I recently returned from a holiday in Costa Rica. Sloths and toucans aside, one of the most impressive things about what in 2016 was deemed one of the happiest countries in the world, was its green energy policy. The country aims to be the first carbon-neutral economy by 2021 and have a 100% renewable energy matrix by 2030. Even the OECD has recognised this.
Today, approximately 94% of its energy comes from renewable sources, mainly hydro, wind and geothermal, one of our guides told us, when we stopped off in sight of some wind farms. Other sources state the figure as even higher.
However, there is one thing that is standing in the way of reaching the government targets. Cars. And their growth on the roads of Costa Rica and everywhere else in the world as people become more affluent to be able to afford their own cars.
Whether you are stuck in traffic in Mexico City, Sao Paolo, Paris, New York or London, the chances are you have at some point witnessed the frustrating and polluting effect of too many cars on the roads.
Ambition to change
The aim by many governments around the world now is to switch our mode of transport from vehicles fuelled by gasoline or highly controversial diesel to those powered by electricity. Ambition is a good thing and target-setting is laudable. The Costa Rican government, for example, uses taxes collected on the sale of fossil fuels to pay for the protection of forests.
But having travelled far and wide from the Pan-American Highway in Costa Rica, to rural country lanes in Poland and dirt tracks in South Africa, it is difficult to imagine all those roads being populated by electric cars.
For a start, where would these be charged? Will there ever be a wide enough variety of electric vehicles so they can manage even the toughest of terrains? And it is important to note that for the foreseeable future electricity is still being produced by utilities run on fossil fuels.
We have a longstanding intensive engagement with the automotive industry, addressing everything from governance to emissions.
For vehicle manufacturers to stay ahead of the curve, it is important to acknowledge the move towards a low-carbon economy, including upcoming tighter environmental regulation. Their product pipelines need to reflect this move by re-focusing on sustainable technologies beyond the production of purely fossil-fuelled cars – such as for example hybrids – and other forms of mobility services.
We have challenged many motor manufacturers on their sustainable vehicles portfolio, including on zero-carbon drivetrain technologies. And although petrol and diesel-powered cars will continue to exist for the foreseeable future, we will push for a growing percentage of the overall sales of car manufacturers to come from electric vehicles that are relevant in terms of specification and price.
However, the journey to cleaner cars comes with roadblocks. One key challenge for the sector is the further reduction of battery costs to allow the phasing out of subsidies and improve the capacities of advanced vehicles. A lack of charging points is another. For automotive companies, innovation in alternative driving technologies is therefore key. This can include capital expenditures on research and the development of new technologies, more fuel efficient engines, better-performing batteries and the use of lighter materials.
The Volkswagen scandal was, in our view, a contributing factor to the transition that is now happening at a greater pace in the automotive industry and has led to a growing awareness of emissions, the drawbacks of diesel and sustainable drivetrain technologies.
In our engagement, we will continue to press car manufacturers to develop a sound roadmap for sustainable vehicle models. We want them to set out a strategy designed to reduce fleet emissions over the next 20 years and publicly back policies that support emissions reductions over time. We also continue to collaborate with the Institutional Investors Group on Climate Change and the European Commission on climate change regulation, emission testing regimes and the future of the automotive industry.
It may be too late to meet Costa Rica’s green energy targets. But we are engaging with the car industry on cleaner vehicles to ensure that change is underway and gathering momentum.