consulting Archives

Megatrend ESG – Sustainability as a success factor

by Julia Riemer | Apr 8, 2022 | Automotive Industry, Future Trends, Market development & Trends, News from magility, strategy in change

The digital transformation, combined with a realignment based on sustainability goals, increases companies’ chances of economic success: companies can increase their profitability in the long term through this networking and thus increase the value of the company. In addition to sustainability goals, the achievement of defined ESG targets becomes just as important a success factor. In this article, we clarify what ESG means, what the United Nations’ Agenda 2030 with its 17 Sustainable Development Goals, the so-called SDGs, has to do with it, what ESG means for companies and investors, and how to develop a sustainable ESG approach for business.

The automotive industry is changing due to innovations in electrification, autonomous driving and smart mobility. With transportation estimated to account for between 15% and 25% of global carbon emissions, and road vehicles responsible for nearly three-quarters of that share, the environmental motivation is obvious.

The shift to more electrified and autonomous vehicles will continue to change not only traditional working conditions in the automotive industry, but also the direction of automakers.

Corporate management in the automotive industry must be characterized by technological and business expertise, in-depth industry knowledge and goal-oriented handling of strategic partnerships in order to meet the challenges of the future. In this context, the ESG megatrend is of fundamental importance.

What is ESG?

By definition, ESG reporting is the disclosure of data that explains a company’s actions and added value in three areas: environmental, social and corporate governance (principles of corporate management). ESG is the generic term for sustainable and responsible corporate governance. It is a set of guidelines that consider environmental, social and governance factors in addition to financial factors when making investment decisions. It is also a process for assessing how companies perform on each of the E, S and G factors to ultimately determine whether investments are compatible in terms of the guidelines.

What does the E in ESG stand for?

The E in ESG stands for Environmental, and describes the ecological impact of a company’s operations. It is analyzed how its activities affect the environment and how it deals with environmental risks. This applies both to direct operations and to the entire value chain, examples of which include shortages of resources and their management, conservation of natural resources, treatment of people and animals, and greenhouse gas emissions.

What does the S in ESG stand for?

The S in ESG stands for Social Criteria. The strengths and weaknesses of companies’ actions in their social environment are analyzed and assessed. This includes, among other things, the relationship with employees, suppliers, customers and the community level. The assessment ise.g. based on the following criteria: Working conditions, health and safety, social interaction, activities in conflict regions, and diversity.

What does the G in ESG stand for?

The G in ESG stands for Governance, i.e. corporate governance, and deals with its design, particularly in the areas of accounting, executive compensation models, internal control system (ICS), gender equality and, where applicable, shareholders’ rights. Investors and the public are interested in maximum transparency of corporate processes, and governance provides the necessary basis for trust.

Hand in hand with the ESG approach: The 17 SDG goals

Closely linked to the topic of ESG is also the 2030 Agenda for Sustainable Development, which was adopted by all member states of the United Nations in 2015. It is a shared approach to peace and prosperity for people and the planet, now and in the future. At its core are the 17 Sustainable Development Goals (SDGs), which are an urgent call to action by all countries – developed and developing – as part of a global partnership. They recognize that eliminating poverty and other deprivations must go hand in hand with strategies to improve health and education, reduce inequality, and spur economic growth – all while combating climate change and working to protect our oceans and forests.

Today, the Sustainable Development Goals Division (DSDG) in the United Nations Department of Economic and Social Affairs (UNDESA) provides support in terms of content and capacity building for the SDGs and related thematic issues (e.g. water, energy, climate, urbanization, oceans, science, transport, and technology), the Global Sustainable Development Report (GSDR), partnerships, and for small island developing states. The DSDG plays a key role in evaluating the United Nations’ system-wide implementation of the 2030 Agenda, as well as in advocacy and outreach related to the SDGs. To make the 2030 Agenda a reality, broad support for the SDGs must translate into strong commitment by all stakeholders to implement the global goals. The DSDG is designed to help to foster this commitment.

