Sustainability

Sustainability means maintaining intact environmental, social and economic systems with long-term viability at a global, regional and local level. The Volkswagen Group can influence these systems in various ways, and actively takes responsibility to make a contribution to their sustainability. We have thus developed a sustainable style of company management and put in place the necessary management structures.

We have also anchored our goal to sustainably shape mobility for present and future generations in our Group strategy NEW AUTO. Especially the Group’s "ESG, Decarbonization and Integrity" base initiative will drive this topic further.

The materiality process is used to identify and evaluate the most important sustainability issues for the Group. Based on the business model of Volkswagen AG and its social impacts, the focus is on key ESG requirements, stakeholder expectations and adherence to legal regulations and internationally established reporting standards.

The Company conducted a materiality analysis in 2022. In reviewing potentially material issues, we considered both external and internal company perspectives. As a result of this process, the focus areas of decarbonization, circular economy, supply chain and human rights, people & transformation, diversity, and integrity were classified as material by the Group Sustainability Steering Committee. The focus topics identified were reviewed in 2023, taking into account the requirements of the Lieferkettensorgfaltspflichtengesetz (LkSG – German Supply Chain Due Diligence Act) and changes in the material ESG ratings. As a result of this, the six focus areas were reconfirmed. They cover most of the requirements formulated in the ESG ratings for assessment criteria applied. Wherever this is already possible, each focus area is linked to clear goals and milestones, KPIs and appropriate packages of measures. ESG-related KPIs such as the decarbonization index and the diversity index are already today reflected in the remuneration of members of the Board of Management.

Decarbonization

The decarbonization of the Group and in particular its portfolio of products is a major part of the NEW AUTO Group strategy, where it has been defined as one of the focus areas in the base initiative. We have established the decarbonization index (DKI) as a key performance indicator: the decarbonization index measures the emissions of CO₂ and CO₂ equivalents (jointly referred to as CO₂e) by the brands that produce passenger cars and light commercial vehicles in the regions of Europe (EU27, United Kingdom, Norway and Iceland), China (including the Chinese joint ventures) and the USA over the entire life cycle. In this index, the use phase is calculated over 200,000 km and with reference to region-specific fleet values without statutory flexibilities. The CO₂e intensity of the charging current of the electric vehicles is also calculated based on region-specific electricity mixes. Our vehicle life cycle assessments, which are used as the data basis for calculating supply chain and recycling emissions, have been verified externally and independently in accordance with ISO 14040 and ISO 14044. The DKI gives us an informative measuring tool that makes our progress and interim results public and verifiable.

The DKI calculation methodology is regularly adapted according to internal and external requirements, such as new test cycles for fleet emissions. Published DKI values can therefore also be adjusted to the new methodology and thus changed to facilitate the presentation of a time series that is methodologically consistent. The Greenhouse Gas Protocol requires the recalculation of corporate emissions in the event of material new information or if changes occur. There may be various reasons to remeasure previous years’ emissions to enable a fair comparison with current emissions. These may include structural changes in the Company, for example. At the Volkswagen Group, changes to the calculation are decided on annually in a set process. Based on these decisions, we are currently working on recalculating historical emissions for the base years used in the current climate protection targets and on having these audited.

By 2030, the DKI is to be reduced by 30% compared with the base year 2018, and emissions offsetting will not be included in the figure. In the reporting year, the DKI value averaged 47.3 t CO₂e/vehicle. This represents a reduction of 0.5 t CO₂e/vehicle compared with the figure adjusted for 2022 due to a change in the assumption on which the calculation is based, for example the first-time inclusion of region-specific life cycle assessments for Chinese models.

