Good afternoon to all participants who have joined this call. We are delighted to welcome you to this year's annual ESG conference, which is now our third one and following. We fully recognize within our entire organization that the relevance of ESG for investment choices is rising at a very rapid pace. At VW, ESG has become a fundamental element of our decision-making. For this reason, we have put together a broad range of experts to give you insights into our current ESG activities. I would like to hand over to Hiltrud Werner, our VW Group board member for integrity and legal affairs, who will kindly kick off today's event.
Ladies and gentlemen, on behalf of the entire board of management, I warmly welcome you to the third ESG conference of Volkswagen AG, which this year, due to the pandemic, is held in a virtual format for the first time. A lot has changed in our company since the last conference. We are in the middle of the biggest transformation in our company's history, and we are making great strides in it. This not only applies to the path towards e-mobility, carbon neutral production, and the digitization and digitalization of the world of work, but also applies to the topics of law, compliance, integrity, and risk management that are based in my board area.
On 14 September , as you know, we were proud to announce that our independent compliance monitor, Larry Dean Thompson, certified that Volkswagen has met its commitment under its plea agreement with the U.S. Department of Justice to design and implement a compliance program that will prevent and detect violations of anti-fraud and environmental laws. Over the course of the monitorship, we have updated and strengthened structures, processes, and systems in many divisions of the company, including technical development, governance, risk management, compliance, and legal functions. We implemented an expanded whistleblower system. We enhanced anti-corruption and anti-trust prevention, as well as business partner due diligences. In addition, we have flattened hierarchies, decentralized decision-making, and we delegated more responsibility to our brands and regional offices to make decisions suitable for the conditions in their market.
Larry Dean Thompson and his monitor team have helped us make Volkswagen a stronger, more transparent company.
The end of the monitorship is not the end of our journey. The whole board is committed to continuous improvement of our organization and its culture. With the help of the monitor, we have been able to install more robust processes to leave the task force mode of the last almost four years behind us, and we have gained the potential to work more proactive on our future. In the next hours, my colleagues will show you in more detail which topics we are currently working on. Paul Hünecke will present the strategy for my board area for the next few years, and those also the future scenarios that we are anticipating. Hagen Repke, our Chief Risk Officer, will show you how we are as an organization want to achieve more resilience in order to survive and grow in the coming years with all its disruptive changes.
Barbara Lamprecht discusses the planned law on corporate responsibility for human rights in the supply chain and the amendments to the Volkswagen AG Social Charter that was signed by the Board of Management and the Workers' Council last week. Finally, Ralf Pfitzner from the Group Strategy Department will introduce you to the latest developments in our sustainability strategy. Ladies and gentlemen, Volkswagen is a better organization today than it was three years ago. Larry Thompson was quoted at the end of his monitorship, and I can assure you, we continue to promote an open and honest culture of integrity and compliance at Volkswagen. We are convinced of the ever-rising importance of ESG topics, and we are committed to further improve our overall ESG performance in dialogue with the capital market. I am happy to have you listening to us today and to answer your questions later during the session.
Thank you very much.
Okay. Thank you, Hiltrud. Good afternoon, ladies and gentlemen. My name is Paul Hünecke and I am the Head of Strategy at the Integrity and Legal Affairs Department. It is a pleasure for me to be here today, and we are currently about to kick off our new Strategy 2030 for the Integrity and Legal Affairs Department. As you can see, in a few minutes, our new strategy incorporates a bunch of ESG aspects that I suppose you guys are interested in. As you know, 14 September was a special day for us. We reached an important milestone, as Hiltrud mentioned before. After three years of intensive work, we received our monitor certification. Larry Thompson and his team confirmed that we become a better company. Before we jump into the future, let me first emphasize four points that, to my mind, justify the positive reporting.
We have established 13 holistic golden rules.
They set strong and comprehensive guidelines for the development of emissions-related software, both internally and externally with our suppliers. Second, we have built up an effective integrated risk management system directly in the business units. It enables us to identify, analyze, and mitigate risk at an early stage. Third, we have anchored integrity and compliance throughout the whole company. To give you some examples, our environmental compliance management system now ensures professional management of environmental risks. A product compliance management system guarantees the technical conformity of our products from the beginning to end of their life cycle. What is really important, the whole PCMS is supported by a clear allocation of roles and responsibilities, as well as additional compliance checks at critical milestones. Fourth and not last, finally, we have implemented one of the biggest change management programs in our history, Together for Integrity.
