The roar of the engine is morphing into a whisper of change. The automotive industry, long synonymous with speed and power, is undergoing a dramatic shift towards responsibility and sustainability. Global giants like Volkswagen, Volvo, Toyota, Mercedes, Bosch, Maruti, Tata, and Mahindra are leading the charge, weaving green threads into every aspect of their operations, from sourcing materials to delivering finished vehicles.
This transformation isn’t just a PR spin; it’s a strategic imperative driven by multiple factors. Consumers are increasingly conscious of environmental and social issues, demanding vehicles that tread lightly on the planet and contribute to a better society. Regulatory pressures, like India’s Business Responsibility and Sustainability Reporting (BRSR) framework and the looming EU Carbon Border Adjustment Mechanism (CBAM), are adding teeth to ethical aspirations. Forward-thinking automakers see sustainability not as a burden but as an opportunity to innovate, optimize, and gain a competitive edge.
BRSR: Paving the Road to Transparency:
India’s BRSR framework plays a pivotal role in this narrative. Introduced in 2023, BRSR mandates listed companies, including major automakers, to report on their social, environmental, and governance (ESG) practices. This comprehensive reporting requirement goes beyond financial metrics, delving into areas like resource consumption, emissions, waste management, employee well-being, and community engagement.
The BRSR framework operates in phases, gradually bringing more companies under its purview. The initial phase, targeting the top 1,000 listed entities, began in April 2022. By 2026, all listed companies will be required to comply. This phased approach gives businesses time to adjust and build robust ESG reporting systems.
What’s crucial to understand is that BRSR doesn’t just track a company’s own footprint; it extends to its entire value chain. Tier 1 suppliers, those directly supplying components to the automaker, are now also included in the reporting loop. This means that companies like Maruti Suzuki, Tata Motors, and Mahindra cannot just green their own operations; they must also ensure that their suppliers are contributing to sustainable practices.
This value chain reporting, mandated by the BRSR Core, focuses on nine key ESG parameters:
This comprehensive picture of a company’s environmental and social impact holds immense power. Responsible suppliers gain a competitive advantage, attracting business from automakers prioritizing ESG compliance. Conversely, suppliers lagging behind may face exclusion from lucrative contracts, forcing them to improve their practices to stay relevant.
CBAM: The Export Conundrum:
The story doesn’t end at Indian borders. The European Union’s CBAM, expected to be fully implemented in 2026, casts a long shadow over global auto exports. This controversial mechanism imposes a levy on imports of certain carbon-intensive goods, including cars, based on their embedded carbon footprint.
For Indian automakers, this translates to a potential financial burden. Cars built using components with high embedded carbon will attract higher levies at European ports, impacting their competitiveness and profitability. To avoid this scenario, Indian automakers have two options:
- Reduce the embedded carbon footprint of their vehicles. This involves sourcing from low-carbon suppliers, optimizing production processes, and adopting cleaner technologies.
- Invest in carbon offset projects. By compensating for unavoidable emissions through verified carbon offset schemes, companies can minimize the impact of CBAM levies.
Both options necessitate a thorough understanding of the carbon footprint throughout the entire value chain. Tier 1 suppliers, therefore, become even more crucial partners in navigating the CBAM challenge. Only by collaborating with suppliers to reduce their carbon footprints can automakers ensure export-friendliness for their vehicles.