Environmental and social risks

For this risk category, the likelihood of occurrence is classified as medium (previous year: high) and the potential extent of damage is classified as medium (previous year: medium).

The most significant risks from the QRP arise from non-fulfillment of CO₂-related requirements and transformation-related programs for the future.

Personnel risks

We use a range of instruments to counter economic risks and changes in the market, the competitive situation and shortages of supplier components. These help the Volkswagen Group to remain flexible in terms of staff deployment when faced with a fluctuating order situation – whether orders are in decline, or there is an increase in demand for our products. These instruments include time accounts to which hours are added when overtime is necessary and from which hours are deducted in quiet periods, enabling our factories to adjust their capacity to production volume with measures such as extra shifts, closure days, flexible shift models and legally regulated instruments such as Kurzarbeit (short-time working). The use of temporary workers also allows us to be more flexible in our planning. All of these measures help the Volkswagen Group to maintain a permanent workforce that is generally stable, even when orders fluctuate. Moreover, there is a risk that the terms of new or existing collective agreements will not deliver the necessary cost savings for the efficiency programs adopted. Ways in which we counter this risk include consistently monitoring the targets agreed by the collective bargaining parties and internationally coordinated management of collective bargaining across the Volkswagen Group worldwide.

The technical expertise and individual commitment of employees are indispensable prerequisites for the success of the Volkswagen Group. We counter the risk of not being able to develop sufficient expertise in the Company’s different vocational groups with our strategically oriented and holistic human resource development, which gives all employees attractive training and development opportunities. By boosting our training programs, particularly at our international locations, we are able to adequately address the challenges of technological change and the structural transformation of the automotive industry.

To counter the potential risk of a shortage of skilled specialists – especially in the areas of digitalization and IT – we are continuously expanding our recruitment tools. Our systematic talent relationship management, for example, enables us to make contact with talented candidates from strategically relevant target groups at an early stage and to build a long-term relationship between them and the Group. In addition to the standard dual vocational training, programs such as our Studium im Praxisverbund integrated degree and the Volkswagen-sponsored non-profit École 42 in Wolfsburg, Berlin and Prague ensure a pipeline of highly qualified and motivated employees. By systematically increasing our attractiveness as an employer, we are able to gain talented people in areas that are crucial for the future, such as electrical engineering, chemistry and information technology. With tools such as these, we want to ensure that our need for qualified new staff is covered, even amid a shortage of skilled labor.

We also counter the risks associated with employee turnover and loss of expertise – for example as a result of retirement – with intensive, department-specific succession planning and training.

The advancing digitalization of our personnel processes involves risks arising from the processing of personal data, but also system-based improvements so that Volkswagen can ensure compliance with data protection laws when processing personal data. The Volkswagen Group is aware of its responsibility in the processing of this data. To ensure that this processing is carried out in a manner that is compliant with data protection requirements, we address risks as part of our data protection management system by implementing a wide range of measures.

Compliance with legal requirements, the identification and assessment of work-related risks, the derivation of appropriate measures and monitoring of their effectiveness form the basis of successful occupational health and safety measures and contribute to maintaining the health of our employees as members of society. Ensuring a safe and healthy working environment is an important element of corporate sustainability, particularly during our transformation. It is also a major component of employer attractiveness, as it helps to effectively reduce the associated risks and minimize process disruptions and production stoppages.

Environmental protection regulations

The specific CO₂ emission targets for all new passenger car and light commercial vehicle fleets for manufacturers are set out in Regulation (EU) No 2019/631 in the EU for 2020 and subsequent years. This regulation is a material component of the European climate protection policy and therefore forms the key regulatory framework for product design and marketing by all vehicle manufacturers selling in the European market.

For new passenger car fleets in the 27 EU member states, including Norway and Iceland (EU27+2), a reduction of 15% in CO₂ emissions will be required from 2025 and a reduction of 55% from 2030. For new light commercial vehicle fleets, the required reductions will be 15% from 2025 and 50% from 2030. For 2035, a CO₂ reduction target of 100% will apply to new passenger car and light commercial vehicle fleets. In each case, the starting point for the calculation is the WLTP fleet value in 2021. These more stringent targets can essentially only be achieved through a growing proportion of electric vehicles within the fleet. The European Commission plans to revisit these targets as part of the Carbon Review for 2026.

If the respective fleet target is not fulfilled, the Commission may impose an excess emissions premium in the amount of €95 per excess gram of CO₂ per newly registered vehicle.

Regulations governing fleet fuel consumption of new vehicles are also being developed or introduced outside the EU, for example in Brazil, China, the United Kingdom, India, Japan, Canada, Mexico, Saudi Arabia, Switzerland, South Korea, Taiwan, New Zealand, Australia and the USA.

Fuel consumption regulations in China are being gradually tightened with a fleet average target of 4.6 l/100 km for 2025. More stringent rules are expected for the period after 2025. In addition to this legislation on fleet consumption, a new energy vehicle quota applies in China. This requires every manufacturer to increase the share of electric vehicles in its total production or import volumes. For 2024, this quota was 28% and had to be fulfilled through battery-electric vehicles, plug-in hybrids, or fuel cell vehicles. The quota will be raised to 38% for 2025. There is no indication as to possible targets after 2025 yet.

