alignment if publicly announced plans are successfully executed.           15    BMW          38.5               57.7
                                                                                     16    Honda        4.4                85.7
1.	Step 11 measures fleet emissions alignment with the goals of the Paris           17    Suzuki       0.0                74.8                                                           CAPACITY TO EXECUTE
                                                                                     18    GM           21.5               40.4
    accord’s 2°C pathway, assessing whether each company’s sold fleet is
                                                                                     19    Mitsubishi   15.2               29.5
    decarbonizing over time in a manner consistent a 2°C world. It is a critical     20    Subaru       1.0                19.1
    barometer of company performance against planetary boundaries.                   21    Dongfeng     10.1               3.5
                                                                                     22    Great Wall   12.2               1.8
2.	Step 11 utilizes the trend in emissions levels of sold fleets. Companies in      23    Tata         6.7                1.0
    yellow, and even more so in red, will need to increase their commitment to       24    FCA          1.9                4.0
                                                                                     25    Ford         2.7                0.0
    decarbonization to make the transition to alignment with the 2°C pathway.        26    Mahindra     0.0                0.0
                                                                                     27    Isuzu        0.0                0.0
3.	Peugeot is an outlier in the green category in that its trajectory on a
    2°C pathway is based on its high MPG ICE fleet, not their success with
    alternative drive vehicles. It remains to be seen whether it can develop the   Best                                                                          Worst

    competency in alternative drive vehicles to remain on a 2°C pathway.           Source: Constellation, 2020
                                                                                                                                                                                                                                                     21/25
Climate Risk Analysis Model - Stage 4

Integrating the stages to reveal
Maturity and Momentum

Figure 29 brings the M2 analysis together into one view. Looking at overall
M2 scores, many of the disruptors are at the top of the chart because of
the extremely strong decarbonization performance factors in Stages 3 and
4 of the maturity curve. While the challenge for the Incumbents is to climb
up the maturity curve, the disruptors start with the decarbonized product
innovation and will need to work their way down the curve as they add policy,
disclosure, and governance to their capability set.

                                                                                22/25
Maturity and momentum

FIGURE 29
CONSTELLATION’S COMPLETE AUTOMOBILE SECTOR MATURITY CURVE

CONSTELLATION’S AUTOMOBILE SECTOR MATURITY MODEL 2019
 Stage 3 –           Stage 1 –                          Stage 2 –                                           Stage 3 –                                                                 Stage 4 –
 Transforming        Initial Engagement on              Building the Capacity for Systematic                Transforming Business Operations/Products to                              Competitive Differentiation
 the Core            Climate Change                     Management of Climate Impacts                       Drive Fundamental Changes in Climate Impacts                              on Decarbonization

                     Step 1             Step 2          Step 3             Step 4              Step 5       Step 6            Step 7              Step 8          Step 9              Step 10            Step 11       Maturity   Momentum
                                                                                                                                                                                                                       Score      Score
                     Reported Policy    Reporting       Verification of    Public Emissions    Emissions    Company           Current             Emissions       Company             Market Share &     2°C Pathway
                     on Emissions       Emissions       Emissions          Reduction           Intensity    Governance        Percentage          Performance     Projections for     Sales Leadership   Alignment
 Rank   Company      or Climate         Impacts –       Impacts –          Targets –           of Vehicle   Structures to     of Sales from       of the Fleet    Alternative Drive   in ZEVs and        to 2030
                     Change –           Refinitiv ESG   Refinitiv ESG      Refinitiv ESG       Production   Decarbonize       Alternative Drive                   Production          PHVs
                     Refinitiv ESG      data            data               data                                               Vehicles
                     data
  1     Tesla        100               25               0                  0                   39           50.0             100                  100             100                 100                100           83.8       1.8
  2     BYD          100               0                0                  100                 0            0                100                  100             0                   100                100           70.0       0
  3     BAIC         100               25               0                  0                   50           0                49.1                 100             100                 47.7               100           65.2       3.6
  4     VW           100               100              100                100                 73           100              1.6                  52.7            100                 30.1               92.8          62.2       8.0
  5     Renault      100               100              100                100                 97           97.4             2.9                  72.4            22.7                14.0               94.4          57.8       6.2
  6     Toyota       100               100              100                100                 71           25.0             10.1                 74.4            56.5                14.5               82.8          54.5       5.7
  7     Peugeot      100               100              100                100                 100          51.0             0.6                  80.4            13.5                1.8                100           54.1       5.0
  8     Daimler      100               100              100                100                 51           50.2             1.9                  52.3            77.8                12.5               100           54.0       6.1
   9    Hyundai      100               100              100                100                 80           53.6             3.5                  63.2            37.6                16.0               96.1          53.9       8.5
  10    Geely        100               25               0                  100                 0            0                7.5                  100             68.1                37.3               100           53.4       6.2
  11    Kia          100               100              100                100                 94           53.6             4.5                  59.4            36.9                13.8               84.0          51.9       10.1
  12    BMW          100               100              100                100                 95           100              6.5                  46.7            29.7                38.5               57.7          51.6       3.7
  13    Mazda        100               100              100                100                 91           50.0             0.1                  54.9            41.7                0                  97.7          50.6       7.1
  14    Honda        100               100              100                100                 52           50.0             3.7                  58.1            57.6                4.4                85.7          50.3       7.7
  15    Nissan       100               100              100                100                 81           62.5             5.4                  54.6            20.6                19.9               83.4          50.2       4.3
  16    GAC          100               25               0                  0                   0            0                33.3                 75.0            22.3                20.6               100           43.8       20.0
  17    Suzuki       100               100              0                  100                 96           0                2.1                  92.9            2.4                 0                  74.8          42.7       4.4
  18    GM           100               100              100                100                 78           51.1             2.0                  36.2            11.8                21.5               40.4          37.8       1.9
  19    Mitsubishi   100               100              0                  100                 93           0                4.0                  36.4            4.4                 15.2               29.5          26.9       1.5
  20    Ford         100               100              100                100                 66           50.0             0.9                  16.0            30.5                2.7                0             26.3       2.4
  21    Mahindra     100               100              100                100                 93           75.0             0                    0               7.1                 0                  0             23.5       0.7
  22    Tata         100               100              100                100                 95           51.3             3.0                  0.9             3.2                 6.7                1.0           23.1       1.4
  23    FCA          100               100              100                100                 70           50.3             0.2                  0               13.4                1.9                4.0           22.0       1.5
  24    Subaru       100               100              25                 100                 78           0                2.0                  22.4            4.6                 1.0                19.1          20.9       2.7
  25    Isuzu        100               100              100                100                 89           25.0             0                    0               0                   0                  0             18.8       0.3
  26    Dongfeng     100               0                0                  100                 0            0                5.0                  1.6             18.7                10.1               3.5           9.8        0.8
  27    Great Wall   0                 0                0                  0                   0            0                5.7                  1.8             0                   12.2               1.8           3.2        1.6

