Katie Kapodistria: Why Europe needs to do better when it comes to automotive industry sustainability

When it comes to ESG and automotive industry sustainability in the automotive industry, expert Katie Kapodistria suggests that "Europe can and should do better for legislation to be achievable for the sector and competitive in a global context."

An experienced policy professional who has spent the last four years working in European institutions and public affairs consultancies in Brussels, Kapodistria recently talked to CBN about how ESG is impacting business in general, while also examining the key challenges the automotive industry in particular is facing in meeting the EU's stringent emissions targets by 2030.

The launch of the EU’s Green Deal has instigated its ambitious road to decarbonising the automotive sector, with the decision to end sales of new CO2-emitting cars by 2035 setting the direction of travel for road transport decarbonisation, Kapodistria suggests.

“The EU’s Green Deal has played a catalytic role in how businesses approach sustainability. What has unfolded as a result is a series of legislative proposals and revisions placing environmental, social and governance (ESG) considerations at the forefront of business agendas," she notes.

A Senior Consultant at SEC Newgate EU (Brussels) with expertise focused on EU foreign policy, sustainability, ESG, healthcare, and transport, Kapodistria, in addition, shared her opinion on whether ESG measures are here to stay and what it means for businesses on a practical level, and the potential impact of the upcoming European Parliament elections on their implementation.

How has Europe's Green Deal influenced businesses' approach to sustainability?

Launched in 2019 as the European Commission’s response to the global climate emergency, the European Green Deal defines the continent’s strategy to reach net-zero emissions and become a resource-efficient economy by 2050. The EU Green Deal introduces a series of measures aiming to boost Europe’s green economy, ranging from financing instruments for the green transition, to investing in disruptive clean technologies, to restoring and preserving bio-diverse ecosystems.

As part of this, the Green Deal’s launch also instigated the EU’s ambitious road to decarbonising the automotive sector, with the decision to end sales of new CO2-emitting cars by 2035 setting the direction of travel for road transport decarbonisation.

This package has extensive implications, affecting not only European consumers and businesses, but also suppliers and markets globally. Its successful implementation is expected to position Europe as a leader in re-defining sustainable economic growth on a global scale.

The EU’s Green Deal has played a catalytic role in how businesses approach sustainability. What has unfolded as a result is a series of legislative proposals and revisions placing environmental, social and governance (ESG) considerations at the forefront of business agendas. ESG pertains to potential impacts your business has on the environment, social factors, and the extent to which you have good governance – all of which affect your license to operate within the external world. Does your business manage its environmental footprint? What are you doing to enhance diversity? To what extent are you transparent in your contributions to a country? All these considerations are having a profound impact on how businesses approach their sustainability efforts.

More specifically, what are key challenges the automotive industry is facing in meeting the EU's stringent emissions targets by 2030?

Within the context of meeting the EU’s 2030 targets to reduce its greenhouse gas emissions by 55% compared to 1990, the automotive industry has made significant technological innovations in decarbonisation to get ahead of this curve. The automotive industry is one of the most dynamic and innovative sectors of economy, driving innovation and sustainability with 30 billion EUR in annual R&D investments and 1.7 million direct jobs.

Nevertheless, the automotive industry is facing a number of issues that require flexible adaptation to tough economic and geopolitical conditions as it works to promote alternative fuels such as green electricity and hydrogen. This is especially the case as Europe’s industry tries to compete with market giants like China. Chinese automotive producers are dominating production of electric vehicles (EVs), and analyses show that the purchase price of EVs in China is 20-30% lower than those of European manufacturers.

While industry is not questioning the legitimacy of the EU’s initiatives, Europe can and should do better for legislation to be achievable for the sector and competitive in a global context.

How should the automotive industry be addressing the transition to electric vehicles, and what infrastructure developments are needed for this?

To reach the EU’s net-zero goal, EVs would need to account for 75% of global passenger car sales by 2030. By 2035, the largest automotive markets would need to be fully electric. Decarbonisation alone cannot ensure the industry’s green transition, and long-term success is contingent on engaging positively with a wider ESG agenda.