In the USA, the annual CO₂ and efficiency targets to be fulfilled by the fleet for new passenger cars and light commercial vehicles are defined by the Greenhouse Gas (GHG) legislation and Corporate Average Fuel Economy (CAFE) legislation. The fact that performance is accounted for over several years as well as the option to purchase credits provide flexibility in target achievement. If targets are missed, payments to the authority may be due and/or vehicle registrations may be prohibited, depending on the regulation. In December 2021, the previous administration published new CO₂ fleet targets for the period from 2022 to 2026. The industry-wide fleet average for passenger cars and light commercial vehicles is to be reduced from 137 g CO₂/km in 2022 to 106 g CO₂/km in 2026. The CAFE efficiency targets for 2024 to 2026 were announced in spring 2022. The previous administration set a target for 50% of all new vehicle sales to be electric by 2030. The GHG and CAFE fleet targets for the period from 2027 to 2032 were accordingly published in 2024. An industry-wide fleet average for passenger cars and light commercial vehicles of 53 g CO₂/km or an efficiency value of 51.4 miles per gallon is to be achieved by 2032. Over and above this, California and the other US states applying the California Zero-Emission Vehicle Regulation are required to meet electrification rates for the new vehicle fleet that rise each year. The goal is to achieve the complete electrification of all passenger cars and light commercial vehicles by 2035. It is expected that the existing fleet specifications will be subject to review under the current administration.

The tightening of fleet-based CO₂ emissions and fuel consumption regulations makes it necessary to use the latest mobility technologies in all affected markets. Above all, electrified and also purely electric drivetrains are becoming increasingly common. The Volkswagen Group closely coordinates technology and product planning with its brands so as to avoid, for example, failure to meet fleet value targets, which would entail severe payment obligations. Whether the Group meets its fleet targets largely depends on its technological and financial capabilities, which are reflected in, for example, our drivetrain and fuel strategy.

Alongside technical and portfolio electrification measures, it is also possible to use local statutory mechanisms such as the creation of emission pools in Europe, for example, or the trading of emission credits in the United States and China. Legislation provides further region-specific flexibility to aid target achievement. For example:

• Additional innovative technologies in the vehicle that reduce fuel consumption outside of the test cycle are eligible for credits (eco-innovations and off-cycle credits)
• Particularly efficient vehicles qualify for super-credits
• Special rules are in place for small-series producers and niche manufacturers

The Real Driving Emissions (RDE) Regulation for passenger cars and light commercial vehicles is another of the main European regulations. New, uniform limits for nitrogen oxide and particulate emissions in real road traffic have applied to new vehicle types across the EU since September 2017. This makes the RDE test procedure fundamentally different from the Euro-6 standard still in force, which stipulates that the limits on the chassis dynamometer are authoritative. The RDE regulation is intended primarily to improve air quality in urban areas and areas close to traffic, leading to stricter requirements for exhaust gas aftertreatment in passenger cars and light commercial vehicles. Stricter RDE processes and requirements have resulted in certain challenges, for example relating to test criteria and homologation. Successor emissions legislation (Euro-7) was completed in late 2023. The final regulation was published in the Official Journal in April 2024. This successor legislation is mandatory from November 2026 for new vehicle types and from November 2027 for all new vehicles.

The other main EU regulations affecting the automotive industry include:

• the Car Labeling Directive (1999/94/EC), which will be brought into line with Regulation (EU) 2017/1151;
• the Fuel Quality Directive (FQD – 2009/30/EC) updating the fuel quality specifications and introducing energy efficiency specifications for fuel production;
• the Renewable Energy Directive (RED – EU 2023/2413) introducing sustainability criteria, which contains higher quotas for advanced biofuels and e-fuels (RFNBOs);
• the proposal for revision (COM/2021/563) of the Energy Taxation Directive (2003/96/EC) updating the minimum tax rates for all energy products and electricity.

The debate around driving bans for diesel vehicles in Germany has lost some of its heat given the strong improvements in air quality measurements. In 2024, all air quality limits were met for the first time. In some cases, these issues have been, and continue to be, the subject of legal proceedings. Individual cities throughout Germany have already imposed zonal traffic bans for older vehicles such as Euro-4/IV diesel. It is argued that only driving bans for diesel vehicles can bring about the necessary short-term reduction in NO₂ immissions. The aforementioned debate could negatively affect sales of diesel vehicles and result in financial liabilities and possible official requirements.

Local bans on the use of diesel vehicles are already in place in a number of other countries, though these mainly affect older vehicles with lower emissions standards. Regulations in Belgium that successively ban older vehicles from larger cities are one example. In addition to major cities such as Paris and London, countries are also discussing future bans on vehicles with internal combustion engines.

Around the world, commercial vehicles are subject to increasingly stringent environmental and other regulations. The goal of achieving climate neutrality by 2050 defined for the 27 EU member states in the European Green Deal plus the related ambitious carbon reduction targets by 2030 (general reduction of CO₂ emissions in the EU by at least 55% by 2030 and by 90% by 2040 compared to 1990 levels) pose a major challenge for TRATON and the entire heavy commercial vehicle sector.

