5 Capacities for Chinese Commercial Vehicles Transformation

source:goldencsr date:2023-04-10 18:13:36

On March 29, 2023, Yibo Dai, Vice President of GoldenBee Consulting was invited to attend the first China Commercial Vehicles Forum (CCVF). In the sub-forum of "Globalization and Supply Chain Security", she delivered a speech on "ESG Competitiveness in the Globalization of Chinese Commercial Vehicles".

The forum was organized by the China Association of Automobile Manufacturers (CAAM). It is the first national high-end commercial vehicle forum in 2023 and the top event in the commercial vehicle industry.

代总.png

"Taking ESG as an opportunity to strengthen the ability to add value of enterprises in research and development, procurement, risk control, talent management, branding and other aspects will unleash opportunities for excess growth and help Chinese commercial vehicle enterprises gain more competitive advantages in global development".

In her speech, she proposed that Chinese commercial vehicle enterprises need to build five key capacities for ESG transformation of their business model, namely ESG compliance to global market, low-carbon supply chain resource allocation, supply chain due diligence management, supply chain ESG synergy, and ESG premium for products and services.

01 ESG Compliance to Global Market

Many countries have recently adopted ESG-related directives and regulations, requiring companies to carry out a series of ESG management initiatives. For companies, ESG has changed from a voluntary choice to a mandatory requirement by law and regulation. The ability to anticipate and respond to ESG compliance requirements has become a key factor in winning the competition in the future.

Companies should increase the awareness of "proactive" compliance, paying great attention to ESG-related requirements prior to the launch of formal legal documents to avoid management cost increase and additional risks.

Companies could consider communication with stakeholders as a precondition for compliance management to capture future regulatory trends in advance. For example, the convergence of the automobile industry with ICT, energy and other industries, and changes in consumer demographics are likely to bring new ESG compliance requirements for automobile companies.

02 Low-carbon Supply Chain Resource Allocation

For commercial vehicle companies to take the lead in combating climate change, a strong ability to allocate resources in the low-carbon supply chain is indispensable. The resource layout from the whole lifecycle management of vehicles can not only significantly reduce carbon, but also help companies obtain business opportunities in a conservation and recycling-based production patterns.

This includes both the procurement of low-carbon raw materials such as low-carbon steel and aluminum, as well as the use of recyclable materials and even the recycling of entire vehicles.

In the management of production, operation, supply chain raw material production and transportation, and vehicle usage, companies could steadily achieve targeted carbon reduction in production and operation through building green factory and zero carbon factory. They could also monitor and reduce carbon emission in end use by promoting electrification.

03 Supply Chain ESG Traceability

A high level of supply chain ESG traceability will effectively reduce the occurrence of events that affect supply chain security and stability due to ESG risk management vulnerabilities.

Blockchain technology is now widely used in supply chain management, and commercial vehicle companies can use blockchain technology to track more environmental and social information in the supply chain and assess the level of ESG risks in the supply chain. On this basis, it is more appropriate for companies to establish a supply chain due diligence management system in a systematic manner to identify, confirm and respond to actual and potential human rights and environmental risks in the procurement, processing and trade relationships of their raw materials, and to track and monitor, appeal and report on the response to the relevant risks.

04 Supply Chain ESG Synergy

The complex automotive supply chain requires commercial vehicle companies to establish a collaborative ESG mechanism that can be adopted from Tier 1 suppliers to Tier N. Each tier of the supply chain requires suppliers at the previous tier to carry out risk management of key ESG issues as a customer, which can motivate companies in the entire supply chain to engage in ESG management.

Currently, several European auto companies have jointly launched Drive Sustainability, a sustainable supply chain project for the automotive industry, which has reached a consensus on the standards, management, and assessment methods for ESG issues. The Self-Assessment Questionnaire (SAQ) becomes a management tool for supplier selection, which encourages and supports Tier 1 suppliers to use SAQs in their secondary supply chains.

Chinese commercial vehicle companies could apply a similar approach to establish this ESG synergy mechanism among their core suppliers at multiple levels.

05 ESG Premium for Sustainable Products

The ultimate goal of ESG management and practice for companies is to be recognized and rewarded by the market.

To this end, commercial vehicle companies need to show stakeholders, including customers, their technological innovation and product value driven by ESG factors, making it an important label for differentiation among commercial vehicle companies and products.

As the growing number of investors are willing to pay a premium for companies with outstanding ESG performance, companies with this ability to innovate and achieve sustainable growth will be favored by the investors.