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June 1, 2022updated 07 Jun 2022 12:43pm

How GM is setting the pace for Scope 3 reductions

Although the automotive industry has a poor record with sustainability, General Motors has a supplier pledge to help its Scope 3 emissions.

By Adrian Murdoch

Scope 3, GM, supplier pledge
General Motors is working with key suppliers to reduce carbon emissions in a bid to lower its Scope 3 emissions. (Image by Vadim Shechkov via iStock)
  • Although 83% of global automotive suppliers have defined sustainability targets, only 7% have started to implement carbon emissions-abatement programmes.
  • General Motors has asked suppliers to commit to carbon neutrality, social responsibility programmes and sustainable procurement practices.
  • The car manufacturer is hoping the pledge will help reduce the 14% of its own Scope 3 emissions that come from purchased goods and services.

The auto industry has a troubled relationship with sustainability. An April report from management consultancy McKinsey revealed the industry is far from embracing ESG.

Although most suppliers of parts to car manufacturers (83%) now have defined sustainability targets, only 7% are actually starting to implement carbon emissions-abatement programmes.

This is not helped by the fact that some car manufacturers themselves have had their heads in the sand.

In early April, for instance, Germany’s Volkswagen (VW) rejected a shareholder proposal from seven European investors that wanted details of how the German car manufacturer’s lobbying activities help it address climate risks.

Others are merely tinkering around the edges. In mid-May, BMW splashed a deal with BASF, the world’s largest chemical producer, to use a more sustainable paint that cuts emissions by 40% per coating layer, and reduces the amount of carbon dioxide emitted in the plants by more than 15,000t by 2030 –  a tiny fraction of the 200 million tonnes the Munich-based car manufacturer has committed to removing by the end of the decade.

The industry was not helped when, in mid-May, S&P Global unceremoniously dumped Tesla from its main ESG index.

Although the removal of the Austin-based automotive and clean energy company had to do with incidences of racial discrimination and poor working conditions, Elon Musk, chief executive of Tesla, fumed on Twitter that “ESG is an outrageous scam”.

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But some car manufacturers are taking the move to sustainability more seriously. Detroit-based General Motors (GM), the largest automotive manufacturer in the US and best-known for its iconic marques Buick, Cadillac and Chevrolet, in January last year said that it wants to become a zero-tailpipe-emissions car manufacturer by 2035 and to become carbon-neutral in its global products and operations by 2040.

GM has been putting its money where its mouth is. At the start of this year, it said that it would invest $7bn in four factories in Michigan to expand its electric vehicle (EV) battery and electric truck manufacturing capacity (at the time creating 4,000 new jobs); it said that it would convert sites in Tennessee and Ontario to focus on EV-related manufacturing.

Both are part of the group’s $35bn investment programme in EVs between 2020 and 2025. It also announced a three-year $750m investment programme for EV charging facilities across the US and Canada.

Signing the Scope 3 pledge

At the end of April, GM went one step further. The largest global automotive company to do so, it decided to tackle Scope 3 emissions – those connected with a company but outside its direct control – by asking suppliers to commit to carbon neutrality, social responsibility programmes and sustainable procurement practices.

It has joined car manufacturers like Japan’s Honda, which was, in 2012, the first car company to target and publish Scope 3 emissions, and its compatriot Toyota, which in 2015 said that it would reduce all emissions throughout the life cycle of its cars by 25% by 2030.

Other car manufacturers have made Scope 3 commitments, but they are not as far-reaching.

BMW, for example, is looking for a 20% cut in Scope 3 emissions from upstream suppliers by 2030 but although it has committed to being climate-neutral by 2050, it does not define what this means in terms of reductions.

VW is particularly amorphous. Although it has committed to reducing the total life-cycle emissions intensity of vehicles by 30% between 2015 and 2025, these will be achieved by carbon offsets. It is notable that at Cop26 in Glasgow last year, VW refused to commit to the same zero-tailpipe emissions that GM did.