This program puts integrity and compliance at the top of the group's agenda. Until today, it has been rolled out in over 450 group companies. O ne thing is for sure, the end of the monitorship is by no means the end of our journey towards a more ethical company. We will follow this path even without being accompanied by Larry and his team. Obviously, the question for us is now, in which direction are we going to move after the successful certification? Which topics remain important for us, and which topics do we need to address even further in the future? To prepare for giving answers, we set up the Futures of Ethics one year ago. It's an internal cross-brand and cross-functional initiative. We had learned this builds a fundament of our strategy for the Integrity and Legal Affairs department.
I think it's important for you to understand why we are doing things and how we execute our plans later on. Let's deep dive into Futures of Ethics. As I said, we spent six months looking into the future with various experts. We did a 360-degree analysis to carve out plausible future scenarios for the year 2030, 2040. From this point, we derived implications for our department as well as the whole Volkswagen Group. We no longer drive on supervision or any task force mode. We are much more flexible and better prepared for the world of tomorrow. If you're interested in the details, have a look at our future book, please. Here you can find all the facts and figures behind our strategic analysis we provided afterwards on our investor relations website. For today, let me underline just one central aspect.
We don't believe in one future anymore. We believe there are many possibilities. In other words, many futures. Our task is to analyze and prepare us for them. To do so, we have to be more flexible than before. We need to cope with uncertainties instead of focusing on one fixed plan. Therefore, we developed five scenarios for the world of 2030, and now I would like to pick you up on a journey through three of them. Let's jump into the first scenario. In our first scenario, Puzzled World, the end of the COVID-19 pandemic is followed by the biggest economic crisis of the 20th century. This scenario is characterized by a decoupling development between the Eastern and Western world. The states spend less money for social welfare, debt, and social inequality burden the younger generation. Political leaders struggle with joint answers to pressing future issues.
As a result, the world has missed the Paris climate targets. Nation-states are putting much effort into reinstalling domestic and regional markets. Countries retreat from the global integration. A handful of digital superstar companies dominate the markets. Around 70% of new value will be created on digital platforms. That means the digital flow of goods grows significantly, and AI and robots have become part of everyday life and work, raising new ethical questions that need to be answered. In our second scenario, Green Evolution, COVID-19 has led a paradigm shift in green evolution. Social activism demands policymakers to refocus towards sustainable value creation and preservation of limited natural resources. Politicians are reacting. The European Green Deal is being implemented, and a new supranational council is founded, the World Meteorological Organization. Its members decide on climate-relevant topics, helping to replace fossil fuels by renewable energy sources.
The last atomic power plant is shut down in the U.S. by 2030. Technological process allows for intelligent, green, purposeful products. Production processes are strictly monitored, as well as companies' contribution to the common good. Automation and AI enable people to work less and spend more time for social engagement. Unethical and unsustainable behavior is punished and highly sanctioned, both on national and international levels. For example, they develop new finance models by taxing digital value creation, automation, and CO2 emissions. My last excuse is the scenario world goes to Asia. We call it Innovasia. In this scenario, the Western world has lost its predominant position in the global economy and political impact. China becomes the spearhead of the newly formed hemisphere of influence. The new Silk Road has established a new world order, suppressing Europeans' economy by having 35 members until 2033.
As a sign of internal coherence, leaders have concentrated on social health and safety policies. Climate issues lag behind. Subsidies and political pressure have made China the leading provider of artificial intelligence and autonomous driving, with independent tech giants dominating their competitors. Western firms need to strictly comply with and show transparency towards Asian regulators. With all these future challenges and requirements, we are now in a position to define the new strategy of our integrity and legal affairs department until 2030. What are the big learnings of our Futures of Ethics journey? First, we have to gain cross-functional resilience in case of unexpected disruptions appearing more frequently. Second, we have to become a proactive guide and advisor. How to deal with AI, for example, and how to protect human rights when it comes to production sites in politically difficult countries.