Circular economy

The finite nature of natural resources and the social and environmental consequences of mining raw materials make decoupling economic growth from resource consumption and the development of a circular economy key sustainability topics. Policymakers at both international and national level have addressed these challenges and made it their mission to regulate markets more aggressively in the future in an effort to speed up the transformation towards resource efficiency and a circular economy. Another important driver of the circular economy is the progress in decarbonization at the Volkswagen Group. The growing use of secondary materials and establishment of closed material cycles can help to further reduce our CO₂ emissions. Recognizing the importance of the topic, Volkswagen anchored the topic of circular economy in the NEW AUTO Group strategy through its "ESG, Decarbonization and Integrity" base initiative.

The Volkswagen Group created and implemented concepts for the reconditioning and recycling of vehicle components from an early stage. These concepts are being constantly refined and are also adapted to the requirements of e-mobility. To intensify our efforts for a transition to a loop-oriented and resource-conserving approach to doing business, we have pooled expertise within the Group and are working on projects and measures on a cross-brand basis.

We are stepping up efforts to use recyclable materials in our vehicle projects. These currently include raw materials from production residues as well as renewable raw materials or natural fibers such as flax, cotton, wood and cellulose, provided they comply with all the technical requirements. In the future, the use of raw materials from end-of-life vehicles will be increasingly taken into account.

To preserve recyclable materials from electric vehicles, Volkswagen opened the Group’s first pilot facility for recycling high-voltage vehicle batteries at the Salzgitter site in early 2021. The objective is industrialized recovery of valuable raw materials such as lithium, nickel, manganese and cobalt.

More information on the focus areas can be found in the sections on integrity and compliance, procurement, production and employees, as well as in our Group Sustainability Report for fiscal year 2023.

Management and coordination

The Volkswagen Group has established a Group-wide sustainability management. The related structures, processes and responsibilities are codified in a specific Group policy. We view sustainability management as a continuous improvement process. The core elements include assumption of cross-functional overall responsibility for sustainability by the Chair of the Board of Management of Volkswagen AG as well as specification of the competence of the responsible Board members for specific sustainability management concepts and the newly appointed Chief Sustainability Officer at Group level. Sustainability is part of the Top 10 program at Group level and is managed through the strategic management structure of the NEW AUTO strategy. The content is regularly evaluated and reported to the Board of Management.

UN Global Compact

Volkswagen AG is a participant in the UN Global Compact (UNGC), the world’s largest initiative for sustainable corporate governance, and is involved in national and international initiatives together with other companies from the Group such as AUDI AG, MAN Truck & Bus SE, Porsche AG, Scania AB and TRATON SE. Fund managers in the capital markets view membership of the UNGC as an important factor when deciding to invest in shares and bonds. ESG funds have become very popular in recent years and indispensable for stakeholders. As part of the annual Communication on Progress, the Volkswagen Group and its brands report on their progress in implementing the ten UNGC principles and their activities to support the Sustainable Development Goals (SDGs).

Strategic stakeholder management

Our stakeholders are individuals, groups, or organizations who have an influence on or are influenced by the course or the result of corporate decisions. Our customers and employees are at the center of our stakeholder network. Based on continuous stakeholder analysis, we have also identified eight more stakeholder groups. Some of the Group’s bodies – currently including the Supervisory Board and Works Council – perform an oversight and advisory role and also act as interfaces between internal and external stakeholder groups.

We understand stakeholder management as systematic interaction with key interest and stakeholder groups within society on the key topics and objectives of our NEW AUTO Group strategy. Our goal is an open, constructive and also critical exchange with the stakeholder groups shown in the following chart. We aim to promote implementation of their requirements and expectations and to actively shape central strategic issues.

After restarting our interaction activities in 2022, we began to restructure our stakeholder management in the reporting year with the aim of listening to and integrating the suggestions and recommendations of our stakeholders even more effectively in future. Alongside the traditional forms of interaction, which include surveys and regular dialog with our stakeholders, new formats are to be added to create opportunities for interactive and transparent discussion of important, strategic and socially relevant sustainability topics.