The pledge is a commitment for them to achieve Scope 1 and 2 carbon neutrality by 2025 for suppliers that are professional services, by 2035 for manufacturing and by 2038 for raw materials and logistics. Paris-based provider of business sustainability ratings EcoVadis is managing the process.

This has long been seen as the industry’s Holy Grail. In a LinkedIn post at the end of May, Angela Hultberg, global director in the sustainability team at Chicago-based management consultancy Kearney, called Scope 3 emissions “the next frontier” in the automotive industry.

Although Fred Gersdorff, GM’s senior manager of socially responsible and sustainable supply chains, tells Capital Monitor that “there’s no stick to this pledge”, suppliers representing 53% of the company’s $76bn direct material annual purchase value last year have already signed on. The company has 18,940 suppliers.

This success he puts down to “education and outreach” over the past couple of years, but details to “shape this pledge” were worked on with a focus group of 11 suppliers in the third quarter of last year, before a more formal document was sent to all suppliers in April.

Certainly, GM has been putting in the effort with its suppliers. According to the 2021 Plante Moran Working Relations Index [see chart below] which measures supplier relationships in the auto industry, GM saw a 20 point improvement last year and is now ranked third in North America behind Toyota and Honda.

Gersdorff explains that the different milestones for professional services, manufacturing and for raw materials and logistics emerged after it became clear that “for some, a later date would be quite easy to attain while for others, a very close date wouldn’t”.

He would not be drawn on specifics, but the mining and rubber industries fall into the latter category. In mid-April, GM signed a multi-year deal for an undisclosed amount with Anglo-Swiss mining company Glencore to buy cobalt from its Murrin Murrin mine in Western Australia to use in its EV batteries.

Glencore itself is no stranger to ESG controversy. On 24 May, the company agreed to court payments in the US, UK and Brazil of more than $1bn to settle long-term investigations of bribery and market manipulation.

Gersdorff’s approach is conciliatory. Rather than criticising any individual sector, he again emphasises that GM is not forcing its pledge on suppliers and says that harder-to-abate industries needed “understanding”.

He spoke to Capital Monitor on the sidelines of a mining conference in Oxford, UK, and said that his role was to have “side conversations and meetings” with mining companies and their executives to articulate GM’s position.

“It starts with having that relationship and then seeing what we can do together to get them on board,” he says.

Ethical pillars

As well as asking suppliers to limit Scope 1 and 2 emissions, part of the pledge is also to have a minimum score of 50 in the EcoVadis Labor & Human Rights, Ethics and Sustainable Procurement pillars by 2025.

Bettina Grabmayr, methodology and institutional relations director for EcoVadis in Brussels, describes the GM initiative as “a really good example” of what such a pledge should look like.

To reach a score of 50, she explains, companies should have “a good [methodological] skeleton in place” and a formalised reporting system that covers policies, actions and results across all their sustainability issues – results that EcoVadis will track and to which both GM and suppliers will have access.

Although reaching these targets will require what Gersdorff admits is “substantial” work – he estimates that the supplier average score is around 44 – Grabmayr is yet to see any pushback from suppliers.   

“Companies which really see the value, understand that this could be a competitive advantage for them,” she says.

Industry dinosaur

Gersdorff acknowledges that the pledge is not altruistic. Any supplier improvement helps its own targets. He says that 14% of the company’s Scope 3 emissions are currently related to purchased goods and services and that “as our suppliers reduce their carbon emissions, it will impact our Scope 3 emissions”.

It’s unclear whether GM’s Scope 3 efforts are being recognised by investors, however. In a detailed case study at the end of last year investment manager Federated Hermes ($669bn AUM at the end of 2021) described GM’s pivot towards ESG as “underappreciated” by investors who still categorised the company as an “industry dinosaur”.

“We feel that GM will indeed succeed in their transition to EV, and likely earlier than anticipated,” Federated Hermes noted.

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