Source: Constellation, 2020

                                                                                                                                                           Best                                                                          Worst

                                                                                                                                                                                                                                                 23/25
ESG and climate change impact

                                                                           FIGURE 30

Refinitiv ESG and climate                                                  MEASURING DIFFERENT ASPECTS OF
                                                                           SUSTAINABILITY PERFORMANCE
change impact maturity scores
                                                                                                Climate Impact    Refinitiv ESG
                                                                            Rank   Company
                                                                                                Maturity Scores   Scores
                                                                              1    Tesla        83.8              51.2
                                                                              2    BYD          70.0              55.2
Assessing how overall ESG scores align with climate impact analytics,         3    BAIC         65.2              46.4
we see an interesting complementarity. The M2 analytics, focused              4    VW           62.2              83.7
on climate impact management, give a different view of company                5    Renault      57.8              81.0
performance from the Refinitiv overall ESG scores. Though the                 6    Toyota       54.5              76.6
disruptors’ lack of transparency yields low Refinitiv ESG scores, many        7    Peugeot      54.1              82.9
                                                                              8    Daimler      54.0              92.0
with top ESG ratings, such as FCA, Ford, and GM, are not among the
                                                                              9    Hyundai      53.9              67.3
M2 Leaders. It may be that the general management capabilities of            10    Geely        53.4              60.3
the ESG Leaders will rapidly advance the climate risk strategies, but it     11    Kia          51.9              59.4
is not yet observable in our analysis.                                       12    BMW          51.6              86.4
                                                                             13    Mazda        50.6              65.0
                                                                             14    Honda        50.3              88.3
                                                                             15    Nissan       50.2              75.4
                                                                             16    GAC          43.8              54.7
                                                                             17    Suzuki       42.7              60.0
                                                                             18    GM           37.8              90.3
                                                                             19    Mitsubishi   26.9              71.4
                                                                             20    Ford         26.3              87.3
                                                                             21    Mahindra     23.5              78.3
                                                                             22    Tata         23.1              74.9
                                                                             23    FCA          22.0              90.3
                                                                             24    Subaru       20.9              48.3
                                                                             25    Isuzu        18.8              65.5
                                                                             26    Dongfeng     9.8               59.1
                                                                             27    Great Wall   3.2               28.3            Best   Worst

                                                                           Source: Constellation and Refinitiv ESG, 2020

                                                                                                                                           24/25
Summary

 Acronyms:
 •   CO2 – carbon dioxide
                                                  This is chapter 2 of the Sustainability Trends and The Automotive Industry: Truckification and
 •   GHG – greenhouse gas                         Electrification report. Discover more in this series:
 •   EV – electric vehicle
                                                  Overview of the Sustainability Trends and The Automotive Industry report
 •   ZEV – zero-emission vehicle
 •   PHV – plug-in hybrid vehicle                 Chapter 1: How have recent trends in market demand complicated decarbonization for automakers?
 •   HV – hybrid vehicle                          Chapter 3: How are automakers positioned to manage the sustainability imperative and associated
 •   APEC – Asia-Pacific Economic Cooperation     transition risk and opportunity in the coming decade?
 •   KPI – key performance indicator
 •   ESG – environmental, social and governance
 •   ICE – internal combustion engine
 •   MPG – miles per gallon
 •   M2 – Maturity and Momentum
 •   OEM – original equipment manufacturer

                                                                                                                                                    25/25
Refinitiv data and solutions
At Refinitiv, we strive to be the trusted and preferred partner for environmental, social and
governance (ESG) data and solutions, and are committed to bringing to the market an
array of best-in-class data, analytics and fully integrated workflow solutions.

Refinitiv ESG Data
We understand the increasingly critical need for ESG information, and the solutions we
offer enable customers to act with confidence on consistently captured and standardized
transparent information and insights.
We have deep domain expertise and have been providing ESG solutions to the financial
industry since the early 2000s. Designed to help you make sound, sustainable investment
decisions, our ESG data covers 80% of global market cap and over 450 metrics.
Our ESG data is available through Eikon®, Excel® add-in, Datastream®, Datastream Data
Loader (DDL), QA Direct® and the Elektron Data Platform Cloud API.
For more information, visit us online at refinitiv.com/esg
This research report was conducted in partnership with Constellation Research

refinitiv.com/esg
RE1260262/9-20
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