We are in a period of intense concern with spread of the Covid 19 virus. The solutions to resolving this crisis are global in nature, requiring complete and accurate disclosure of information, multilateral collaboration and science-based decision-making. Leadership is also at a premium as tragic events unfold and we look to political and corporate executives to reduce negative impacts through their guidance, organizations and products. In this interview with the John Streur, CEO of Calvert Research and Management, and Cheryl Wilson, Vice president and ESG senior research analyst at Calvert, we unpack these themes looking at carbon intensive business models generally and the auto sector in particular, both of which have profound impacts on the health of our planet.

1. At this time of intense public concern about the global pandemic, how do you assess the importance of complete and accurate disclosure from companies of material information?

Disclosure helps investors understand if companies are managing through the current risks related to the pandemic while keeping an eye on longer-term performance. For example, in auto manufacturing, while many production plants are being idled and consumer demand slows, the long-term health of workers and a company’s relationship with its workforce may impact how quickly companies can restart production in the future. We are starting to see more companies use formal disclosures to describe strategies for handling the crisis, including labor management practices. Information on how business continuity plans are being deployed and updated may take time to be revealed, but can help investors understand how companies are adapting to the pandemic and preparing for future risks.

2. What is your assessment of the current level of corporate disclosure on material ESG factors?

ESG disclosure tends to be strongest for large-cap companies, and the consolidated, global nature of the auto manufacturing industry puts most companies in that category. Most of the global automakers, for example, disclose data on historical carbon emissions and many also disclose strategic, forward-looking electric vehicle sales targets, though comparisons across companies remains a challenge. Disclosure from automakers that focus on regional markets tends to be weaker.

The global pandemic will likely further bring into focus the risks associated with global supply chains. The auto industry is already thinking about how the supply chain is changing – for example, a growing need to procure batteries highlights concerns related to the geographic concentration and human rights risks associated with the mining of some metals such as cobalt, and some automakers disclose practices to minimize that risk. We may increasingly see disclosure about how companies assess the security of supply chains, including business continuity plans of supply chain partners.

3. Do you see parallels between the climate crisis and the pandemic crisis in terms of how global problems are effectively resolved?

There are parallels between the global pandemic and climate change. Both are collective action problems that risk substantial human health and economic damage, where global coordinated action to reduce risk benefits all but requires decisive policy action and near-term costs. These risks are, of course, unfolding on vastly different timescales. The impacts of climate change will evolve over decades, making some effects harder to see and in-turn making collective action more challenging. Global governments have been convening for decades seeking a coordinated approach to carbon emissions reductions, but there has been little meaningful progress and government action has remained uneven. As the effects of the pandemic have spread quickly and become impossible to ignore, some governments have acted swiftly to stem the root of the health crisis, as well as aiding industries dealing with both demand and supply-side shocks, and supporting workers and communities. Yet government responses to this crisis are also uneven, and global coordinating is lacking.

4. Your financial sponsorship for the release of the automobile sector on Reuters Sustainable Business will allow an observer, free of charge, to easily assess performance on transparency and decarbonization. What kind of impact do you think this kind of approach might have for the auto sector and more generally for carbon intensive sectors?

Given the relatively early stage of auto-sector decarbonization, it is important for investors to understand how companies are approaching both the regulatory risk associated with tailpipe carbon emissions and the opportunity to gain market share with new vehicles. There is a lot of data and information on what companies are doing, and structuring it in a way that allows a comparison across the industry aids transparency.

5. How important is the auto sector for our progress on global climate goals?

Most passenger vehicles rely on oil-based fuels. According to IEA data, about 44% of global transportation-related emissions stem from the use of passenger vehicles – more than aviation or marine shipping or freight trucks – and despite some progress on electrification, emissions have continued to increase as consumers buy bigger, less fuel-efficient vehicles. Car ownership may also still have space to grow in some emerging markets, increasing the potential for emissions growth. Most automakers are ramping up efforts to transition to electric vehicles in response to policy pressure, which over time will drive down carbon emissions from vehicle use, particularly as power grids incorporate more renewable energy sources.

6. What are the most important trends you see in the sector, both positive and negative, in terms of climate?

Most automakers are setting targets for electrification of their portfolios, and some are allocating significant portions of R&D and capex to electric vehicle development. Planning manufacturing scale is also important and will help lower costs and improve profitability of electric vehicles, which can accelerate deployment. Some automakers are also taking steps to secure battery supply and lower costs, such as partnering with battery suppliers for manufacturing, which will help in meeting targets. Strategies like technology partnerships with other automakers can also help speed deployment and reduce costs.

Policy remains the primary driver of electric vehicle deployment, and the pandemic could slow new policymaking on carbon emissions from vehicles and possibly pump the brakes on existing regulatory deadlines. Automakers in some regions were already facing slowing demand for new passenger vehicles, which the pandemic could exacerbate. This comes at a tough time for companies that are investing R&D and capital to transition to new drivetrains. While the broader trajectory is unlikely to shift, we may see delays.

7. Are there any stand-out regional or innovation trends where leadership is emerging?

Just under half of all plug-in hybrid and battery-electric passenger vehicles sold globally have been in China, so automakers in that market already have experience building and selling electric vehicles. Regulatory pressure in Europe is driving manufacturers to develop and roll out new models in that region, and some have ambitious sales targets in the coming years.

Most auto manufacturers are aiming to decarbonize vehicles via battery-electric drivetrains, which is proven and commercially available. Some companies continue to research or develop hydrogen fuel-cell models which are unlikely to make up a substantial portion of sales in the medium-term but may find applications in the longer-term.

8. Are many firms betting more on the status quo continuing?

Some automakers have taken a slower approach to devoting resources to developing electric vehicles, Policy drivers have varied in different markets, influencing automakers’ behavior.

Yet policy is shaping the 2020s as formative for decarbonizing passenger vehicles. Most of the major automakers at this point have plans for offering fully electric models as well as plug-in hybrids, in response to policies including consumer purchase incentives, fuel-efficiency and carbon requirements for new vehicles, government-designated sales targets, and even long-term goals for internal combustion engine phase-outs.

9. How is partnership playing a role in the evolution of the auto sector?

The scale of R&D and capital investment needed for automakers to reduce and eventually eliminate carbon emissions from the use of automobiles is substantial, made more challenging as auto sales have been slowing in many markets even before the pandemic. These costs are also front loaded. Partnerships between automakers and with companies in the supply chain can help defray some of the upfront costs of platform and technology development and get electric vehicles to market more quickly. Charging infrastructure partnerships may also help drive consumer demand, such as Ionity, a collaboration between BMW, Volkswagen, Ford and Daimler to build out a charging network across Europe.

10. Looking out over the next decade, how important will CEO leadership be in achieving goals for the common good, whether they be climate, biodiversity, health or others yet to emerge?

Tackling carbon emissions from automobiles requires expensive and time consuming retooling of automotive manufacturing. The path to profitability on these investments could be long for some automakers. Navigating these challenges and finding opportunities requires strategic planning and leadership on execution from CEOs.

More broadly, CEOs can influence how an industry evolves on climate issues through interactions with policymakers and regulators. In the US, for example, a divide has emerged during President Trump’s tenure between automakers that back steeper reductions in carbon emissions from automobiles, including Ford Motor, Honda Motor, Bayerische Motoren Werke (BMW) and Volkswagen [1] and those seeking slower, weaker requirements aligned with the President’s goals. Such divergence can slow progress on lower-emission vehicles.