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Car makers under scrutiny in EOS’s Q1 Public Engagement Report

The Q1 Public Engagement Report from EOS at Federated Hermes focuses on the car market, where instead of making real progress towards Paris Agreement goals, many auto manufacturers are exploiting offsets and loopholes to meet EU emissions standards.

Fast reading

  • Why car makers need to accelerate their transition to electric vehicles
  • How virtual AGMs can support investor stewardship
  • Company engagement case studies featuring Daimler and Pfizer

The top 10 automotive groups account for 90% of EU-wide auto emissions and hold the keys to change. Yet a Federated Hermes analysis has identified erratic progress towards Paris Agreement-alignment, with car makers exploiting exemptions and loopholes within the EU’s regulatory framework. As a result, overall emissions have risen not fallen.

Meanwhile, due to air quality concerns, several EU countries are introducing complete bans on internal combustion engine (ICE) vehicles by 2030. The cover story in EOS’s Q1 2021 Public Engagement Report examines why faster adoption of battery electric vehicles must be a priority for auto companies, given this backdrop of tightening policy.

Aside from worries about the pollution legacy of the petrol and diesel cars still on sale today, the EU’s 3.7 million car industry employees will need to be reskilled, or they will bear the brunt of a disorderly transition. There is also a need to roll out charging points and other supportive infrastructure to enable rapid consumer take-up of electric vehicles. The removal of regulatory loopholes would force companies to make the necessary changes sooner rather than later.

EOS is engaging with car manufacturers on this topic, seeing a risk that companies waste time and money developing and investing in hybrid technologies that do not perform as well in the real world as is claimed, or fall foul of tighter policy come 2030. It would make more sense to leapfrog hybrids and go fully electric. To get there, companies must not only invest in R&D, they must commit sizeable capex to reconfiguring production lines, and change their approach to marketing and sales.

Going virtual

As the 2021 voting season continues, EOS also explores how virtual shareholder meetings adopted out of necessity by companies during the pandemic can support investor stewardship – if they are conducted well. Last year EOS saw some worrying practices, with annual shareholder meetings held behind closed doors, or virtual meetings with limited or no opportunity for shareholders to put questions to the board. As a result, shareholder rights were eroded.

However, virtual meetings can increase investor participation, as shareholders are freed from the need to physically travel to a venue. The key is to ensure that there are opportunities for live interactions. Andy Jones, an engager at EOS, sets out some good practice principles that cover virtual, hybrid and physical meetings and apply to most countries. These aim to maximise the value of the meeting for both company and shareholder.

“We support the shareholder right for any shareholder or proxy attending to speak at the meeting,” he says. “In all cases the board and management should seek to genuinely answer questions, with a substantive response. Shareholders should be able to challenge the board where this is not the case and ask for more detail and clarification. In recent years we have seen a decline in the willingness to provide meaningful and insightful responses and we will call this out where observed.”

Finally, the report includes several public case studies highlighting EOS’s engagements, including with Daimler on climate change and Pfizer on diversity levels and lobbying disclosures.

To find out more, read the EOS Q1 Public Engagement Report.

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