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May 13, 2004

Honda, Toyota, Volkswagen, and Renault Lead Movement Toward Sustainable Mobility
    by William Baue

Two Japanese carmakers rank highest on the environmental rating of Innovest's latest sector report, while two European companies rank highest on the social rating. -- Automobiles straddle the line between the competing human aspirations of mobility, or the ability to travel where we will, and sustainability, or the responsibility to steward our environment for future generations. The latest report from Innovest Strategic Value Advisors, a sustainability research firm, assesses how well the global automotive sector reconciles this apparent paradox of "sustainable mobility."

As with the majority of other industries Innovest has evaluated, the report finds a positive correlation between sustainability performance and economic performance. Companies with above-average EcoValue'21 (EV21) rankings, Innovest's environmental rating system, outperformed below-average companies by 20 percentage points (or 2000 basis points) over the past three years, from December 2000 to December 2003.

Outperformance was even more dramatic on social issues. Companies with above-average Intangible Value Assessment (IVA) rankings, Innovest's social and corporate governance rating system, outperformed below-average companies by 22.8 percentage points (2280 basis points) over the same time period.

Japanese companies Honda (HMC) and Toyota (TM) topped the EV21 environmental rankings with AAA grades on a scale ranging from AAA to CCC that mimics bond ratings.

"Japanese car manufacturers are the most aware of the importance of the sustainable mobility issue . . . and Japanese companies are in general more advanced than Western competitors in terms of sustainable product development, both in vehicle safety and energy-efficiency," said Eve Morelli, an Innovest analyst who co-authored the report.

Honda has the most eco-efficient vehicle fleet in the US, with the lowest CAFÉ (corporate average fuel economy) in the US for both the car and light truck segments, according to its EV21 rating. It is also the best company in the US in terms of vehicle exhausts, according to the report. On the recycling front, Honda's vehicles are currently 85.8 percent recyclable, above the 85 percent target set in Japan for 2002 and in the European Union for 2007. The company is also "working at developing the ultimate dismantling line as a reverse assembly line," according to the EV21 rating.

Toyota is a world leader in hybrid electric-gasoline (HEV) technology, which is considered the best alternative technology until fuel cells mature, according to its EV21 rating. The Toyota Prius is the first mass-produced HEV family car in the world, and Toyota has sold more HEV vehicles throughout the world (125,000) than any other car company.

On the IVA social and corporate governance ratings, European companies Volkswagen (VOW), based in Germany, and Renault (RNO), based in France, ranked highest with AAA and AA grades, respectively.

Innovest praises Volkswagen's innovative corporate policies, such as its 1993 introduction of a four-day week, a flexible working model that "allows the company to adopt to market fluctuations without having to recruit or dismiss permanent staff." This innovative thinking also led to the introduction of a "Time Asset Bond Scheme" that allows employees to save up long-term "time assets." Innovest's IVA rating attributes this commitment to human capital to the fact that the State of Lower Saxony owns 13.7 percent of the company's stock, so "the socio-economic interests of local stakeholders are well represented on the Board."

Innovest applauds Renault's supply chain management, noting that it is "one of the few companies that has implemented a practical system to address sustainability issues throughout its supply chain," according to the company's IVA rating. Renault collaborates with its suppliers from the very early stages of product development, allowing the manufacturer and its suppliers to create common language and common working methods, which results in more streamlined processes. Renault nurtures long-term, mutually beneficial relationships with suppliers, who can achieve preferred status and in exchange for priority access to new innovations.

All four of the top-ranking companies in both environmental and social performance are members of the Sustainable Mobility Project of the World Business Council for Sustainable Development (WBCSD). This project promotes more efficient, more equitable, and less environmentally and socially disruptive mobility systems. However, membership in the project does not necessarily correlate to high Innovest rankings. For example, Ford (F) scored below average on both the EV21 and the IVA ratings, with a BBB in each.

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