VOLKSWAGEN GROUP STAKEHOLDERS

Sustainability Council

At Group level, the Sustainability Council has a prominent position. This advisory body provides assistance to the Volkswagen Group with important, strategic sustainability issues and is made up of internationally renowned experts from the academic world, politics and society. It establishes its own working methods and areas of focus independently, has far-reaching rights for the purposes of exchanging information, consultation and initiating action, and consults regularly with the Board of Management, top management and the employee representtatives. The term of office of the existing members expired at the end of 2022. In the reporting year, we began to reorganize the strategy and composition of the Sustainability Council. Further information is available on the Sustainability Council’s website at www.volkswagen-group.com/sustainability-council.

Corporate citizenship

As a globally operating company and good corporate citizen, we aim to be a source of economic impetus for local structural development and equal opportunities. We have always believed in the importance of recognizing our social responsibilities toward our stakeholders. The main focus of our corporate social engagement activities is on supporting future, environmental, educational and community projects at many of our sites across the world.

Environmental Strategy

As one of the largest automobile manufacturers, Volkswagen takes responsibility for the environmental impact of its activities. Based on the NEW AUTO Group strategy, we have put greater focus on our environmental targets. With our environmental mission statement goTOzero, we aspire to reduce environmental impact along the entire life cycle – from raw material extraction until end-of-life – for all our products and mobility solutions in order to keep ecosystems intact. Compliance with environmental regulations, standards and voluntary commitments is a basic prerequisite of our actions.

Our focus is on four prioritized action areas:

• Climate
  We are committed to the Paris Climate Agreement and are aiming for the 1.5-degree target. We consistently focus on the electrification of our products, decarbonization of our entire value chain and expansion of renewable energy generation to supply our sites and customers. We intend to be a net-carbon-neutral company by 2050 at the latest.
• Resources
  We reduce the volumes of primary raw materials needed by using recycled material and renewable raw materials. We maximize our energy and resource efficiency and establish loops for materials and water. Together with our business partners we cut down on the amount of natural resources utilized throughout our supply chain.
• Ecosystems
  We reduce harmful emissions in air, soil and water. We mitigate the impact of our business operations on biodiversity and ecosystems and support projects to conserve these.
• Environmental compliance
  Where integrity and compliance are concerned, we aim to be a role model for a modern, transparent, successful enterprise. We use effective environmental compliance management systems to identify and manage environmental risks and opportunities throughout the lifetime of our mobility solutions. We conduct open dialog with our stakeholders and incorporate their expectations into our decisions.

Organization of environmental protection

Volkswagen has created an environmental policy that sets out guidelines for environmental decision-making, for the management of projects and for the Group’s environmental stewardship. Thus, parameters are set for the conduct and working methods of management and staff in five areas: management behavior, compliance, environmental protection, collaboration with stakeholders and continuous improvement.

The Board of Management of Volkswagen AG is the highest internal decision-making body for environmental issues. Both it and the brands’ boards of management take not only business, but also social and environmental criteria into account when making key company decisions. The Group-wide management of environmental protection is the responsibility of the Group Steering Committee for the Environment and Energy. Other bodies take responsibility for steering key individual aspects. They include the Group CO₂ Steering Committee and the Group Steering Committee for Fleet Compliance.

The Volkswagen Group coordinates the activities of the brands, which in turn steer the measures in the regions. The brands and companies are responsible for their own environmental organization. They base their own environmental protection activities on the targets, guidelines and principles that apply throughout the Group.

Achieving compliance with environmental laws and regulations at all of our sites is a top priority for Volkswagen. Furthermore, we are guided by Company standards and targets. We regularly train our employees on environmental protection and environmental compliance. The intention of our environmental compliance management systems is to ensure that environmental aspects and obligations are given appropriate consideration in our business operations. Disregard for environmental obligations, fraud and misconduct are treated as a severe compliance violation and penalized accordingly. Compliance with our Environmental Policy Statement and with other Group environmental requirements is evaluated annually and reported to the Board of Management of Volkswagen AG and the respective brand boards of management.