Ford’s commitment to a 30% cut in emissions by 2020 has won it praise, even though it does little more than meet new US fuel economy rules.

This month Ford became the first US auto firm to spell out how it plans to reduce by at least 30% greenhouse gas emissions from its new fleet by 2020.

Ford published the target on 9 April, in the wake of shareholder resolutions by members of the Interfaith Center on Corporate Responsibility (ICCR) and the Investor Network on Climate Risk Network (INCR) organised by Ceres. As a result, these investors withdrew critical motions from Ford’s annual meeting.

In March, Ford presented these investors with a detailed analysis of its fuel emissions goals, showing how the 30% reduction would be achieved in a manner consistent with the 60-80% CO₂ reductions by 2050 that Ford had agreed to as part of the US Climate Action Partnership. Previously, said the investors, the most any US auto company had agreed to was to undertake enhanced reporting of climate-related impacts or set an overall GHG goal, without showing how it would be reached.

Sue Cischke, Ford’s group vice president for sustainability, environment and safety engineering, said: “Ford has spent more than three years studying a range of potential actions we would need to take to achieve these reductions in CO₂ emissions. We shared our findings with these institutional investors to help them understand our commitments and strategy. We recognise much work remains to be done and we look forward to continued collaboration in addressing the challenges of climate change.”

Average plan

However, Ford’s commitment responded not only to investors, but to new US legislation. The Corporate Average Fuel Economy (CAFE) legislation imposes a 35mpg (41mpg imperial/6.89 litres per 100km) average for cars and light trucks by 2020, signed-in by President Bush in December 2007. In short, Ford’s plan to reduce emissions by 30% is essentially a matter of legal compliance.

Meanwhile, Ford shareholders had other problems. Foremost among them was a dearth of profits, and at least until last year, a clear strategy to reverse the decline in US market share which has beset Ford and its Detroit rivals. Ford lost over $12.7 billion in 2007, the biggest annual loss in its 103-year history ($6.79 per share, $1,925 per vehicle sold). The 2007 adjusted net loss posted by the large GM was an even heftier $23 billion.

Ford’s 2007 loss was due largely to one-off restructuring costs. Ford is shrinking North American capacity and costs drastically, with the aim of retrieving profitability in 2009 after several years of decline amid strategic confusion. As ex-Boeing executive Alan Mulally, recruited as CEO two years ago, told Fortune magazine 12 days into his new job: “One of the first things that I noticed was that Ford had many separate meetings about the business: product development, quality, production, marketing and very, very, good meetings. But what we didn’t have was a business plan.”

It has now. It’s now producing more attractive and better-made vehicles, and the process of cutting excess capacity and drastically trimming Detroit wages, along with its competitors, is expected to return Ford to the black next year. In early April this year, Ford’s 2007 annual report to its 730,000 shareholders trumpeted a $10bn y/y improvement in overall pre-tax earnings. But a Securities and Exchange Commission filing showed that Mulally and his four most senior executives, on the basis of 2007 accounts (record losses, remember), had been paid a total of over $60.7 million in salaries, bonuses and stock options, a figure that doesn’t look appropriate to all the company’s shareholders.

Besides ICCR’s and INCR’s climate-related motions at Ford’s annual meeting motions, other motions of an ethical dimension were submitted. One proposed to curb the issue of stock options to senior executives; another, to limit compensation to Ford’s senior executives to $10,000 a week inclusive until the company has been profitable for five consecutive years. It also argued that fringe benefits should be limited to those on offer to all Ford employees. This motion cited the 70% fall in the company’s share price from 2001-2006. Another activist proposed diluting the Ford family shareholders’ influence – they currently have 16 votes per share.

Why care?

Leaving aside the issue of how ethical investor groups should align environmental concerns with other governance issues, not to mention shareholder returns, Ford has been praised by the ICCR for detailing emissions reduction targets that will enable it to comply with the CAFE legislation.

Ford’s sustainability spokeswoman, Jennifer Moore, says that the 30% reduction in US and EU new-vehicle CO₂ emissions by 2020 is relative to the 2006 model year baseline. “Our arrival at the 30% reduction was based upon results from our modeling and available science/technology. That target does align closely with the new CAFE legislation in the US.”

Asked whether the ICCR had lauded Ford for its transparency in explaining its emissions reduction strategy, or simply for committing itself to a CO₂ reduction target, executive director Laura Berry said: “Our enthusiasm revolves around the agreement on a number of levels – that Ford is the first US automaker to formally commit to targets [and] Ford’s willingness to work with shareowners to define a critical path to reaching targets.” She added: “Of course, agreeing in 2008 to fleet reductions required in 2020 is progress, regardless of effective obligation.”

Pickup the challenge

The magnitude of the task before the auto company shouldn’t be dismissed. Its full-size F150 pickup is Ford and the US market’s top seller – for which the EPA quotes a combined fuel economy of just 15mpg. In Europe, Ford is a mid-rank player in CO₂ terms.

Volume-weighted fleet CO₂ emissions in g/km by manufacturer, 2007

Fiat	137.3
Peugeot	141.9
Citroen	142.2
Renault	146.4
Toyota	148.8
Ford	149.1
Opel/Vauxhall	152.9
Volkswagen	161.7
BMW	176.7
Mercedes	188.4

Source: JATO, April 2007 (European sales)

The cornerstone of Ford’s efforts to reduce CO₂ impacts in the near future is a new generation of fuel-saving, turbo-charged gasoline direct-injection engines. Mid and long-term plans include weight reductions of 250-750lbs, new fuel-saving transmissions, advanced electric power steering, aerodynamic improvements, additional hybrid offerings and diesel engines introduced on light-duty vehicles. “Aggressive development will continue on plug-in hybrid and hydrogen fuel-cell technology for future applications,” adds Ford.

As Derrick Kuzak, Ford vice president of global product development, said last November: “While we are implementing our near, mid and long-term plans, we are continuing to achieve efficiencies throughout the vehicle in areas that can quickly lead to fuel economy improvements today. We continue to make improvements in what we call the ‘1 percent’ areas – items such as reducing wind drag, eliminating engine-driven power steering pumps and switching to low-friction engine oil. Collectively, these small improvements deliver significant fuel economy gains for our customers.”

Although Ford’s technology strategy is little different from its competitors’, they all need to grasp every opportunity available to meet legislated CO₂ targets.

To achieve corporate sustainability, Ford has to show that these investments in lower-carbon vehicles will pay off. Ford of Europe increased its share in March across 19 of Europe’s national markets, to 9.9%. But in the first quarter if 2008, AutoData Corp showed that Ford’s US sales decreased 9% against an overall 8% market decline.

Ford has said it will publish the CO₂ targets in its June corporate sustainability report. Hopefully, besides the $2 billion to be realised from the sale of Jaguar/Land Rover, it will also have good news to report on the financial front.