Consumer behaviour plays a key role in enabling the green transition and uptake of EVs and is a factor very often overlooked by European legislators. Specifically, charging and hydrogen refilling infrastructure to support these EVs must be a key prerequisite to accelerate the sector’s decarbonisation.

Early EV adopters are likely to be high earners able to plug in at home in their driveway or garage. But for all drivers to make the switch from internal combustion engine (ICE) vehicles, significant public infrastructure is needed to support those who lack access to off-street parking. Investment in such infrastructure is currently not obligatory for Member States. This is exacerbating discrepancies in charging infrastructure between Northern Europe – Southern and Central Eastern Europe, as well as between urban and rural regions. ‘Charging anxiety’ is becoming the main concern for potential EV consumers, with scaling of public charging infrastructure critical for sustainable EV adoption. If consumers need to pay a premium for a European EV or cannot rely on adequate charging infrastructure for their new green investment, they won’t be interested.

Prioritising public-private sector investments in charging infrastructure over the coming years is essential, and with the right policy framework for vehicle-to-grid charging technology, EVs can become a catalyst for grid decarbonisation.

What impact do you foresee the EU's ESG agenda having on automotive supply chains and production processes?

We are expecting to see a continued push for ESG policies in Europe in the coming years, and this will undoubtedly impact how the automotive industry transforms its productions in response.

To reduce bottlenecks and dependencies, the automotive industry will need resilient, circular, and sustainable supply chains centred on batteries, semiconductors, and green materials. End-to-end transparency on ESG criteria such as digital traceability will also be an important way to make critical supply chains more sustainable and will enable industry to stay at the forefront of ESG performance to ensure Europe’s competitive advantage.

Looking ahead at the upcoming 2024-2029 European term, we can expect the decarbonisation of the automotive sector to remain a key topic within political discourse. In particular, the next EU mandate will focus on further implementation of its sustainability and ESG initiatives, enabling the deployment of renewable, zero and low-carbon solutions.

ESG is one of the biggest trends we have seen in recent years. Is ESG here to stay and what does it practically mean for businesses?

ESG has permeated all facets of business lexicon and strategy-setting – ask any business owner who has been part of a panel discussion or investor relations meeting in recent years. Cypriot companies are still in the initial stages of understanding how best to integrate ESG into their operations and appear to be carefully assessing and calibrating their statements, strategies, and actions as they look ahead at looming political concerns.

One thing is for certain – ESG is here to stay and will be knocking on business owners’ doors sooner than they may think. An imminent turning point for corporate transparency is the Corporate Sustainability Reporting Directive (CSRD). It aims to strengthen and extend the rules about mandatory social and environmental reporting, create a culture of transparency on sustainability, and ensure that investors have access to the information they need to assess investment risks.

Having entered into force in early 2023, the first round of mandatory reporting will take place in 2024 for large and listed companies. For European SMEs, reporting will take place in 2026, with an ‘opt out’ possible until 2028.

With the European Parliament elections taking place from 6-9 June, what can we expect politically in the near future?

The key words for the 2024-2029 mandate will be “European competitiveness.” While ESG policies will continue to be implemented at Member State level in the coming years, we can expect sustainability policy more broadly to be used as a conduit to strengthen Europe’s industrial capacity and strategic autonomy – as opposed to serving as a goal in itself.

From the COVID-19 pandemic to the wars in Ukraine and the Middle East, to the cost-of-living crisis, Europe’s competitiveness and reducing its dependence on market giants like the USA and China have dominated as strategic imperatives. This will be exacerbated by an expected increase in support for conservative groups such as the European Conservatives and Reformists (ECR) and the Identity and Democracy Group (ID) in the European Parliament. These parties have already signalled their intention to shift the EU’s focus towards lessening the burden on industry and boosting growth instead of protecting the environment. Importantly, these groups share the belief that the EU Green Deal has harmed the EU’s competitiveness and weakened its business landscape, therefore considering it necessary to prioritise competitiveness over sustainability ambitions.

That being said, let us not think that ESG business requirements will fade away after 9 June. Instead, it will be crucial for businesses moving forward to leverage their ESG endeavours to demonstrate that they are contributing to a much more pressing issue – safeguarding the competitiveness and resilience of Europe’s industry.