Everyone’s talking about sustainability, Dr. Bischoff, and so are we. What exactly do you understand by it?
Leaving the earth in a condition so that future generations can live with it as well as we do – that’s what I understand by sustainability. To achieve this, we must sustain the natural foundations of life, but also the societal foundations and – with high priority – the economic ones as well. What we need is a responsible balance between ecological, social and economic goals. This balance guides our strategy, so we don’t just talk about sustainability, we implement it.
Interview: Dr. Manfred Bischoff, Chairman of the Supervisory Board, on combining economic, environmental and social responsibility
Sustainability as a guiding principle
The new Mercedes strategy comprises six pillars. However, the Board of Management has made one topic a guiding principle across all of those six pillars: sustainability. What does that mean in concrete terms? How do we combine economic, environmental and social responsibility? Dr. Manfred Bischoff, Chairman of the Supervisory Boards of Daimler AG and Mercedes-Benz AG, explains the most important aspects in a comprehensive interview.
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Everyone’s talking about sustainability, Dr. Bischoff, and so are we. What exactly do you understand by it?
Can you give us a specific example?
Take the new strategy of Mercedes-Benz Cars. There, sustainability is the guiding principle for each of our six strategic fields of action. For example, when we plan to sharpen our profile as a luxury brand or to strengthen AMG, Maybach and the G-Class as sub-brands, we are doing that – legitimately – first of all because we expect to achieve high contribution margins. But in the context of a sustainable business strategy, it would not be legitimate to focus solely on economic objectives. We must also show why our strategy is justifiable also for the environment and society in general.
How can we show that AMG, Maybach and the G-Class are also sustainable?
In economic and social terms, these models stand for increased added value, which means that they make the overall “cake” bigger. They generate the funds for transformation; they also help to protect manufacturing jobs in a high-wage location like Germany. Without them, there would be less or nothing left to distribute. From an environmental point of view, we demonstrate our sustainability by making AMG, Maybach and the G-Class CO₂-neutral as well, and not only in driving operation, by the way, but over their entire lifecycle – from development to recycling. This is the transformation that it’s all about, and it’s a key element of our strategy: We’re making Mercedes the leading brand for electric mobility and vehicle software. We won’t be able to achieve this goal overnight. But the implementation is in full swing – and we will become even faster in the future.
”We’re making Mercedes the leading brand for electric mobility and vehicle software.”
Is it customer demand that’s driving the market for electric mobility? Or is it more the political CO₂ requirements?
Anyone who takes climate protection seriously – and we do – cannot simply extend the status quo into the future in one way or another. We are fully committed to the goals of the Paris Climate Agreement and defined a roadmap to get there at an early stage with our Ambition 2039. Our own passenger cars and vans plants will be CO₂-neutral as early as 2022. We are also involved in inter-company initiatives aiming for CO₂ neutrality ten years earlier than Paris actually plans. In the capital market, interest is growing in credible climate-protection strategies. And look at the recent development of customer demand for electric vehicles in Europe, especially for plug-in hybrids. So, all in all, there’s no longer any doubt about what the choice is: “sustainable business” or “out of business.”
You mentioned the capital market. Has Greta Thunberg reached the investors?
(Smiles.) The question of the sustainability of economic activity has been considered by the capital market for many years. Ms. Thunberg and many others have enormously boosted the environmental aspect – especially with regard to climate protection – but in my view have unfortunately neglected the economic and social aspects. On the capital market, sustainability is known by the abbreviation ESG: E for environment, S for social and G for governance. And it’s true that the number of ESG-related inquiries has been increasing significantly over the past year or two. Investors use ESG information primarily to evaluate risks in their portfolios. The EU is making progress here with its Green Deal.
What does that mean for Daimler?
We are preparing for further growth in demand for green investments. Last summer, we formulated a Green Finance Framework. It lays down the principles according to which, for example, we issued our first green bond for one billion euros at the beginning of September. Demand was enormous, and the bond was several times oversubscribed.
Talking about the Green Deal: From today’s perspective, will Mercedes be able to meet the expected tightening of European CO₂ targets for 2030?
I believe so; we are ready to play our part. But let me make it quite clear that the infrastructure necessary to achieve the goals, with green electricity, charging stations and distribution networks, is lagging far behind. This is where politics has to play its part, not only in setting targets, but also by ensuring that these goals can be achieved through appropriate initiatives and legislation. Customers will only purchase the required number of electric cars if the infrastructure is in place.
So instead of “gasoline in their blood,” Mercedes employees will have to have “electricity in their veins” in the future?
(Laughs.) “Electricity in their veins” sounds like it could be a health hazard. Perhaps “Mercedes electrified” would be better? More importantly, we are talking about a period of probably one to two decades. That’s how long we will need efficient gasoline and diesel engines. It’s still uncertain in what quantities.
Some countries have already committed themselves to earlier end dates for combustion engines.
And this discussion could gain momentum in 2021. In any case, we will also have Mercedes-quality offerings for purely electric markets. Nonetheless, I would warn against a political bidding race based on the question of who is going be the first to ban the registration of new combustion engines.
Why? Wouldn't an early phase-out date for combustion engines be beneficial for climate protection?
