Ford Goes Further to Curb Climate Change

Ford's efforts to combat climate change amid new pressures from the private sector.

When most people think of recent large-scale efforts to combat climate change, the Paris Climate Change Conference usually comes to mind. At this conference, most of the world’s nations committed “to curb GHG emissions and keep temperature increases ‘well below’ 2ºC.” [1] However, the private sector also took a major step towards curbing GHG levels by letting their money do the talking. Last month, the Institutional Investors Group on Climate Change (IIGCC), who collectively manage $24 trillion in assets, sent a clear message to the automotive industry: get serious about climate change, or lose our support. [2] This presents a large incentive for the automotive industry to do their part to combat climate change, lest their stock prices suffer. This post will specifically investigate how Ford is affected by climate change, what steps it has taken to address these affects, and what can still be done.

Production of the Ford C-Max
Production of the Ford C-Max [3]
As a large player in the automotive industry, Ford is affected by climate change in a number of ways. First, as regulation of emissions increases, Ford will inevitably need to lower the emissions that come from the automobiles they sell as well as from the manufacturing process by which the automobiles are built. Second, financial constraints that organizations like the IIGCC are imposing will also force Ford’s hand by imposing further costs to ignoring climate change. Finally, as consumers become more environmentally conscious, they will be more likely to purchase either hybrid or electric vehicles, affecting the aggregate demand in the automotive industry.

To address the issues related to climate change, Ford has rolled out a sustainability program with a three-pronged strategy:

  1. Continuously reducing the greenhouse gas (GHG) emissions and energy usage of our operations
  2. Developing the flexibility and capability to market lower-GHG-emission products, in line with evolving market conditions
  3. Working with industry partners, energy companies, consumer group and policy makers to establish an effective and predictable market, policy and technological framework for reducing GHG emissions [4]

This strategy directly addresses the most pressing climate change issues facing the automotive industry. For their efforts, Ford’s global manufacturing CO2 strategy received recognition at the US Environmental Protection Agency’s Climate Leadership Awards Ceremony and Conference. [5] The company is evidently making great strides in their climate change strategy, embracing their role as a recognizable brand, and setting a precedent for other automotive companies to follow.

In examining what additional steps Ford might consider taking with regards to their GHG emissions strategy, one can use the five key demands raised by the IIGCC in “Investor Expectations of Automotive Companies: Shifting gears to accelerate the transition to low carbon vehicles”, paraphrased below:

  1. Create governance to ensure board and management responsibilities for climate change are clearly defined
  2. Identify long-term strategy to make business resilient to climate change
  3. Create robust greenhouse gas emissions reduction plan
  4. Engage pro-actively with public policy makers to accelerate the transition to a low-carbon economy
  5. Increase transparency of fleet and manufacturing emissions in annual reports [6]

There is evidence on Ford’s website that they are actually making progress on all five of these key demands. Ford should focus further on these existing efforts, and also act as a thought leader in the automotive industry, encouraging automotive companies similar to their own to adopt similar practices. It should be noted that while demands from these investors might seem to come from a place of altruism, in all likelihood the primary driver of this comes from fear that climate change regulations will cripple automotive firms that are unprepared to deal with the consequences. Whether these investors are altruistic in nature, or merely protecting their investments, their efforts are welcomed by all those concerned by climate change. (616 words)

 

[1] – Rebecca M. Henderson, Sophus A. Reinert, Polina Dekhtyar, and Amram Migdal, “Climate Change in 2016: Implications for Business,” HBS No. N2-317-032 (Boston: Harvard Business School Publishing, 2016), p. 9.

[2] – Terry Macalister, “Investors warn car industry over climate change,” The Guardian, October 12, 2016, [https://www.theguardian.com/environment/2016/oct/12/investors-warn-car-industry-over-climate-change], accessed November 2016.

[3] – U.S. Department of Energy, “The History of the Electric Car,” Breaking Energy, September 15, 2014, [http://breakingenergy.com/2014/09/15/the-history-of-the-electric-car/], accessed November 2016.

[4] – Ford, “Ford’s Climate Change Strategy,”  https://corporate.ford.com/microsites/sustainability-report-2014-15/environment-climate-strategy.html, accessed November 2016.

[5] – Ford, “Developing Our Stabilization-Based Climate Change Strategy and CO2 Reduction Targets,” https://corporate.ford.com/microsites/sustainability-report-2014-15/environment-climate-strategy-stabilization.html, accessed November 2016

[6] – Institutional Investors Group on Climate Change. “Investor Expectations of Automotive Companies.” 2016. [http://www.iigcc.org/files/publication-files/IIGCC_2016_Auto_report_v13_Web.pdf], accessed November 2016.

 

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3 thoughts on “Ford Goes Further to Curb Climate Change

  1. Thanks for the insightful post on Ford. It is great to hear that the company is focusing on several differentiated strategies not only to mitigate its role in climate change, but also the role of consumers through more energy-efficient cars. Taking a more cynical approach, I wonder how much of Ford’s production of energy-efficient cars, particularly electric cars, is done for marketing and PR purposes, especially given the industry’s reputation in relation to climate change. Do you believe that Ford thinks consumers will buy electric cars? Although Tesla has been successful in this space, I wonder if that is because it is marketed as a luxury brand.

    Also, what are your thoughts related to Ford’s third point on a predictable market for GHG emissions? As we saw in FIN class related to carbon credits, this market is prone to breaking down and there is no one right answer. As such, I think this piece of Ford’s goals will be harder to attain.

  2. I strongly support Ford’s efforts in influencing its industry partners. Companies like Ford have thousands of suppliers and are seen as role models by many participants in the marketplace. Therefore, investing into creating new standards not only for their own operations but also for the entire ecosystem built around Ford is a very efficient way to reduce GHG emissions. One question remains, how will Ford implement and monitor such a strategy?

  3. Thanks for the great post. Ultimately, I agree with Kelly’s cynicism regarding the lower emission car line–it is clear from the success of Tesla, BMW and others that there is a lot of consumer demand for electric cars, and Ford’s play here may be more business-oriented than altruistic. What surprises me is that Ford isn’t making the same types of investments in supporting electric car infrastructure as others in the space (e.g., Tesla’s Supercharger network).

    Regardless of the cynicism about their products, I do think Ford’s improvements to internal operations represent a great example of how a company can take the lead in addressing climate change, and they have been fairly rewarded with PR and goodwill to that end.

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