They are questions we need to answer, and they call for a strong ethical voice from our department. Third, early identification and streamlined workflows for change to allow legislation to keep pace on innovation. Fourth, we need open communication about conflicting goals. Integrity and sustainability have to be on equal footing with profitability. We need to really balance those aspects in daily business. Transparency is key. The last key question concerns the license to operate. What is our legacy, and what will be the purpose of ethics and compliance in the future? To my mind, the focus of future acting has to consider the purpose for common good and welfare. I raised a lot of questions, but I'm happy to have the answers with me, too.
All these learnings and requirements are incorporated in our new integrity and legal affairs strategy 2030, which will be launched on 7 December. Therefore, you will get a sneak preview today. Our purpose is driven by integrity to protect what we love. Driven by integrity in every decision, every action. No matter if it's about building the new factories in the world or loading out the dishwasher in the office kitchen. How can we, as second line, enable as many people as possible to act with integrity and compliance as a matter of course? To protect what we love enables us to get into all the heads of our colleagues. For someone, it seems important to protect our Volkswagen, for others, the coming generation, and yet others prioritize the protection of our environment. Whatever we love, it's worth protecting. To achieve our purpose, we defined four goals.
The first one is we want to become a trusted guide and resilience manager who proactively communicates and consults internal customers on new challenges, who proactively identifies risks and chances, who enables profound decisions despite uncertainty, and who holds governance over Volkswagen ethics and resilience. The second goal is to be a navigator for trust and transparency. That is a very new role for us. We contribute to the common good and welfare. We foster the dialogue of stakeholders' interests. We put integrity on equal level with profit, and we conceptualize and coordinate the non-financial reporting. Goal number three, an efficient, innovative second line is the basis for three true future roles. The integrity and legal affairs department will operate as an efficient organization, design customer-dedicated processes, be easily reachable for its customer, be fully digital, and continuously improve itself and be a technological greenfield for new technologies.
Our fourth goal is to achieve all these ambitious goals, we need the best team ever. Our task as a leader is to set standards for diversity and qualification, empower our employees, offer flexibility in working models and workplaces, attract young talents, and promote entrepreneurship. Let me finalize and summarize our most important findings. We need to give ourselves a new role to address issues like corporate responsibility, trust, and transparency in a new, holistic way. We developed from beginning a firefighter during the monitorship to a much more forward, future-orientated, proactive role. What is even more important, we need to deliver on concrete action. Our strategy must enable the Volkswagen Group to integrity and compliance on the same level and put them on equal footing with the business.
That also means fostering a lively speak-up culture, as well as communicating targets, conflicts openly and on eye level with our stakeholders. In order to handle those tasks, we need to further improve efficiency, first of all, by digitization our processes. Resilience is key. For this reason, we will be implementing processes and structures that enable us to strengthen foresight, risk awareness, and robustness. The fast ramp-up of our production after COVID-19 lockdown has proved we are on the right path. Thanks for your time, and now I'm looking forward to your questions. Thank you.
Operator, we'd like to open the floor for questions for Hiltrud Werner and for Paul Hünecke, please. Thank you.
Great. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. Again, that is star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Again, that is star one to ask a question. We will take our first question from Kataz Pilzek, from Union Investment.
Yes. Hello together. Good afternoon. A couple of questions maybe from my side. May I just ask, you mentioned or you explained to us three scenarios. In your current view, what is the most realistic one you could currently see? Or maybe the percentage of you believe what is more realistic than the other? Then, related to that, will your scenario then also get included in your financial outlook for the entire company? W ill that be then a kind of working assumption for the group? Maybe related to that, my last question, could you elaborate a little bit what you, because you mentioned here the China or the Asian innovation and situation you might go into.
Do you currently also think about a new strategy in China, also taking in mind that our politicians might change their assessment about the China market behavior and how to deal with them? Thank you.
Okay. Thank you very much. Regarding the first question, what is our most realistic scenario? We developed five scenarios, and all scenarios are realistic and are dealing with uncertainties. Of course, we have the positive world, it is our current scenario if we fulfill the word of tomorrow. Concerning the second question, the scenarios are currently used by the integrity and leader of affairs department, but obviously Werner speaks currently with the group strategy. F or the next strategy, they can put the scenarios as baseline for our new group strategy in the future. Regarding China, I am not the right person here. This we have to discuss internally with the group strategy, regarding a new direction of China or the U.S. market.
