Annual Report 2023

Group Management Report

Do no significant harm (DNSH)

The DNSH criteria were analyzed in the reporting year for economic activities covered by 3.3 Manufacture of low-carbon technologies for transport, 3.18 Manufacture of automotive and mobility components, 3.2 Manufacture of equipment for the production and use of hydrogen and 3.6 Manufacture of other low-carbon technologies.

In the vehicle-related business, an analysis was performed largely at the level of the production sites where passenger cars, light commercial vehicles, trucks, buses and components are or will be produced that meet the screening criteria for the substantial contribution of economic activities 3.3 Manufacture of low-carbon technologies for transport and 3.18 Manufacture of automotive and mobility components, or that are to meet them in future according to our five-year planning, and based on current regulations. Of the approximately 40 sites included, the majority are located in the EU, with some in the United Kingdom, Türkiye, South Africa, the USA, Mexico, Brazil, Argentina, China and India. We also included the sites that manufacture specific components for electric vehicles.

For the Power Engineering Business Area, an analysis was performed largely at the level of the production sites that produce relevant components for systems or are responsible for supply chains that meet the screening criteria for the substantial contribution of economic activities 3.2 Manufacture of equipment for the production and use of hydrogen and 3.6 Manufacture of other low-carbon technologies, or that are to meet them in future according to our five-year planning. These comprise five sites in Germany, one in Switzerland and one in Sweden.

The wording and terminology used in the EU Taxonomy are subject to some uncertainty in interpretation. To some extent, the Taxonomy goes beyond the regulations to be applied in regular business operations. In addition, the application of the EU Taxonomy to sites outside the EU leads to particular challenges due to the possibility of diverging legislation. Below, we set out our interpretation and describe the main analyses we used to examine whether there was any significant harm to the other environmental objectives. Our assessments confirmed that we met the requirements of the DNSH criteria in the reporting year in the vehicle-related business at the sites producing passenger cars, light commercial vehicles and components, at the sites of the European truck and bus brands, and in the Power Engineering Business Area.

Climate change adaptation

We performed a climate risk and vulnerability assessment to identify which production sites may be affected by physical climate risks. The physical climate risks we identified were assessed on the basis of the lifetime of the relevant fixed asset.

Volkswagen’s climate-based DNSH assessment is based on the Representative Concentration Pathway (RCP8.5) and on the Shared Socioeconomic Pathway (SSP5-8.5) scenario to the year 2050 and thus assumes the highest concentration of CO2 according to the Intergovernmental Panel on Climate Change (IPCC). The relevance of the identified threats was assessed for the local environment and, if appropriate, the measures needed to mitigate the risk were developed.

Sustainable use and protection of water and marine resources

We evaluated our economic activities with respect to the sustainable use and protection of water and marine resources looking at the three following criteria: preserving water quality, avoiding water stress, and an environmental compatibility assessment (EIA or comparable process). Risks identified in an EIA are examined during the approval process and, if relevant, result in measures and regulatory requirements. We based the analysis primarily on ISO 14001 certificates, information from site approvals and other external data sources related to sites with a high risk exposure.

Transition to a circular economy

Environmentally compatible waste management in the manufacturing process, reuse and use of secondary raw materials and a long product lifespan are major aspects of Volkswagen’s environmental management system. Volkswagen defines guidelines on the circular economy in its environmental principles, in its overall factory white paper and in its goTOzero strategy.

The product-related requirements for passenger cars and light commercial vehicles are taken into account through implementation of the statutory end-of-life vehicle requirements in conjunction with the type approval of the vehicle models. In addition to this, each brand has targets and measures for the use of recycled materials in new vehicles.

For trucks and buses, a review was conducted at the level of each brand to establish the extent to which local legislation or internal rules and regulations cover the specific requirements.

In the Power Engineering Business Area, a major lever for the circular economy can be found particularly in a long product lifespan, supported among other things by our retrofitting business.

Pollution prevention and control

To be considered environmentally sustainable, an economic activity may not significantly increase air, water or soil pollutant emissions as compared with the situation before the activity started.

Overall, the automotive sector is already tightly regulated, as demonstrated for example by the publicly accessible Global Automotive Declarable Substance List (GADSL). Approval and monitoring processes have been implemented with the aim of ensuring compliance with the legal requirements and internal rules and regulations applicable to regular business operations. In this context, we also already consider the use of alternative substances in our analyses and assessments.

In July 2023, the European Commission revised the DNSH criterion of the EU Taxonomy. There is room for interpretation as to the effect that the changed requirements will have on internal processes related to the assessment of substitution options for substances of very high concern (SVHC) in the 2023 reporting year.

In the vehicle-related business, standards and processes stipulating in principle that SVHCs should be avoided and substituted are already in place. On this basis, our analyses look at the substances contained in the process materials used in production and in the vehicle-related components of our all-electric vehicles, and at the suppliers of these materials and components, in order to assess whether the SVHCs can be substituted, taking into account factors such as technical and economic criteria. We use pilot projects to test the processes and documentation for assessing substitution options in accordance with the amended EU Taxonomy requirements. It has not yet been possible to verify whether the sites of the truck and bus brands that operate only outside the European Economic Area comply with the new regulations due to factors such as the inadequate lead time for implementation.

In the Power Engineering Business Area, the corresponding processes include surveys relating to the substitution assessments and guidelines for performing these assessments.

Protection and restoration of biodiversity and ecosystems.

In order to verify adherence to the requirements on biodiversity and ecosystems, the relevant areas were identified. Where biodiversity-sensitive areas are located close to a production site, we checked whether a nature conservation assessment had been performed and whether nature conservation measures had been defined in the environmental approvals and subsequently implemented. We also checked whether changes had occurred in an area’s conservation status.