These are the following goals that go hand in hand with the ESG factors:

Who cares wins: The importance of ESG for companies and investors

Investing in ESG already began in the 1960s. ESG investing evolved from so-called “socially responsible investing” (SRI), which excluded capital investments in industries associated with business activities such as tobacco, weapons or goods from conflict regions. The term ESG was established by former UN Secretary General Kofi Annan in 2004 and led to the first “Who cares Wins” study in 2005, developed with the world’s largest institutional investors and banks.

Today, ESG is growing and evolving rapidly as many investors seek to incorporate ESG factors into the investment process. Similarly, the Portfolio Decarbonization Coalition, a United Nations-sponsored group of 27 mainly European institutional investors and asset managers controlling $3.2 trillion in assets, has pledged $600 billion to fund green projects and investments.

On the legal side, European regulations are pushing for effective implementation of ESG factors in the financial sector and everywhere else. The ESG framework is being pushed in the EU because it is a mechanism to support the Green Deal and ensure the implementation of a more sustainable economy. ESG factors will play an increasingly important role in evaluating companies, not only for investors but also for consumers and stakeholders. Companies are becoming increasingly aware that they must manage their environmental impacts in innovative ways to remain successful. Sustainability is the new ideal, and the development of sophisticated methods for assessing ESG activities and their impacts is key to its realization.

Magility’s ESG approach – goals, strategy and transformation

For companies to stay ahead of regulations and the competition and reap all the benefits, they need to integrate the ESG approach into the core of their corporate philosophy.

What is the best approach? Magility offers them a methodology that takes sustainability and ESG factors into account. It is recommended to incorporate ESG into the corporate philosophy from the outset and align corporate objectives accordingly. This allows companies to be more diversified and equal in the way they operate, promote the health and well-being of employees, and in this way also generate a positive impact on their local environment and beyond that in general.

Magility’s ESG consulting approach consists of 3 phases:

The ESG control loop – your business success after implementation

Magility uses the following control loop for sustainable awareness and management of ESG activities:

As a result of an implementation, your company will be enabled to play in the top league of sustainable companies.

In addition, such implementation can also have a positive impact on the operating result of your company. It depends very much on how the different levers and measures are prioritized and implemented. With our experience we can support you in making the right choice and accompany you during the implementation.

If you want to position your company sustainably for the future and our implementation method has aroused your curiosity, we look forward to hearing from you.

Start your ESG reporting with magility. Feel free to contact our CEO Dr. Michael Müller for more information and follow us on LinkedIn as well. We are looking forward to it!

Why CSMS consulting activities should be stepped up right now

by Julia Riemer | Mar 17, 2022 | Automotive Cyber Security, Automotive Industry, Cyber Security Management, Future Trends, Market development & Trends, New Mobility, News from magility, strategy in change

All networked devices, including vehicles, are exposed to security threats and must be protected against many types of malware. Cyber Security Management Systems (CSMS) that are aligned with the current challenges can provide a useful organizational and process support for technical cyber security solutions for this purpose. We will discuss this and other topics in more detail in this article.

It wasn’t long ago that cyber security for vehicles was not a high priority for OEMs and suppliers. However, as the automotive industry continues to undergo a digital transformation driven by the proliferation of the ‘software defined vehicle’ and the development of new mobility concepts, cyber security has become a critical issue in the hardware and software value chain and is being taken more seriously than ever. New and future electronic architectures for automobiles based on fewer and larger control units, called domain controllers, will help simplify the current complex structures. However, due to increased connectivity with mobile devices, Wi-Fi networks, cloud platforms, smart cities and and other edge devices, much of the current complexity will remain. The following table summarizes examples of which systems within vehicle electronics need to be protected by cyber security:

[Source: Automotive cyber security, 2021, Vivek Beriwat]

All in all, however, the entire end-to-end solution must be secured. In addition to the vehicle, this also includes the backend, the mobile devices and the respective telecommunications connections. Furthermore, cyber security protection must be maintained over the entire life cycle (approx. 30 years per vehicle series) of a manufacturer’s vehicle fleet. This results in requirements for the updateability of the software used. In addition, the entire hardware and software value chain must be protected against cyber security risks.