H ere we just want to see or show what scenarios are possible in the future and to find the answers we have to discuss internally with the Group strategy.
Okay, operator, we can take your next questions, please.
Great. Thank you. We will take Stephen Reitman from Societe Generale.
Yes, good afternoon. Thank you for doing this call. Again, congratulations on the ending of the monitorship. Where do you think that leaves you now in a spectrum, among other companies or among German companies in terms of integrity management? Secondly, how do you think this still plays, in terms of the nearer term issues that are obviously always in the news about Volkswagen, which is about governance?
Thank you very much for your question. Hiltrud Werner speaking. We are also benchmarking our integrity and compliance status against other German companies, but not only in Germany. We are also looking globally. For better benchmarking, we are using KPIs and also we developed, with the help of the Technical University of Munich, the integrity index that shows us where we have still left some blind spots or areas for improvement. We will continuously work on that. We are also working in a number of organizations to share best practice. That is, for example, the ECI, the Ethics & Compliance Initiative in the U.S. We are participating in the DAX 30 Compliance Roundtable with our topics, or with the Deutsches Institut für Compliance, the DICO.
There are a number of, let's say, links to other companies where we try to get more input. Because as I said, for us, the end of the monitorship is just a milestone. It is not the end of the journey. I mean, in general, compliance has no finish line. There is always something to do. There is always a new legislation. We currently have new laws upcoming, especially for business and human rights, for responsibility in your supply chain and so on. You will hear more about that from my colleagues that come later, from Hagen Repke and also from Barbara Lamprecht. I guess that shows that in the outlook, we are well aware of the fact that we have a lot to do there.
In terms of our nearer term, we believe that from the governance of the group, we have done a lot in terms of strengthening our internal control system and our system of committees and decision-making. We believe that the right balance between the headquarter and the brands at the moment is in place. Thank you.
Thank you.
Okay. Operator, we could take one more question. Since we have such a full agenda today, we would like to restrict the amount of questions, but of course, if there are any more topics that you feel need to be covered, you can let us know and it's a kickoff in dialogue, so you will hear more from us. Okay, thank you, operator.
Thank you. We will take our next question from Rajeev Bal from Ninety One.
Great. Thank you. I was intrigued by your comment that the ramp-up in production had shown that lessons have been learned and you were on the right track. I was wondering if you could be more specific about that. Were there specific instances that were either prevented or encouraged, or behaviors that were changed as a result of the new processes that you have? I just wonder if you could be a bit more specific about what's being done differently in the business now as a result of what you have done.
I guess you will hear more of that also from my colleagues that come later. Just to give you one example, you have seen how we approached the new openness and our awareness to risk when we delayed the start of production on the ID.3, just to make sure that we are really taking it serious if people speak up inside the organization and put quality and safety of our customers first. As you know, moving a start of production for a car company is a big thing, and it really showed that we keep our word and take it serious to put the quality of the projects and processes first.
Okay. Thank you very much, Hiltrud, for joining us to kick off today. Thank you very much, Paul, and we would like to now welcome our next speaker, Hagen Repke, who will speak about risk management processes. Just be a small break in between because we have to do some hygiene measures here and make sure we've got fresh air. Just bear with us, please. Ladies and gentlemen, we would now like to kick off with our next deep dive, Mr. Hagen Repke. Hagen will give us our insights into our current Group risk management system and processes, and you'll have the opportunity for a Q&A after his brief presentation. Kick off to you. I'll hand over, Hagen. Thank you.
All right. Good afternoon, ladies and gentlemen. As Hiltrud Werner said, I'm heading the risk management team at Volkswagen Group. It's certainly a pleasure for me to present to you how Volkswagen Group has enhanced its group-wide risk management and internal control system over the past five years, and how this is also taking care of the growing importance of ESG. Let me start by taking a quick look at the importance of ESG risks for Volkswagen. Let me then go into more details how risk management at Volkswagen has changed, how it looks today, what it does for Volkswagen Group, and how the monitor has assessed it. Finally, I would like to briefly talk about how we plan to continue to develop our risk management system to the changing environment we operate in.
