VW Sustainability Reports May Have Hinted at Problems

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By Andrea Vittorio

Oct. 15 — Research suggests there may have been hints of the still-unfolding diesel emissions scandal at Volkswagen AG hidden in corporate sustainability reports.

The German automaker is facing charges, first made by U.S. regulators on Sept. 18, that for years it used software to mask the true emissions of its diesel cars, which have been polluting the air at a level up to 40 times the legal limit.

But that air pollution was largely absent from recent sustainability disclosures in which the company vowed to become “the world’s most environmentally compatible automaker.”

Some say the scandal, which has already led to the company’s removal from sustainability rankings, may end up having huge ramifications not just for VW’s image but for the entire corporate social responsibility (CSR) movement.

“It's definitely something that’s going to be looked at as a case study for years and years to come around sustainability,” Louis Coppola, executive vice president and head of information technology at the Governance & Accountability Institute, told Bloomberg BNA.

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VW Goes Silent

The specific pollutants at issue in VW’s case are nitrogen oxides (NOx), which combine with other chemicals in the air to form the most common form of smog and can cause a burning sensation in the lungs and trigger respiratory disease. In the company’s past few sustainability reports, NOx emissions haven’t gotten nearly as much attention as carbon dioxide, the main heat-trapping gas blamed for our changing climate.

Volkswagen devoted less than 1 percent of its latest report to NOx and other non-carbon gases or particulates that affect air quality, compared to almost 14 percent on carbon and other greenhouse gases, according to an analysis by environmental, social and governance (ESG) data firm eRevalue.

In fact, eRevalue’s research shows that non-carbon gases have been mentioned less and less often in VW’s sustainability disclosures in recent years, despite the fact that the reports have grown in size.

“Clearly here what we saw was, in the sustainability reports of Volkswagen over time, they really went silent on the topic,” said Marjella Alma, who recently founded eRevalue after spending several years working with the Global Reporting Initiative, the most widely used standard for sustainability disclosure. “There was very little description, very little narrative. There was just a couple little tables and that was it.”

Impact of Products

The only mentions of NOx in Volkswagen’s latest report were in relation to pollution generated by the process of making and shipping its cars—not from the cars themselves, despite their potentially significant impact.

Even though Volkswagen's diesels made up less than 1 percent of all new vehicles sold in the U.S. in 2013, the Union of Concerned Scientists estimates they were responsible for about 8 percent of all smog-forming pollution on American roads.

“I think it’s critical that the auto industry, and other industries, are not just looking at the impacts of producing their products but how they’re being used and what the impact is of their products in use,” Don Anair, a clean vehicles researcher at UCS, told Bloomberg BNA. Anair said the use phase is also where regulators such as the U.S. Environmental Protection Agency, which is now investigating seven years worth of VW models, are focusing their efforts.

Carmakers in the United States are allowed to conduct their own emissions tests and report the results to the EPA. But that kind of information doesn't always make it into voluntary sustainability disclosures.

‘Just Another Document.'

“We’ve seen time and time again that self-regulation and voluntary reporting of this type of information is better than nothing, but it’s not good enough,” Coppola said, adding that VW's reports are proof that in order for sustainability data to be trustworthy, it needs to be accurate.

The last time Volkswagen mentioned regulations for tailpipe NOx or other air pollutants was in its 2013 report, published in the spring of 2014—around the same time that Michael Horn, the head of VW’s American operations, said he first found out about a possible problem with emissions compliance.

The company’s next sustainability report was free of any such references. A company spokeswoman did not return requests for comment on whether this was intentional or simply a coincidence.

“I would be surprised if the sustainability team had any idea what was going on here,” Alma told Bloomberg BNA. “What it does tell me is that the sustainability report is, in this case, just another document and it is not reflective of what was really going on.”

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

Volkswagen's latest sustainability report is available at http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/04/group-sustainability-report-2014.bin.html/binarystorageitem/file/Volkswagen_Sustainability_Report_2014.pdf.