Sustainable Value in Automobile Production

Euromed Management School, Marseille

Queen‘s University Management School

Belfast

Sustainable Value In Automobile Production

An analysis of the sustainability performance of automobile manufacturers worldwide

Dr Tobias Hahn

Euromed Management School, Marseille (F)

Ralf Barkemeyer, Prof Frank Figge

Queen’s University Management School, Belfast (UK)

TBLI Conference Europe 2008, Amsterdam, 12-14 November 2008

- 2 -© Hahn, Figge & Barkemeyer 2008

Outline

– Introduction to the Sustainable Value approach– Rationale– How to calculate Sustainable Value

– Application to the car manufacturing sector worldwide

– Survey design– Some key results– Limitations & outlook


Sustainable Value approach in a nutshell Sustainable Value

– has been developed by Prof Frank Figge (Queen’s University Management School, Belfast/UK) and Dr Tobias Hahn (Euromed Management School Marseille/France).

– is the first value-oriented approach to assess corporate sustainability performance.

– assesses environmental and social resources analogously to the way economic resources are valued using opportunity cost.

– expresses the sustainable performance of a company in monetary terms (like e.g. in €).

– shows which companies use their economic, environmental and social resources in a value-creating way.


Financial market perspective versus Sustainability perspective

Financial markets only focus on economic capital. Objective: above average (risk-adjusted) return on

capital.

This falls short of the sustainability concept Companies not only use economic capital but also

environmental and social resources. Without environmental and social resources there is no

return. From the viewpoint of sustainability focussing only on

return on capital is insufficient. How can we determine if a company has created value

with its economic, environmental and social resources?


When are resources used in a value-creating way?

In general, value is created whenever the return exceeds costs:

Value = Return – Costs

This rule is fundamental to any economic assessment of corporate performance.

Sustainable Value extends this basic rule to environmental and social resources.


Easy in theory – difficult in practice

- > 0

Challenge: We need to express this in the same unit!


The Value-Oriented Approach

How much return is created?– How much € return is created per ton of CO2?

– How much € return is created per ton of VOC?

Compare the return of alternative uses (opportunity costs)– When used in another place – how much more return is

created (opportunity cost)?– Value is created only if the return exceeds the opportunity

costs.


Assessing Economic Performance...

Sources: Annual Report BMW Group 2005, Annual Reports of other car manufacturers, own calculations.

2005 BMWCar

manufacturing sector

Capital efficiency [EBIT / Total assets]

5.09% 2.53%

Value spread 2.56%

Capital use 74,566,000,000 €

Value contribution 1,905,337,764 €


… and Environmental Performance, analogously.

Sources: Annual Report BMW Group 2005, Sustainability Report BMW Group 2007/2008, Annual and Sustainability/Environmental Reports of other car manufacturers, own

calculations.

2005 BMWCar

manufacturing sector

Water-Efficiency [EBIT / m³ Water]

1,110 102

Value spread [EBIT / m³ Water]

1,008

Water use [m³] 3,417,341

Value contribution 3,446,088,239 €


The Assessment in 5 Steps: The BMW Case

Amount of resources used

Efficiency of BMW Group

[€/unit]

Efficiency of the car

sector [€/unit]

Value Contribution

l

j k mTotal assets [€] 74,566,000,000 * ( 0.051 - 0.025 ) = 1,905,337,764 €CO2-emissions [t] 1,304,971 * ( 2,907 - 708 ) = 2,869,053,864 €

NOx-emissions [t] 545 * ( 6,959,633 - 999,441 ) = 3,248,304,768 €

SOx-emissions [t] 8 * ( 456,987,952 - 1,886,825 ) = 3,777,339,356 €

VOC-emissions [t] 2,726 * ( 1,391,416 - 174,375 ) = 3,317,652,879 €

Waste generated [t] 454,821 * ( 8,340 - 2,269 ) = 2,761,155,769 €

Water used [m³] 3,417,341 * ( 1,110 - 102 ) = 3,446,088,239 €

Work accidents [nb] 1,061 * ( 3,574,929 - 811,168 ) = 2,932,350,774 €

Employees [nb] 105,798 * ( 35,851 - 15,861 ) = 2,114,911,663 €

Sustainable Value of BMW Group in 2005 2,930,243,897 €n


Scope of the Survey (i)

Car manufacturers:BMW Group, Daihatsu, DaimlerChrysler, Fiat Auto, Ford, GM, Honda, Hyundai, Isuzu, Mitsubishi, Nissan, PSA, Renault, Suzuki, Toyota, Volkswagen.