That’s questionable. It might sound climate-friendly, but it has to be measured in terms of the effective benefit for decarbonization. After all, what we need isn’t a phase-out date for certain technologies, but for CO₂ emissions. Efficient combustion engines can also help reduce these emissions, especially when green electricity is not generally available. We therefore advocate openness to different technologies. Apart from this, it’s clear that the necessary lane change requires a fundamental transformation, technically as well as in terms of personnel and culture.
Let’s talk about personnel transformation. What does that mean?
It means that we have to adapt our personnel planning to the changed requirements. We invest in the training of our employees and are competing for the best employees just as we are to produce the best electric cars. But we will only be able to hold our own in both competitions if we generate enough profit. Only profitable companies can provide work, pay taxes and finance our social-security systems. To achieve this, we have to lower our breakeven point.
Are the agreements reached with the employee representatives sufficient for that?
That depends on how the pandemic develops. A year ago – before covid-19 – the Board of Management agreed with the General Works Council on measures to protect jobs and cut costs. Then the coronavirus came along and we had to take another look. Still, the double-voluntary principle applies to possible employment terminations. We want to avoid layoffs for operational reasons entirely. But change is necessary: Costs must be reduced, including personnel costs. Some of the competencies with which we were able to differentiate ourselves for a long time are losing importance; other success-relevant competencies are being developed.
Do you think Daimler is capable of this?
Absolutely! We wouldn’t have been around for more than 130 years if we hadn’t learned to master radical change. I’m not trying to minimize the extent of this upheaval. But there’s a lot of capability at our company – and the new Mercedes strategy gives this potential a goal and a direction: to build the most desirable cars in the world. That’s clear, that’s ambitious, that can be the initial spark for the dawning of a new, CO₂-neutral era.
We again define ourselves self-confidently as a car manufacturer. What has become of the transition into a provider of mobility services?
For almost a full decade, we have been striving to establish an economically viable business in the market for car sharing, ride hailing and pooling: nationally and internationally, alone and with partners. The motive has always been to think today about tomorrow. Not “resting” on the success of the traditional car business. What experience have we had with this – and our competitors as well, by the way? That the market for providers of mobility services is very capital intensive and highly competitive. And that investing in mobility services brings little or no benefit to our unit sales. In the transformation, we must therefore focus on the automotive business.
Our profile as a luxury brand is to be further strengthened. How do luxury and sustainability go together?
I don’t see any contradiction there, quite the opposite in fact. Just as with sustainably produced food or clothing, customers in the luxury segment are more willing and able to pay higher prices for more sustainability also with their cars. In general, therefore, innovations are predominantly created at the top end of the market. Just think of the many safety-related innovations that are commonplace today but originated in the luxury segment, often at Mercedes, I am glad to say. Our task is to take on this pioneering role also with regard to electric mobility and vehicle software. Anyone who spends a lot of money on a car doesn’t want to be ostracized for it, but respected. And the more that social respect depends on how a car contributes to climate protection, the more that luxury will be defined by sustainability.
”Anyone who spends a lot of money on a car doesn’t want to be ostracized for it, but respected. And the more that social respect depends on how a car contributes to climate protection, the more that luxury will be defined by sustainability.”
Is sustainability the same as climate protection for you?
No. I do indeed consider climate protection to be the most pressing sustainability issue at the moment. But it’s definitely not the only one. Especially in connection with electric mobility, for example, the conservation of resources will become increasingly important: How much more efficient can we become if we reuse materials, recycle batteries and close entire cycles? It’s a question of moving away from the traditional linear economy to a circular economy.
What about respect for and observance of human rights in the supply chain?
This is another important topic, as well as data responsibility, traffic safety, and cities that are pleasant to live in. All in all, I think we’ve defined the list of sustainability topics appropriately.
What is the impact of Covid-19 on sustainability?
In my opinion, it’s accelerating rather than slowing things down. Covid-19 proves once again that no-one can compete with scientifically proven facts in the long run. That applies to pandemics, but it also applies to climate change and other environmental stress limits. We should no longer fail to recognize this obvious fact. This doesn’t mean that we should never again leave the “home office”: no more driving, no more traveling. Those who understand sustainability in this way will do more harm than good. I aim not to destroy what we have built up in terms of quality of life – especially with regard to terms of mobility – but to make it CO₂ neutral. New technologies will make this possible. And the luxury segment is a pioneer.
”We established the era of the automobile powered by petroleum. Now that this fossil era is coming to an end, we are shaping the new era of CO₂-neutral vehicles: technical progress and outstanding engineering instead of fear. First move the world! ”
Is there another topic that’s important to you, but has been neglected in this conversation?
Optimism. Above all, technological optimism. We have good reason to be optimistic – and we need to be, especially during these times. For me, some sustainability activists are spreading too much of a sense of doom. Of course, I don’t want to trivialize the risks of climate change or of the extinction of species. But fear as a permanent condition is at least as risky, and also factually inappropriate. It’s simply not true that we are surrounded solely by risks; there are at least as many opportunities. We will not be able to solve many of the upcoming problems without technical progress. We established the era of the automobile powered by petroleum. Now that this fossil era is coming to an end, we are shaping the new era of CO₂-neutral vehicles: technical progress and outstanding engineering instead of fear. First move the world!