Module 3, intangible investment, assesses each company’s research & development (R&D*) investment in low-carbon technologies which can mitigate climate change, relative to overall company capital expenditure. The expectation is that companies should spend an amount on low-carbon R&D equivalent to at least 5 percent of overall capital expenditure.
Innovation and technologies to replace high-emitting vehicles are crucial to drive decarbonisation in this sector. R&D is also a key way of reducing barriers to consumer uptake of low-carbon vehicles. A company’s spend on R&D gives insight into its commitment to alternative technologies that may support new, low-carbon business models. Therefore, this module – comprising indicator 3.1 – is heavily weighted, accounting for 2.4 out of the overall performance assessment score of 20.
According to analysis by the IEA, automotive manufacturing is the industrial sector with the highest level of R&D spend and so it is quite likely that the companies assessed are investing the expected 5 percent or more. However, this assessment found that many companies do not disclose adequate information to demonstrate this low-carbon R&D investment. Currently, financial and environmental reporting standards do not require companies to report a figure for R&D. R&D expenditure is typically only reported when a company has another reason to do so, for example, if this amount is high or there is an expectation that it will be disclosed in some regions.
Of the companies with publicly available figures for non-mature R&D expenditure, the mean average was very high: 39 percent of company capital expenditure. Very little specific detail was found on what makes up these amounts, which is consistent with the overall lack of disclosure in this area. It is clear however that battery technology features highly because electric vehicles are increasingly the main approach companies are taking to decarbonise vehicle fleets.
As with the 2019 Automotive Benchmark, eight companies score full marks for disclosing non-mature low-carbon R&D expenditure in this assessment. Of these eight, only Honda has a specific disclosure in its sustainability report that clearly articulates its spend on non-mature R&D and thus is a top performer in this module ranking. 12 companies show that they spend over 5 percent on low-carbon R&D, but it is not clear how much is non-mature and so they score 50 percent. Of the ten Chinese companies assessed, seven score zero due to a lack of clear expenditure disclosure. This is despite a strong emphasis on low-carbon R&D in their report narratives, as the Chinese automakers seek to gain greater market share by positioning themselves as frontrunners in the development of electric vehicles.
Until there is a requirement for companies to increase transparency in this area it will be difficult to assess the true commitment of the sector to low-carbon R&D.
*R&D is defined as activities connected with innovation, for example, work directed towards the innovation, introduction, and improvement of products and processes. Non-mature, emerging technologies include e.g., carbon reduction technologies, excluding improvements to the efficiency of internal combustion engines.
Expenditure on non-mature, emerging technologies is rated twice as impactful as spend on mature technologies, because more R&D investment is needed to develop and scale-up immature technologies.