Indicators:

Environmental Indicators Social Indicators Economic indicators

CO2-Emissions No. of work accidents Total assets

NOx-Emissions No. of employees

SOx-Emissions

VOC-Emissions

Waste generated

Water use


Scope of the Survey (ii)

Operating profit (EBIT) from ordinary activities as the return figure.

Timeframe: 1999-2005 Average efficiency of the resource use of the car

manufacturers used as benchmark. The assessment is based on the environmental,

social, sustainability and annual reports of the car manufacturers.

The research project has been supported by BMW Group.


Explanatory power of the absolute Sustainable Value

A company creates Sustainable Value whenever it uses its resources more efficiently than a benchmark.

A positive Sustainable Value shows which companies use their economic, environmental, and social resources more efficiently than the sector on average.

A positive Sustainable Value shows the excess profit that is created because the resources have been used by a car manufacturer instead of by the sector on average.

Sustainable Value provides a monetary assessment of the sustainable out- or under-performance of a company.


Sustainable Value of Car Manufacturers(in thousand €)

1999 2000 2001 2002 2003 2004 2005

BMW Group 1,400,966 1,896,370 2,665,413 2,430,319 2,257,434 2,610,151 2,930,244

Daihatsu -230,631 -66,596 44,667 -174,125 -96,576 -83,906 15,773

DaimlerChrysler 4,356,271 -185,248 -2,304,332 1,414,477 1,198,706 1,803,638 1,532,179

Fiat Auto -1,415,742 -1,238,910 -1,219,718 -1,750,443 -1,389,213 -1,340,154 -929,643

Ford -105,608 977,759 -3,866,480 -3,532,873 -2,469,689 -1,186,707 -1,598,344

GM -3,449,413 -3,192,807 -5,388,452 -8,732,589 -6,311,083 -7,515,033 -13,717,362

Honda 478,627 800,889 1,727,173 1,249,135 924,972 864,987 1,949,269

Hyundai n/a n/a 1,757,274 1,339,793 806,052 302,486 772,099

Isuzu -435,583 -246,639 -59,383 -55,673 326,549 288,787 261,617

Mitsubishi -495,152 -868,822 -126,897 -6,986 -153,082 -727,595 -253,980

Nissan n/a n/a n/a 2,039,834 1,994,571 1,769,378 2,282,111

PSA -915,012 -450,172 338,220 161,119 -370,795 -336,059 183,565

Renault -256,499 -231,241 -831,971 -540,733 -533,732 528,852 -62,565

Suzuki -57,677 7,624 182,163 136,348 166,032 156,577 162,360

Toyota 1,623,358 3,025,886 5,358,868 5,091,582 5,690,916 5,031,069 6,502,027

Volkswagen -497,907 -228,095 1,723,455 930,817 -2,041,062 -2,166,474 -29,349


Sustainable Value of Car Manufacturers

-14,000,000,000 €

-13,000,000,000 €

-12,000,000,000 €

-11,000,000,000 €

-10,000,000,000 €

-9,000,000,000 €

-8,000,000,000 €

-7,000,000,000 €

-6,000,000,000 €

-5,000,000,000 €

-4,000,000,000 €

-3,000,000,000 €

-2,000,000,000 €

-1,000,000,000 €

0 €

1,000,000,000 €

2,000,000,000 €

3,000,000,000 €

4,000,000,000 €

5,000,000,000 €

6,000,000,000 €

7,000,000,000 €

1999 2000 2001 2002 2003 2004 2005

Su

sta

inab

le V

alu

e

BMW Group

Daihatsu

DaimlerChrysler

Fiat Auto

Ford

GM

Honda

Hyundai

Isuzu

Mitsubishi

Nissan

PSA

Renault

Suzuki

Toyota

Volkswagen


Sustainable Value and Company Size

The absolute Sustainable Value shows the amount of value that has been created by the use of the set of environmental, social and economic resources by a company in comparison to the car manufacturing sector on average.

Bigger companies tend to produce higher Sustainable Value indicators (positive as well as negative) as they produce more.

To correct for firm size, Sustainable Value can be divided by sales (Sustainable Value Margin).