In mid-2024, the EU set new ambitious targets for manufacturers of heavy commercial vehicles in the new Regulation (EU) 2024/1610 (CO₂ Regulation) in order to reduce CO₂ emissions in Europe over the course of this decade and the next. This reaffirmed the existing objective for 2025 of cutting the CO₂ emissions of heavy trucks of more than 16 tonnes by 15%. However, the EU raised the reduction target from 30% to 45% by 2030 and set it for these vehicles at 65% by 2035 and at 90% by 2040, based on a benchmark from the period from July 2019 to June 2020. These targets will also be extended to subgroups of commercial vehicles over five tonnes, including intercity buses and coaches. Some special vehicles are still exempt. To speed up the rollout of zero-emission city buses, the EU also decided that all new city buses must be zero-emission from 2035, with an interim target of 90% in 2030. If these emissions targets are not achieved, penalties of €4,250 will be imposed per gram of CO₂/tonne-kilometer (tkm) of excess emissions, starting from 2025.

The new Euro-7 emission standard for limiting harmful emissions such as nitrogen oxides (NO_x) or particulate matter from vehicle exhaust gases was adopted in the EU and the corresponding legislation was published in the EU Official Journal in May 2024. Implementation of this standard poses a challenge both in terms of the limit values and testing methods. Many technical details still need to be defined in secondary legislation.

TRATON is also impacted by the new NO_x regulation and possible further tightening of carbon emission regulations in the USA. The US Environmental Protection Agency (EPA) has already imposed stricter CO₂ limits for heavy commercial vehicles. The new regulations stipulate that a significant proportion of heavy commercial vehicles must be zero-emission by 2032 in order to achieve the climate targets set. In early 2023, the California Air Resources Board (CARB) approved the Advanced Clean Fleet (ACF) regulation, which requires fleet owners to transition to zero-emission vehicles. Some fleet requirements took effect in 2024, but vary by industry. The ACF also sets out that by 2036 all trucks sold in California must be zero-emission vehicles. As a result, TRATON may be subject to different regulatory standards in the USA as a whole and in individual states, which means that emissions regulations may come into force at different times and with varying degrees of stringency.

China has already brought in the China 6 (CN 6) emissions standard for heavy commercial vehicles in 2023 in an effort to reduce pollutant emissions. New Stage IV fuel consumption limits will also enter into force there in July 2025, as will the New Energy Vehicle Credit Policy Plan, which is slated to be implemented from 2026 to reduce carbon emissions for all commercial vehicles. New regulations are being developed and existing ones are being revised apace, particularly with regard to advanced driver assistance systems, intelligent and connected vehicles, and new energy vehicles.

Adapting commercial vehicles to new emission standards is technologically complex and expensive, especially given the often contradictory regulations applicable to CO₂ and other pollutant emissions from internal combustion engines. Using new technologies to reduce carbon and other exhaust gas emissions is indispensable for meeting the targets set for the EU, North America and China. This is why TRATON is investing heavily in climate-friendly alternative drive systems – especially battery-electric commercial vehicles.

A number of special environmental protection requirements apply to the Power Engineering segment. For example, the International Maritime Organization has issued the International Convention for the Prevention of Pollution from Ships (MARPOL – MARine POLlution), which applies to ship engines. The permitted emissions are being lowered in phases under MARPOL ANNEX VI. A reduction of the sulfur content in marine fuel has been implemented globally in recent years. Particularly stringent environmental regulations apply in emission control areas in Europe and the USA/Canada. Expansion to further regions such as the Mediterranean or Japan is being planned; other regions or territories such as the Black Sea, Alaska, Australia or South Korea are also in discussion. Moreover, emission limits are in force under Regulation (EU) 2016/1628 and in accordance with the regulations of the US Environmental Protection Agency (EPA), for example.

We are pushing for a maritime energy transition in specialist bodies and also promote this to the general public. In a first step, we are supporting the switch to liquefied natural gas (LNG) as a fuel for maritime applications, and offer dual fuel and gas-powered engines for new and retrofitted vessels. For long-term, climate-neutral operation of seagoing vessels, we advocate power-to-X technology, in which excess sustainably generated electricity is converted into carbon-neutral gas or liquid fuel, especially hydrogen, methanol or ammonia.

As regards stationary equipment, there are a number of national rules in place worldwide that limit the emissions permitted in each case. In 2008, the World Bank Group set limits for gas and diesel engines in its Environmental, Health, and Safety Guidelines for Thermal Power Plants. These guidelines, which are currently being revised, are required to be applied in countries that have adopted no national requirements of their own or have requirements that are less stringent. In addition, the United Nations adopted the Convention on Long-range Transboundary Air Pollution back in 1979, setting upper limits on total emissions as well as nitrogen oxide for the signatory states (including all EU states, other countries in Eastern Europe, the USA and Canada). These are also due for revision. Enhancements to the product portfolio in the Power Engineering segment focus on improving the efficiency and emissions reduction of equipment and systems. While adhering to current and future emissions requirements, we are advancing innovative energy solutions to actively shape the climate transition.