Accelerated transformation of automotive business CSR and brand strategies        

Corporate social responsibility (CSR) is a concept used to describe the relationship between corporate growth and social development. Enterprises are responsible for and obliged to promote social welfare in the pursuit of maximum economic benefits, including their responsibilities to employees, customers, partners, shareholders, governments, communities and the environment. A growing number of Chinese enterprises have incorporated CSR into their development strategies and corporate governance, to fulfill responsibilities to the environment and society as social citizens while pursuing maximum profits.

In recent years, driven by factors including regulation and the capital market, businesses have begun to draw up and issue CSR reports. Some stock exchanges have also increased mandatory environmental, social and governance (ESG) disclosure requirements for listed companies. ESG performance, as an important indicator of the performance of listed companies in fulfilling CSR and sustainable development goals, is increasingly being integrated into listed company research and decision frameworks by investors and asset managers.

As a comprehensive industry, the auto sector is characterized by numerous production processes and a complex, diverse supply chain system. OEMs are at the core of the industry chain across production and demand, so bear more complex and arduous CSR. In addition to these sector characteristics, industrial policy is now promoting the evolution of the auto industry in a strategic direction focused on improving quality, valuing technology and stimulating innovation. All these factors will propel automotive enterprises to make positive adjustments in fulfilling CSR or ESG requirements, and the COVID-19 outbreak will accelerate this transformation.

Automotive businesses CSR evolving due to the epidemic

During the epidemic, automotive companies and many other businesses have made substantial donations to relief efforts. According to incomplete statistics, from January 23 2020, more than 120 OEMs, parts suppliers, dealers, charging enterprises, logistics companies, and mobility companies in the auto industry contributed a combined RMB1.2 billion to fight the epidemic in less than two weeks. Automotive businesses have taken CSR actions in addition to donations during the outbreak:

Shifting from "capital contribution" to "technology output" and "capability output". During the epidemic, China has faced a shortage of medical supplies and production capacity has been restricted. Many passenger vehicle enterprises quickly organized personnel, and purchased raw materials and production equipment, to produce masks and other emergency supplies through self-built production lines or outsourcing, delivering these promptly to frontline epidemic prevention and control. OEMs quickly and rapidly transferred a series of production materials to produce medical supplies, showing the auto industry's resource integration capability, supply chain capacity and production experience as a comprehensive manufacturing sector. Switching to mask production showed the comprehensive advantages of automotive enterprises in raw material procurement, storage and transportation, workshop management (masks need to be produced in dustless workshops), automated production, quality control, and several other respects.

Ensuring efficient resource scheduling and integration. As the epidemic expanded, businesses were called on to solve problems that arose. Automotive companies gave full play to their internal and cross-industrial strengths, cooperating with professional organizations and institutions on joint innovations through the reasonable division of work. For example, one major Chinese automaker worked with scientific research institutions and air filter enterprises to develop an intelligent air purification system to prevent bacteria and viruses from entering vehicles, rapidly achieving mass production. Vehicles equipped with this purification system were sent to the frontline. In addition, many global automotive enterprises used their networks to purchase medical supplies needed urgently to combat the epidemic. Automotive businesses' huge channel advantages meant they could solve the problem of frontline supply shortages.

Safeguarding the interests of stakeholders in a special period. With the gradual stabilization of the epidemic outside Hubei Province, automotive enterprises made use of automation, big data, cloud computing, shared service centers and other technological means to ensure their employees could work remotely, guaranteeing their safety while providing basic services for customers. At the same time, automotive companies paid more attention to the health of employees at suppliers, dealers and other partners across the value chain, proposing measures to relieve cash flow pressure on downstream enterprises, including by extending interest-free periods and removing quarterly assessment targets.
 

The COVID-19 epidemic has prompted OEMs to change their CSR thinking

During the epidemic, as traditional relief channels like donations proved less efficient in delivery and could not accurately meet demand, automotive businesses took the initiative to adjust and rethink their positioning and capability advantages.

Deloitte believes the epidemic will accelerate the transformation of automotive company CSR strategies and practices to "Phase 2.0". In this phase, the fulfilment of CSR will become a way for enterprises to contribute to society, laying the foundations for sustainable brand development and repaying society as more effective organizers of social resources. The epidemic will prompt enterprises to emerge from their original strategic frameworks and innovate approaches to fulfilling CSR:

First, enterprises are more efficient organizers of social resources as social governance decentralizes

In the face of a public health emergency, enterprises have exerted their intrinsic advantages in organizing, scheduling and coordinating resources to provide higher social utility in combating the COVID-19 epidemic. For example, transforming lines to produce masks showed the effective scheduling of OEMs' social production capabilities. Some OEMs also provided vehicles to transport medical care personnel and increased the supply of negative-pressure ambulances, showing their strong supply chains and production recovery capabilities.

Second, enterprises in the same industry chain share weal and woe

Many parts enterprises and 4S stores have not been able to continue normal operations due to the epidemic, and working with upstream and downstream stakeholders has highlighted OEMs' operating advantages. OEMs took the initiative to check how upstream suppliers were affected, and helped them resume work to reduce performance difficulties. They also reduced pressure on downstream dealers by adjusting assessment targets, granting subsidies, interest payment discounts and reductions. Automotive businesses provided convenience and assistance to upstream and downstream enterprises during the epidemic, a concrete embodiment of fulfilling their CSR to enterprises in the same industry chain.