The Sustainable Value Margin expresses Sustainable Value created by a company as the percentage of the sales of a company.


Sustainable Value per Sales: Sustainable Value Margin

1999 2000 2001 2002 2003 2004 2005 2006*

BMW Group 4.07% 5.09% 6.93% 5.73% 5.44% 5.89% 6.28%

Daihatsu -2.33% -0.76% 0.59% -2.38% -1.40% -1.06% 0.19%

DaimlerChrysler 2.90% -0.11% -1.51% 0.94% 0.86% 1.30% 1.02%

Fiat Auto -2.94% -4.95% -4.99% -7.90% -6.94% -6.52% -4.76%

Ford -0.07% 0.53% -2.13% -2.04% -1.70% -0.86% -1.12%

GM -2.08% -1.60% -2.72% -4.66% -3.85% -4.83% -8.87%

Honda 1.09% 1.71% 3.74% 2.67% 2.26% 2.01% 4.46%

Hyundai n/a n/a 5.17% 3.50% 2.36% 0.82% 1.73%

Isuzu -5.24% -2.65% -0.80% -0.84% 4.56% 4.11% 3.66%

Mitsubishi -2.34% -3.97% -0.60% -0.05% -1.61% -7.82% -2.59%

Nissan n/a n/a n/a 4.16% 4.09% 3.39% 4.11%

PSA -2.71% -1.15% 0.72% 0.40% -0.74% -0.69% 0.26%

Renault -0.68% -0.58% -2.29% -1.49% -1.42% 1.30% -0.15%

Suzuki -0.47% 0.05% 1.40% 1.07% 1.44% 1.31% 1.23%

Toyota 2.43% 3.17% 5.60% 5.52% 5.98% 4.98% 5.91%

Volkswagen -0.79% -0.36% 1.95% 1.07% -2.34% -2.44% -0.03%* = Trend


Sustainable Value Margin Trends:Europe

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1999 2000 2001 2002 2003 2004 2005

Su

sta

inab

le V

alu

e /

Sale

s

BMW Group

DaimlerChrysler

Fiat Auto

PSA

Renault

Volkswagen


Sustainable Value Margin Trends:Asia

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1999 2000 2001 2002 2003 2004 2005

Su

sta

inab

le V

alu

e /

Sale

s

Daihatsu

Honda

Hyundai

Isuzu

Mitsubishi

Nissan

Suzuki

Toyota

Series5

BMW Group


Sustainable Value Margin Trends:North America

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1999 2000 2001 2002 2003 2004 2005

Su

sta

inab

le V

alu

e /

Sale

s

Ford

GM

Series1

BMW Group


Ranking: Sustainable Value Margin

1999 2000 2001 2002 2003 2004 2005

BMW Group 1 1 1 1 2 1 1

Daihatsu 10 9 8 14 10 12 10

DaimlerChrysler 2 6 11 8 8 7 8

Fiat Auto 13 14 15 16 16 15 15

Ford 5 4 12 13 13 11 13

GM 9 11 14 15 15 14 16

Honda 4 3 4 5 6 5 3

Hyundai n/a n/a 3 4 5 9 6

Isuzu 14 12 10 11 3 3 5

Mitsubishi 11 13 9 10 12 16 14

Nissan n/a n/a n/a 3 4 4 4

PSA 12 10 7 9 9 10 9

Renault 7 8 13 12 11 8 12

Suzuki 6 5 6 6 7 6 7

Toyota 3 2 2 2 1 2 2

Volkswagen 8 7 5 7 14 13 11


Sustainable Value Margin: PSA versus Renault

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1999 2000 2001 2002 2003 2004 2005

Su

sta

ina

ble

Va

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erc

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ale

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FIAT Auto BMW Group

PSA Renault


PSA‘s Sustainable Value1999-2005 (Million €)

1999 2000 2001 2002 2003 2004 2005

Total assets -283 472 1,263 1,075 316 190 189

CO2-emissions 238 778 1,423 1,505 1,160 1,254 1,207

NOx-emissions -64 481 845 1,386 708 772 1,018

SOx-emissions -2,187 -454 -509 34 -449 561 967

VOC-emissions -2,168 -2,150 -753 -1,539 -2,097 -2,144 -1,351

Total waste generated -567 -319 440 899 382 320 671

Water use -1,519 -1,174 -108 59 -875 -1,012 -432

No. of work accidents -357 710 -986 -750 -1,020 750

No. of employees -1,686 -1,328 -266 -982 -1,732 -1,947 -1,367

Sustainable Value -915 -450 338 161 -371 -336 184

Sustainable Value Margin -2.71% -1.15% 0.72% 0.40% -0.74% -0.69% 0.26%

For comparison

Operating profit (million €) 1,674 2,121 2,652 2,913 2,195 2,182 1,940

Re

sou

rce

s

Value contributions in million €


Renault‘s Sustainable Value1999-2005 (Million €)

