Dresden, Germany — Volkswagen AG will soon begin awarding more business to suppliers that focus on sustainability while punishing those that don't.
The automaker plans to introduce a performance rating this year that takes account of environmental impact and social responsibility, and could add another layer that focuses specifically on each supplier's effort to reduce carbon dioxide emissions.
The plan could have a massive impact on suppliers, considering VW's global footprint and procurement budget last reported at around $197 billion in 2017.
"We're naturally hoping this will send a certain signal into the market that optimizing your production network for CO2 will be a competitive advantage," Marco Philippi, head of strategy for group procurement, said at VW's plant here.
VW Group is turning over a new leaf after booking $31 billion in charges so far to cover its diesel emissions scandal. The company wants to be recognized for greater environmental awareness. Ahead of the launch of its first mass-market electric vehicle, VW wants to remove as much carbon as possible from its supply chain.
To do that, it will begin analyzing its Tier 1 suppliers on aspects such as social responsibility and environmental impact. Ratings will be based on answers to a sustainability questionnaire that will require comprehensive documentation as well as on-site audits.
By mid-2019, those ratings will be given equal weight in allocating contracts, alongside the usual supplier sourcing considerations of piece cost, build quality and on-time delivery performance.