When the German car maker Volkswagen started cheating the emission testing process for its diesel vehicles in the US, misleading the public as to the environmental impact of its products, it could never have predicted the fallout.
The scandal – which involved some 11 million cars responsible for the same amount of pollution as the greenhouse gas emissions of all UK power stations, vehicles, industry and agriculture combined, according to Guardian analysis – wiped billions of dollars off the company’s share price. It lost almost a quarter of its market value in the days following.
Executives are now in the throes of making “painful” cuts across the business, with CEO Matthias Mueller telling his 20,000 staff “anything that is not absolutely necessary will be cancelled or postponed.”
Whether VW ever makes a comeback will depend very much on car sales being generated by a general public willing to forgive and forget being duped by their favourite brand. Right now, trust in VW is at an all time low and the $14.7 billion settlement figure designed to appease owners of the 475,000 cars affected in the US is not likely to go far enough in rebuilding VW’s reputation as a great manufacturer of cars.
‘Dieselgate’ is just one in a long line of corporate environmental and social misdemeanours – from BP’s Gulf oil spill, to revelations that Exxon has poured billions of dollars into climate denial lobbying.
Fuelled and encouraged by social media interaction and a wealth of internet-provided information, consumers are becoming increasingly savvy about how companies are (or should be) run and incredibly unforgiving of environmental misdeeds.
The latest Eco Pulse 2015 study, an annual survey which takes the temperature of consumer spending and behaviour, shows that the percentage of people who said they had stopped buying a product based on the environmental reputation of a company has jumped up fairly dramatically in the last 12 months – from 11 per cent to 33 per cent. “That’s pretty significant, especially when you consider this same question has been asked for nearly a decade and the percentage has always been around 12 per cent, give or take a few percentage points,” says Jim Lyza, a research analyst with Shelton Group, the organisation behind the survey.
VW’s domination of the news media no doubt contributed to the Eco Pulse responses.
So too have the various crises engulfing the popular fast food chain Chipotle. An outbreak of E.coli, the suspension of its major pork supplier for breaking animal welfare protocols and the Center for Consumer Freedom’s decision to take out a page ad in the New York Post declaring Chipotle’s food to be unhealthy and its marketing hypocritical have taken their toll on the business, resulting in a stock price drop of 36 per cent in the six months that followed.
While being entirely detrimental to the planet, corporate sustainability scandals could, at the same time, be something of a blessing in disguise. The expense of cleaning up the mess caused by environmental ills, and the knock effect of share price demise, will no doubt force CEOs everywhere to sit up and take notice. As Steven Cohen of Columbia University’s Earth Institute notes: “The risk of such a mistake provides leverage to people inside corporations attempting to bring the physical dimensions of sustainability into routine corporate decision-making.”
While VW plans to cut €1 billion a year from its R&D budget to fund customer recalls, it is also throwing its weight behind the zero- and low-emission vehicle market, promising that its next-generation Phaeton will switch to become an electric limousine. It will also fast-track the use of hyper-clean diesel technologies and develop a new generation of electric vehicles with projected ranges of between 150 and 300 miles.
Meanwhile, at Chipotle, sticking to its guns on sustainable sourcing will no doubt pay off. While searching for a new supplier to replace its suspended provider of pork, a third of its restaurants failed to offer pork, hoping to entice diners to try steak or chicken instead. They didn’t, and the company paid the price – a situation which has since improved now that responsible pork suppliers have been found in markets across the globe.
Clearly, no company wants to be embroiled in a scandal that exposes their neglect for planet and people. Yet it is often only in the wake of such incidents that communities, politicians and business leaders rally in taking action to ensure they never fall victim in the same way.