impak Battle : Michelin vs Renault
About the author: impak, the independent impact rating agency, regularly publishes content providing transparent data on the social and environmental impact of companies. By doing so, it aims to accelerate the transformation towards a stakeholder economy generating an overall positive contribution to society.
About the financial commentator: With nearly €14.7 billion in assets under management, VEGA Investment Managers is the wealth management expertise arm of the BPCE Group – the second largest banking group in France. VEGA IM designs tailor-made financial solutions through its four core businesses: Collective Management, Management Under Mandate, Premium Advisory Management and Fund Selection in open architecture. The company is particularly recognized for its expertise in European markets and its “Growth” management style and has developed a Responsible Investor approach; 10 UCIs in the range are labelled SRI (figures as of 06/30/2022).
The impak Battle - VEGA Responsible Transformation Series
While the transportation sector plays a crucial role in our lives, it is also at the heart of the ecological transition that our societies will undergo in the coming years. The automotive market in particular is destined to change, as much because of the growing demand for electrified modes of transportation as because of regulations that require greater consideration for the entire life cycle of vehicles and related products. The face-off in this impak duel is composed of two French companies from this sector in transition and members of the CAC40. On the one hand, Renault, a French car manufacturer present in 39 countries and employing over 170,000 people worldwide. On he other side, Michelin, a multinational tire design company operating in more than 18 countries and employing more than 110,000 people. This impak duel is based on 2020 data made public by both companies.
🇺🇦 The Ukrainian crisis
Having started in 2022, the companies' responses to the Ukrainian crisis are not part of this analysis. However, as the conflict is taking on important economic and social dimensions in all sectors, it is important to situate Michelin and Renault in the face of this situation. Michelin was quick to affirm its "support for the victims of this conflict". Like many European companies, Michelin has been faced with major logistical challenges related to the transportation of supplies. The company also says it supports "local initiatives in favor of humanitarian aid to refugees". As for Renault, it was also hit hard by the crisis as it is estimated that a significant part of its operating margin comes from Russia, mainly through its subsidiary AvtoVaz. Following international pressure, in particular from the Ukrainian president, the company has decided to suspend all its operations in Russia until further notice.
Michelin does not have any positive activities that were included in this analysis. Nevertheless, it should be noted that the company develops hydrogen-based mobility solutions that are carbon neutral and do not emit any emissions into the air. This activity, which represents less than 0.01% of its revenues, contributes to MDG 9.4 on the adoption of green technologies within the industry, but could not be retained due to its non-material activity percentage. This positive activity that was not selected is categorized as B, which means that it benefits stakeholders (see methodological notes).
Renault: 40/500 Winner
Renault has two material positive activities representing a total of 0.05% of the company's revenues; thus contributing to SDG 11.2 on access to public and green transport for all, and to SDG 12.5 on improving infrastructure for a circular economy. Renault therefore dedicates 0.04% of its activities to offering electric vehicles as part of car-sharing services and 0.01% to recycling and reusing its end-of-life vehicle fleet. These two activities are also considered B since they benefit the stakeholders.
Why VEGA IM has chosen Michelin
After 130 years of existence, Michelin is today a globally recognized brand and a group that will become the world's number one in 2019 (ahead of Bridgestone with a 15% market share). 75% of its business is in the replacement segment, which gives it greater recurrence, and 25% of its business is in specialty tires, an oligopolistic and much better-margined segment (mining, agricultural, construction, 2-wheelers). The Group is the historical leader in the premium segment and enjoys strong pricing power in this segment. Thanks to its technological lead, Michelin is also a leader in electric vehicles, with tires that improve range, reduce noise and support the weight of batteries and the high acceleration of these vehicles. Michelin also provides breakthrough solutions in its core business, such as puncture-proof tires and connected tires derived from racing. The research conducted by our engineering teams is also leading us into new areas of sustainable mobility, particularly hydrogen. Michelin aims to be a leader in the sector and at the end of 2019 created the Symbio JV with Faurecia, which is working on fuel cells, the production of StackPack (hydrogen kits for automakers) and the deployment of hydrogen stations. In the end, VEGA IM chose Michelin because it is a leading group in a resilient, innovative, price maker sector that is perfectly positioned on responsible issues and the decarbonization of mobility (electric, hydrogen) and very well managed. Analyse complétée le 26 juillet 2022.