The importance of Cyber Security Management Systems

Supply chain attacks have been a security concern for many years, but planned organized attacks against b2b companies have been occurring in greater numbers since 2020. Perhaps due to the more robust security protections that b2c companies have put in place, attackers have shifted their focus to suppliers and have managed to cause significant impact in the form of system downtime, financial loss, and reputational damage, to name just a few of the damages.

The devastating consequences of software supply chain attacks were on full display as a result of the SolarWinds hack. The SolarWinds hack is considered one of the largest software supply chain attacks in recent years, especially considering the entities affected, which include government organizations and large corporations. The attack received a lot of media attention and led to policy initiatives around the world. More recently, in July 2021, the attack on Kaseya came to light and highlighted the need for more attention to software supply chain attacks affecting managed service providers. Unfortunately, these two examples are not isolated incidents; in fact, the number of software supply chain attacks has also steadily increased over the past year. This trend underscores the need for policymakers and the security community to develop and implement new protections to counter potential supply chain attacks in the future and mitigate their impact.

Cyber security in the automotive industry

Cyber security is a relatively new area for the automotive industry, but one that is steadily growing in importance due to the rapid proliferation of connected vehicles. In the future, all new vehicles will be connective. More connected vehicles mean higher risks, as connectivity brings new challenges that cannot be ignored.

Automotive cyber attacks lead to a variety of business risks within the automotive industry:

[Source: Magility GmbH, Management of cyber security threats and risks in the Automotive industry]

Connected cars therefore need cyber security protection. This includes embedded software programs to protect against cyber attacks on individual vehicles that are available at the time of sale, but also cloud-based cyber protection services for the vehicle fleet that can be specifically activated during use. These trends have led to a growing need for software and hardware cyber security products and cloud-centric services which have become a critical core product and value chain issue for OEMs and their suppliers.

Legislators have therefore reacted and, from 2022, car manufacturers will have to prove for type approval that they can protect their vehicles and fleets against cyber attacks and that they are capable of managing cyber security in terms of processes and organization. Currently, there are already national and international activities for the standardization of Cyber Security Management Systems and their auditing. Those who have to deal with these challenges must also deal with various regulations and standards.

As an example, the formal regulatory cycles for UNECE are shown below:

[Source: Quality Institute/VDA, UNECE standards and rules]

In order to make all these comprehensive regulations manageable, Magility recommends tailor-made integration of the same into the company-specific development, production, sales and after sales systems.

Magility’s Cyber Security Management System (CSMS)

Automotive Cyber Security is therefore emerging as a new interdisciplinary enterprise system function. Magility is starting precisely here and is now focusing all the more strongly on supporting automotive companies and their suppliers in dealing with new threats. One of the tools we recommend for this purpose is a CSMS tool for raising awareness and combating cyber risks on a sustained basis:

[Source: Magility GmbH, Management of cyber security threats and risks in the automotive industry, Automotive Cyber Security Management System (CSMS)]

Cyber Security Requirements of the Top Management – Goals and code of conduct for cyber security

Cyber Security Organization – Definition of roles and responsibilities

Cyber Security Risk Assessment – Identification and evaluation of cyber risks

Cyber Security Program – Structure, execution and control of cyber security policies

Cyber Security Qualification and Communication – Increasing cyber security awareness

Cyber Security Implementation – Sustainable protection of the company and corporate customers

Cyber Security Effectiveness Monitoring – Assessing the effectiveness of cyber security measures

Cyber Security Audit – Definition of roles and responsibilities for CSMS effectiveness monitoring

Magility recommends that companies implement the CSMS regulatory cycle outlined above in order to respond agilely as an organization to new potential threats, to increase awareness of cyber security among all employees, and to ensure a continuous cyber security improvement process for new vehicles and the existing fleet.

Magility is strongly focused on further expanding the cyber security capabilities and CSMS competencies to meet the threats of the future and present. For further information or a personal consultation, please contact our Managing Director Dr. Michael Müller (michael.mueller@magility.com) as well as our cyber security consultant Hanna Kahindi (hanna.kahindi@magility.com).

Follow us on LinkedIn for new articles and other news about cyber security, or contact us directly via our contact form if you have any questions. We are looking forward to it!