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Will Clean Make Green?

Will-Clean-Make-Green-inline.jpg

Craig VanSandt, Associate Professor of Management,  
David W. Wilson Chair in Business Ethics

By: Craig VanSandt
Associate Professor of Management,
David W. Wilson Chair in Business Ethics

Volvo‘s recent announcement that all new auto models introduced in 2019 and beyond will be hybrids or all electric is a great example of firms‘ ability to (hopefully) do well financially by doing something good for the environment.

It is important to note, up front, that the "doing well by doing good" movement is not just about doing good. Rather, it explicitly incorporates doing well financially by doing something that benefits various stakeholders ("good"), as opposed to simply following the most expedient route in pursuit of maximizing short-term profits—a strategy that many corporations have taken all too often.

This is certainly not Volvo‘s first foray into the "doing good" realm of business. One of its engineers invented the three-point seatbelt in 1959, without patenting the design, in the belief that everybody should be safe.

In the 1960s, Volvo worked with orthopedic surgeons to create a design that would reduce driving-induced back pain. The company‘s cars have a long history of safety in accidents—its crash tests subject the autos to the same machinery that tests the structural integrity of buildings during earthquakes.

Although it is far too soon to know if Volvo‘s decision to phase out of the production of internal combustion engines will pay off financially (many analysts have expressed concern about the profitability of the move), long-term trends clearly suggest that is the direction the auto industry is headed.

Tesla, the American automaker that produces solely all-electric vehicles, recently surpassed both General Motors and Ford in market capitalization, even though it produces far fewer vehicles. Due at least partially to the recent scandal related to Volkswagen‘s emissions, sales of diesel autos in the UK dropped 15 percent in June 2017, compared to the previous year. Although diesel engines burn fuel more efficiently than gasoline motors, they emit many more nitrogen oxides.

Worldwide, government policies send mixed messages to the auto industry. Some analysts speculate that Volvo‘s ownership by Zhejiang Geely Holding Group, a Chinese firm, contributed heavily to its decision to move toward electric cars. China‘s severe air pollution has prompted its government to push for stricter limits on auto emissions. China is already the largest market for battery powered cars. On the other hand, the U.S. market—the world‘s biggest—still produces large numbers of SUVs and pickup trucks, due in part to relatively low gasoline prices, and the current federal administration has not indicated interest in encouraging development of electric cars.

Admittedly, Volvo‘s decision to concentrate on electric vehicles comes relatively early in the industry‘s transition, although it may result in competitive advantages through advances in research and development. Along with cost reductions and learning curve benefits, Volvo also runs the risk of phasing out of the internal combustion market too soon.

Hakan Samuelsson, the CEO and president of Volvo,recognizes the risk involved, but wants to send a clear message to the market and supply chain. "This announcement marks the end of the solely combustion engine-powered car. This also means we won‘t be doing other things. We of course will not be developing completely new generations of combustion engines," he said. In keeping with its history of doing good, Volvo also wants to encourage suppliers to invest in battery technology and charging stations.

It is too early to tell if this move will prove profitable for the company, but it is clearly an example of big business trying to #makeadifference.

Posted on 12-Jan-18


  






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Will Clean Make Green?

Will-Clean-Make-Green-inline.jpg

Craig VanSandt, Associate Professor of Management,  
David W. Wilson Chair in Business Ethics

By: Craig VanSandt
Associate Professor of Management,
David W. Wilson Chair in Business Ethics

Volvo‘s recent announcement that all new auto models introduced in 2019 and beyond will be hybrids or all electric is a great example of firms‘ ability to (hopefully) do well financially by doing something good for the environment.

It is important to note, up front, that the "doing well by doing good" movement is not just about doing good. Rather, it explicitly incorporates doing well financially by doing something that benefits various stakeholders ("good"), as opposed to simply following the most expedient route in pursuit of maximizing short-term profits—a strategy that many corporations have taken all too often.

This is certainly not Volvo‘s first foray into the "doing good" realm of business. One of its engineers invented the three-point seatbelt in 1959, without patenting the design, in the belief that everybody should be safe.

In the 1960s, Volvo worked with orthopedic surgeons to create a design that would reduce driving-induced back pain. The company‘s cars have a long history of safety in accidents—its crash tests subject the autos to the same machinery that tests the structural integrity of buildings during earthquakes.

Although it is far too soon to know if Volvo‘s decision to phase out of the production of internal combustion engines will pay off financially (many analysts have expressed concern about the profitability of the move), long-term trends clearly suggest that is the direction the auto industry is headed.

Tesla, the American automaker that produces solely all-electric vehicles, recently surpassed both General Motors and Ford in market capitalization, even though it produces far fewer vehicles. Due at least partially to the recent scandal related to Volkswagen‘s emissions, sales of diesel autos in the UK dropped 15 percent in June 2017, compared to the previous year. Although diesel engines burn fuel more efficiently than gasoline motors, they emit many more nitrogen oxides.

Worldwide, government policies send mixed messages to the auto industry. Some analysts speculate that Volvo‘s ownership by Zhejiang Geely Holding Group, a Chinese firm, contributed heavily to its decision to move toward electric cars. China‘s severe air pollution has prompted its government to push for stricter limits on auto emissions. China is already the largest market for battery powered cars. On the other hand, the U.S. market—the world‘s biggest—still produces large numbers of SUVs and pickup trucks, due in part to relatively low gasoline prices, and the current federal administration has not indicated interest in encouraging development of electric cars.

Admittedly, Volvo‘s decision to concentrate on electric vehicles comes relatively early in the industry‘s transition, although it may result in competitive advantages through advances in research and development. Along with cost reductions and learning curve benefits, Volvo also runs the risk of phasing out of the internal combustion market too soon.

Hakan Samuelsson, the CEO and president of Volvo,recognizes the risk involved, but wants to send a clear message to the market and supply chain. "This announcement marks the end of the solely combustion engine-powered car. This also means we won‘t be doing other things. We of course will not be developing completely new generations of combustion engines," he said. In keeping with its history of doing good, Volvo also wants to encourage suppliers to invest in battery technology and charging stations.

It is too early to tell if this move will prove profitable for the company, but it is clearly an example of big business trying to #makeadifference.

Posted on 12-Jan-18







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