Analysis completed on July 26 2022.
Mitigation of negative impacts
Of its 8 material negative activities, none are Z-rated - meaning that Renault's activity does not harm the SDG to which it is linked. It also means that the company has not been linked to any major controversies since 2018 and has mitigation measures in place for all of the activities considered material. Let's therefore take a closer look at why the negative impact score is so low. First of all, the company reports very little on its engagement with external beneficiaries in relation to both its environmental and social impacts. This suggests major shortcomings in this area and causes the company to lose several points. Secondly, the indicators that Renault reports represent only 85% to 89% of its activities, leaving a partial and incomplete scope of analysis. For these reasons, it received a score of 47 out of a total of 300
Michelin 109/300 Winner
Similarly, none of the seven negative impacts listed for Michelin are rated Z because the company has mitigation activities for all of them. The difference in score with Renault is mainly due to the fact that Michelin reports quality indicators for the majority of its negative activities and that its reporting scope is complete for most of them. In addition, the company demonstrates a more developed engagement with its beneficiaries than Renault for the majority of its negative activities. Finally, Michelin has set internal targets to improve the situation for 6 of the 7 material negative impacts it has identified - as has Renault for 3. For these reasons, the company won for this sub-score and obtained a total of 109 points out of a total of 300.
Michelin 104/200 Renault 107/200 Winner
The performance of the two companies on this sub-score is very similar, although Renault comes out ahead by a small margin. The latter is supported by a governance structure that evaluates a large part of its value chain on environmental and social impact issues. In addition, unlike Michelin, Renault includes employee representatives on its Board of Directors. Finally, although Michelin makes greater use of its impact indicators to inform its beneficiaries, Renault demonstrates a greater maturity in terms of governance.
Michelin wins 🎉
With a final score of 191 for Renault and 213 for Michelin, the duel between these two automotive companies is close. However, Michelin is ahead of the pack thanks to the quality of the information it reports and its clearer commitment to its external beneficiaries. Renault, on the other hand, is penalized by the incomplete scope of the information it reports, despite its positive activities and its slightly higher governance score.
It's no secret that companies play a central role in the fight against climate change, especially in the automotive sector. The companies analyzed today demonstrate good intentions in this area, but are in the middle of the pack for the sector. Indeed, Michelin and Renault have a plan to reduce their GHG emissions in line with the former's 2-degree trajectory recommended by the Paris climate agreement. Nevertheless, both companies report their GHG emissions according to the three scopes and implement mitigation activities that decarbonize part of their activities; actions that can be considered as the bare minimum in the current climate change context.
The methodology follows the IMP classification: A (Acts to avoid Harm), B (Benefits stakeholders), C (Contributes to solutions), and Z (Does or may cause harm). Note that according to our methodology, in the case of a Z, a certain penalty is assigned based on the following 3 factors: the type of Z (does cause harm or may cause harm), the repetition of the Z over time and, only in the case of a Z that ”does cause harm”, whether measures have been taken to mitigate this negative impact.
It is important to mention that companies may have some potential positive impacts that were not considered because of the limited information available or because they represent less than 0.01% of their activities. As positive impacts are based on their relationship to the Sustainable Development Goals (SDGs), they can overlap. The percentages of activities related to these impacts can therefore be non-cumulative.
The sub-score related to governance is based on several criteria analysing the integration of impact mechanisms within the company. Thus, the role of the various beneficiaries in decision-making, the analysis of its impacts within the value chain and the assignment of a team dedicated to the impact mission are all important criteria for this section.
Given the significant growth in transparency and sustainability among investors, one or two years can make a significant difference to impak Scores.
*VEGA Investment Managers is in no way responsible for the information contained in this article. The analysis of VEGA IM does not constitute investment advice or recommendation.
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