Volkswagen’s Scandal: Should this be a surprise?

Volkswagen engineers apparently fabricated software code which when activated in their diesel vehicles, intentionally misleads emission testing equipment used to rate their car’s emissions and gain approval for its cars to be sold in the testing jurisdictions. But when you look at Volkswagen’s approach to environmental issues, it might be surprising, in light of this scandal, that they have shined. By Gregg Sgambati, Head of ESG Solutions.

The company has claimed that “sustainability is the foundation of corporate policy” and that “corporate responsibility means always considering the impact on society and the environment.” Technically they have achieved high levels of recognition in this regard. The company was announced as the new sector leader in the Dow Jones Sustainable Index which is based upon the comprehensive RobecoSAM DJSI survey. In both the DJSI survey and the Thomson Reuters Corporate Responsibility Ratings, the company scored highly over other companies in its industry and the ratings universe in both the environmental and social pillars of ESG.

However, where it scored poorly was in the governance pillar according to the Thomson Reuters Corporate Responsibility Ratings. In this ratings scheme the company has been below the 37th percentile in governance for 8 years. The RobecoSAM DJ Industry Leader report does not differentiate a separate governance pillar and this might be the main reason for Dow Jone’s misfortune of naming Volkswagen a sector leader only two weeks ago.

The future outcome of this scandal will be a depiction of a lack of transparency at Volkswagen. It’s measured low corporate governance “performance” will stand as a leading indicator of trouble. Time will show that another Volkswagen scandal should not be a surprise.

Read more of Gregg’s thoughts and insight here.