3 Lessons Learned from VW, Exxon Scandals

VW emissions scandal

by | Nov 12, 2015

VW emissions scandalNew details in the Volkswagen emissions scandal emerge almost daily as the scope of the investigations — and the number of cars involved — continues to grow.

Last week Volkswagen admitted that some 800,000 vehicles from the VW Group, including gasoline cars and additional model years of VW and Audi diesel vehicles, as well as Porsche diesel vehicles, are involved.

German car regulators on Wednesday said they are expanding their investigation beyond Volkswagen to more than 50 models from brands including BMW, Mercedes, Ford, Volvo, Nissan and Jaguar Land Rover.

Meanwhile, in the energy sector, the ExxonMobil climate change cover-up scandal also looks to be expanding to other companies. Just days after launching an investigation into whether Exxon lied to the public and investors about climate change risks, New York attorney general Eric T. Schneiderman on Monday said an investigation by his office found that Peabody Energy violated New York laws prohibiting false and misleading conduct in the company’s statements to the public and investors regarding financial risks associated with climate change.

The New York Times reports prosecutors may decide to investigate other companies that funded or joined organizations such as the American Legislative Exchange Council that questioned climate science or policies designed to address the problem, to see if discrepancies exist between the companies’ public and private statements.

“ExxonMobil is not alone,” Stephen Zamora, a professor at the University of Houston Law Center, tells the New York Times. “This is not likely to be an isolated matter.”

While there are obvious differences between VW and Exxon — “Nobody expects Exxon to be an environmentally friendly company while VW stakes its reputation on this,” says Mark Bünger, Lux Research’s VP of research — there are common lessons to be learned from both companies’ mistakes.

1. This is the Tip of the Iceberg

As Ford, BMW, Volvo and other automakers are now learning, the investigations aren’t likely to stop with VW and Exxon.

“Energy companies and others that have made disclosures related to climate change would be well advised to carefully review their disclosures, knowing that government agencies and private entities may be scrutinizing disclosures for misstatements,” says John Marti, a partner at the international law firm Dorsey and Whitney. Before joining the firm Marti was a federal prosecutor in the US Attorney’s Office for the District of Minnesota. “With climate change a front and center political topic firms should expect more investigations to come.”

Automakers have found ways to cheat emissions tests almost from the time governments began testing vehicles, Bloomberg reports. Cars in the 1970s used “defeat devices” that turned off the emission systems when the air conditioning was turned on while others used sensors to activated pollution controls only at the temperature regulators used during the emissions tests.

Bünger says other cheats make the test car lighter and less wind-resistant than production vehicles by removing seats and taping over gaps in the doors or vents in the grille, for example. “These cheats were technically legal and an open secret,” he says, “apparently because regulators are spineless, and led to actual emissions overall to be three to five times the stated limits. It’s also a difference of degree — not kind — in all the types of cheating that goes on in emissions tests.”

2. Be Transparent and Collaborate

“Obey the letter of the law and the spirit of the law,” Bünger says. “Don’t try to sweep things under the rug.”

Exxon’s in hot water because of allegations that its scientists conducted cutting-edge climate research decades ago and then led efforts to block anti-climate change action, while misleading investors about the risks climate change posed to its businesses.

Transparency — or a lack thereof — caught up with VW, as well.

Bünger says the idea that secrecy is the only way to protect business interests is one that automaker and other manufacturers must move away from. “In some cases it’s less safe than being open,” he says. “Make your process transparent. Everybody is smarter than anybody. More eyes helping makes your locks on the cars stronger, your algorithms for collision avoidance stronger. All those things perform much better when they are available for everybody to scrutinize.”

Transparent processes and industry collaboration results in better products, Bünger says.

3. Double Down on CSR

Exxon VP Ken Cohen last month issued a statement saying the fact that the company has produced more than 50 peer-reviewed publications on topics including the global carbon cycle, detection and attribution of climate change, low carbon technologies and analysis of future scenarios for energy and climate shows that Exxon is serious about advocating for low-carbon policies. It doesn’t seem to have been enough to convince investigators or the public.

To restore its reputation and credibility, Volkswagen — or any company that finds itself in a CSR scandal — needs to double down on its efforts to prove it’s a good environmental and social citizen, says Gregg Sgambati head of ESG solutions at S-Network Global Indexes.

“Volkswagen can maintain and strengthen its non-product related environmental impact,” Sgambati says. “But to repair its credibility, it would be well served to exceed the practices of its industry peers and establish new best practices in other areas. For example, the industry overall does not use a large amount of renewable energy sources in comparison to its total energy consumption. By addressing this, Volkswagen could position itself as a new leader in the automotive industry. Or internally, the company can employ environmental screening on its internal investment selection process for its corporate investments and benefit plans.

“Sometimes the only way to correct sustainability violations is to protect the environment in some other way. Volkswagen now needs to be an environmental hero where others are not.”

Photo Credit: VW emissions scandal via SGM / Shutterstock.com

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