#Financing

Sustainability in automotive: what are the challenges?

Jan 06, 2023 - 4 min read
Anna Jacobs, Product Marketing Manager at Sopra Banking Software
Thomas Vermeire, Head of Direct Sales for UK, Ireland & Nordics at Sopra Banking Software

Sustainability remains an increasingly important topic across almost all industries, and automotive is no exception. And with good reason, too. According to the International Energy Agency, road vehicles make up nearly three-quarters of transport CO2 emissions, which in turn account for 23% of total energy-related emissions. 

Road vehicles make up nearly three-quarters of transport CO2 emissions, which in turn account for 23% of total energy-related emissions. 

Facing pressure from government regulatory bodies and customer expectations, businesses across the automotive industry are having to reduce their carbon footprint. But given the current economic landscape, how can they do so while at the same time remaining cost effective? 

Meeting consumer and government demands

Per a recent study by the European Investment Bank, two-thirds of customers said they would choose hybrid or electric vehicles, rather than petrol/diesel next time they purchase a vehicle. What’s more, per a 2022 study conducted by Capgemini, “Sustainability leaders” have become 18% more attractive to potential employees thanks to their green-friendly initiatives.

Clearly, going green is not just a regulatory issue for end customer-facing players in the automotive industry – it is key for attracting customers and talent alike. 

Some industry incumbents have been proactive, setting their own sustainability targets. Volvo, for instance, has ambitions to reach net-zero greenhouse gas emissions by 2040. And Honda has said that 100% of sales in major markets will be electrified vehicles by 2040.  

By 2040, 100% of Honda' sales in major markets will be electrified vehicles.

 

However, for many Original Equipment Manufacturers (OEMs) and other industry players, reducing their carbon footprint is proving to be more challenging. According to Capgemini, organizational investment in green initiatives has decreased since 2019, and nearly two-thirds of organizations are falling behind in terms of both sustainable strategy and implementation. 

The cost of catching up

Businesses in the automotive industry have little choice but to make up the lost ground on their sustainability objectives. However, doing so will cost an estimated $50 billion in overall investment over the next five years for the automotive industry as a whole. That’s in addition to current investments. 

That’s a large cost, especially given the current economic landscape. The post-pandemic context, along with strong inflationary pressures and high funding costs, make sustainability compliance very challenging.

Finding a cost-effective solution to going green

Automotive industry players are looking for cost-effective solutions that are also sustainable to integrate their business models and companies’ strategies.

There’s no silver bullet or one-size-fits-all solution, and it involves much more than simply shifting production to electric or hybrid vehicles. Rather, the answer to the problem lies in a holistic remodeling of each step on the automotive industry supply chain. 

This means implementing more efficient processes to reduce waste and improve the recyclability of materials; adopting environmentally conscious methods in logistics and distribution; and investing resources into sustainable R&D. 

Of course, there’s a lot to take on board when it comes to such an approach. Currently, initiatives such as sustainable R&D and sustainable manufacturing receive more resources and attention than others, such as sustainable sales, marketing, aftersales and mobility services. Sustainability initiatives need to be deployed across every point of automotive value chain.

How technology can be a sustainability enabler 

At Sopra Banking Software, we help our partners to improve operational efficiency across their automotive finance business. Whether faced with opportunities or challenges, our customers can digitize the onboarding process via our Digital Engagement Platform, which can then integrate seamlessly with our contract-management solution. They can also audit the stock on dealer floors with a reduced carbon footprint and at lower costs using our purpose-build digital audit application.

SFP ecosystem solutions create a seamless experience for lenders and dealers, enabling them time to value with compliant and automated software solutions.

To find out more, please check out the SFP Product and Services ecosystem, as well as our Digital Partnership Marketplace.