1999 2000 2001 2002 2003 2004 2005

Total assets 83 197 -784 -264 -485 410 -409

CO2-emissions 1,547 1,418 66 874 764 1,775 797

NOx-emissions 198 1,271 571

SOx-emissions -168 1,219 606

VOC-emissions -1,139 -1,118 -1,781 -1,635 -1,442 -396 -831

Total waste generated -1,201 -1,110 -1,881 -1,649 -1,668 -437 -792

Water use -266 -271 -1,121 -858 -962 79 -504

No. of work accidents -302 104 -331 -222 126 1,023 683

No. of employees -1,029 -1,301 -1,656 -1,113 -1,167 -184 -685

Sustainable Value -256 -231 -832 -541 -534 529 -63

Sustainable Value Margin -0.68% -0.58% -2.29% -1.49% -1.42% 1.30% -0.15%

For comparison

Operating profit (million €) 2,205 2,022 473 1,483 1,402 2,418 1,323

Re

sou

rce

s

Value contributions in million €


Resource specific Ranking Sustainable Value Margin 2005

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Ranks in 2005

BMW Group 4 2 1 1 3 3 1 1 4 1

Daihatsu 7 10 9 6 10 11 12 8 10

DaimlerChrysler 10 11 6 5 5 7 6 9 8

Fiat Auto 15 16 15 14 16 15 15

Ford 13 13 9 10 13 6 10 13

GM 16 15 12 12 14 15 15 7 16 16

Honda 2 1 2 1 3 2 3

Hyundai 8 9 4 4 8 6 7 2 6 6

Isuzu 5 5 3 3 4 4 5 5 5

Mitsubishi 14 14 11 11 12 13 14 13 14

Nissan 1 4 5 4 3 4

PSA 9 6 7 9 13 9 10 4 12 9

Renault 12 7 8 10 11 12 11 3 11 12

Suzuki 6 8 5 7 6 9 7 7

Toyota 3 3 2 2 1 2 2 1 2

Volkswagen 11 12 10 8 7 8 8 5 14 11


Limits and Outlook

Life cycle issues – At this stage, Sustainable Value does not cover resource

use up and down the value chain. Data availability and quality

– Data from corporate reporting insufficiently standardised.– Definitions of indicators vary.– Reported environmental and social data often does not

cover the scope of financial information. Inclusion of social indicators remains difficult

– Not all social information is available in quantified absolute terms.

Benchmark does not define a state of sustainability.


Data Collection and Verification: An Example of Ford

There is less mineral waste worldwide than in North America!

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Data Collection and Verification: Sometimes it’s just hard to believe…

Mitsubishi Motors Corp. Environmental

Sustainability Report 2004, p. 48

Daihatsu Group Environmental

Report 2005, p. 49


Value of Sustainable Value

Sustainable Value applies the logic of investment performance assessment to environmental and social resources.

To create value the return on environmental resources must cover the costs of the resources.

Sustainable Value compares the resource use of a company to a benchmark and thus defines the cost of a resource via opportunity costs.

Sustainable Value can be used with different benchmarks. As a result, Sustainable Value expresses corporate

environmental or sustainable performance in monetary terms.

Integrated triple bottom line assessment.


More information on the internet:

The study and more information on the Sustainable Value approach are freely available at:

www.sustainablevalue.com


www.sustainablevaluecalculator.com


Contact information

Dr Tobias HahnAssociate Professor of Corporate Sustainability, CSR and Environmental Management

Euromed Management SchoolDomaine de Luminy - BP 921 13 288 Marseille cedex 9, France

E-Mail: [email protected]

Professor Frank FiggeProfessor of Management and Sustainability

Queen's University Management School25 University SquareBelfast BT7 1NN, Northern Ireland, UK

E-Mail: [email protected]


Thank you very much!

Sustainable Value in Automobile Production

Automotive

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