Third, business opportunities arise from problem solving

The wide spread of the epidemic deepened concerns among vehicle owners about in-vehicle air quality, and stimulated new demand for healthy, intelligent in-vehicle environments. Automotive companies will be prompted by the epidemic to emphasize safety and health in future product development to fulfil their CSR to consumers, including by launching in-vehicle air purification and sterilization functions, using interior materials with stronger antibacterial capability, and installing sensors that can monitor body temperature and other physical signs of occupants in real time. After the epidemic, such health-related sub-functions are expected to stimulate new demand and become a point of growth for automotive businesses.

Fourth, awareness of automotive brands has surged

Because of the epidemic, domestic-funded automotive companies have seen a surge in brand awareness. One domestic-funded automotive enterprise with outstanding performance during this period experienced two significant improvements in the Baidu Index of search queries in February, surpassing some foreign-funded brands. It used its supply chain advantages to produce masks and won high praise from across society. However, most foreign-funded automotive enterprises were unable to take such quick, practical actions due to a lack of decision-making rights and other factors. In CSR Phase 2.0, domestic-funded automotive enterprises need to consolidate this brand awareness, while foreign-funded automotive enterprises need to optimize their domestic influence through more local CSR and brand activities.
 

Automotive businesses will make substantial adjustments to CSR strategies after the epidemic

First, carry out CSR planning based on corporate strategies

Businesses often consider CSR as a "cost item" or a "forced action" to cope with public opinion and government relations. Moreover, CSR budget, strategy and execution planning is conducted by their marketing or brand departments, yet implementation is often entrusted to public relations companies.

In CSR Phase 2.0, automotive companies will adjust their CSR activities to align these with their corporate values and strategic objectives, by:

• Developing top-level strategy and CSR design based on long-term, sustainable development goals;
• Integrating CSR into raw material procurement, production and manufacturing, logistics and transportation, assembly, marketing and other operations;
• Sharing global supply chain issues with supply chain enterprises and proposing countermeasures against potential CSR risks;
• Establishing CSR activity performance systems and measurement standards, and evaluating and quantifying CSR's economic and social value;
• Incorporating CSR into organizational culture and business conduct.

Second, consider social issues closely related to their main business and with strong appealed to stakeholders

Chinese enterprises' CSR can be divided into three categories. First, charitable activities in the course of business, such as disaster relief donations, funding for disadvantaged primary schools and projects for left-behind children, without pursuing direct or indirect economic returns. Second, taking responsibility for sustainable production and operations, and environmental protection, for themselves as well as upstream and downstream enterprises, by lowering energy consumption and emissions levels, reducing their impact on and protecting the environment, recycling resources and using clean energy. Third, enterprises will make use of existing technologies, products, talent and other resources to solve social issues through business innovation, such as by developing e-commerce, mobile payments, logistics and transportation in rural areas with Chinese internet companies, or increasing incomes and supporting employment in rural areas. In the past few years, automotive businesses have focused on the first and second of these CSR categories.

The 10 principles of the UN Global Compact, including the compliance of business activities and strategies with human rights, labor standards, environmental protection and anti-corruption measures, have guided enterprises to formulate and implement CSR strategies. Businesses should consider specific actions under such a framework.

Deloitte believes OEMs need to find the right entry point to match enterprises' long-term, sustainable development strategies, missions and objectives, and avoid one-off or duplicated investment. However, amid cost cutting and budget tightening, they should focus on selecting and implementing CSR projects, particularly whether these can create visible and quantifiable business and economic value. This requires a balance between long-term and short-term contradictions.

Automotive companies can formulate CSR strategies and select CSR projects based on the following principles:

• Extending and expanding their core business based on strategic needs;
• Screening for social issues of common concern among stakeholders;
• Prioritizing issues from multiple perspectives such as the impact of stakeholders on current business operations as well as the urgency and universality of demands, to maintain the interests of stakeholders while fulfilling CSR obligations.

The epidemic also raises a new consideration in CSR project selection: Businesses need to incorporate contingency plans and risk resistance measures for public safety incidents (including natural disasters, infectious diseases and accidents) into the scope of CSR, thereby guaranteeing the sustainability of their business plans.

Third, expand influence and build ecosystem partnerships around CSR

CSR should not be limited to within enterprises. Instead, it should make use of platform effects to mobilize resources from customers, suppliers, communities and other areas, use the strengths of various stakeholders, and solve problems in an integrated, innovative way. A domestic-funded automotive enterprise was able to rapidly supply self-produced masks to the frontline of the epidemic largely because it gave full play to the advantages of its suppliers. One of its established insulation cotton suppliers had precisely the raw materials needed (polypropylene) and had mastered the production process for core filters (melt-blown non-woven fabrics) for masks, while the automotive enterprise provided personnel and technical support in production management, project management, equipment maintenance, quality control and packaging. With active and close cooperation between multiple parties, it took less than a week to launch mask production lines. Although converting production lines back to their original purpose after the epidemic will hurt the company's bottom line, this cooperation enhanced its reputation and created social value for parts factories and the OEM itself.

Fourth, further integrate CSR into sustainable development strategies

Sustainable management planning allows enterprises to evaluate their long-term development strategies. Amid a global trend towards fulfilling CSR, OEMs must also formulate localized sustainable development strategies for the Chinese market. For example, to address global warming and demand for new energy vehicles and mobile car-hailing, automotive companies need to consider how to integrate environmental and urban sustainability, reposition dealers and other external partners, create new value for users, and provide new thinking for employees as internal partners. This will enable them to formulate sustainable development strategies and reflect their concerns.

Fifth, pay attention to CSR disclosures

Automotive businesses can prepare CSR reports according to Global Reporting Initiative (GRI) sustainability standards, CASS-CSR or other guidelines. The issuance of CSR reports not only shows society a company's practices and achievements in CSR, but also enhances transparency to ease stakeholder concerns and win trust, promotes corporate values, establishes a responsible brand image and improves corporate reputation.