This should leave us with 5-10 minutes at the end in case you should have any questions. All right. I guess it's probably fair to say that we live in a period where we have started to see some fundamental risk occurring, including in the environmental domain. To be honest, these risks have been long on the risk lists. For instance, of the World Economic Forum's Global Risks Report, which, as you know, is published every year in January. In January 2020, for the first time, the top five risks in terms of likelihood all referred to the. These risks have a material impact of how we can do business, also, of course, in the automotive industry in the years to come.
Having a system to understand and manage these risks and opportunities that lie ahead of us is becoming more and more important for Volkswagen Group's sustainable success. Looking back the last five years, we've come a long way since the diesel scandal broke, not only with respect to our company vision, strategy, culture, and our products, but also with our governance, including our risk management and internal control system. Let me talk about some more details now. I believe people's attitude is a key factor for a sustainable success. Therefore, one of our focal points over the last five years has been to improve the risk culture at Volkswagen. This is how openly and how early are new risks identified, addressed, and escalated, if needed, throughout all levels of the organization. We have launched communication campaigns using posters like this one, postcards, mailings.
We did conferences with over 400 people attending, fireplace talks, bus tours, our company intranet with 75,000 hits on our risk management sites every year, and so forth. We have also increased our training offerings with over 7,000 managers taking online risk management trainings last year at Volkswagen AG alone. We have also established clear reporting thresholds for reporting risks up the chain to make sure they are transparent and are taken care of. We measure the readiness of our staff globally across all brands to openly address risks as part of our annual employee survey, with very positive feedback from more than half a million participants every year. Of course, culture is not the only element for an effective risk management system in a corporation, especially given the size of Volkswagen Group. Other elements include a robust governance, sufficient resources, and appropriate processes.
Therefore, we at Volkswagen use well-known and recognized international frameworks, like the Three Lines of Defense model or its updated three lines version, and the COSO framework for governing our risk management and internal control system. The three lines model provides us a robust framework to manage all sorts of risks, including ESG risks, with clearly defined roles and responsibilities. It helps to ensure that risks are identified early by the business lines, the so-called first line, where they occur and can be best assessed and mitigated. Of course, with the support and guidance of the second-line specialized risk management teams, both are being monitored by the third-line internal audit function. To strengthen the risk management at Volkswagen, the Volkswagen Group has significantly increased its risk management team globally to approximately 250 staff in 2020, not counting the risk managers in the financial services and banking business.
In addition, we have revised and improved our risk management and internal controls processes, as I would like to show you now in some more detail. For instance, in 2016, we have added a new risk assessment reporting and tracking process to our risk management system, which allows us to identify and report the group's top risks from all brands and regions on a quarterly basis to the group board of management and the audit committee. To ensure the quality of the quarterly risk identification, risk assessment, and mitigation, we have significantly stepped up our training efforts for managers and staff involved in the risk identification process. Through this process, we ensure the assignment of all top risks to so-called risk owners who are in charge to assess and mitigate these risks.
We have also introduced a new state-of-the-art group wide IT tool with 3,500 users to support our risk management efforts. We as a risk management department consult and challenge the business units in their risk assessment and mitigations. We have also used the lessons learned from diesel to strengthen our internal control system. For instance, with respect to stringent Four-Eyes principles and segregation of duty. For over 20 key processes, including development, production, and sales, we have developed a central master control catalog with over 600 risk-based control objectives, which of course also relate to environment, product compliance, and fraud-related risks. We started in 2018 to implement this new and more robust internal control system at Volkswagen AG, Audi AG, and two U.S. Volkswagen subsidiaries and have successfully finished the implementation this year.
This new standardized internal control system helps us to assign clear responsibilities for all key controls and our key processes. It has also helped us to identify and close potential control gaps. As a result, we have now documented and tested close to 9,000 key controls in these aforementioned companies alone. Of course, the roll-out of this project continues. In summer 2020, we have started the roll-out in all major brands, and we will roll out the standard ICS in all major companies after that. Another lesson learned from the diesel crisis was to learn from our past and our future mistakes as an organization. At the monitorship, this was one of the key recommendations, and Volkswagen has truly committed to this.
Therefore, Volkswagen has set up a new policy and process to be able to perform so-called root cause analysis and lessons learned in a very systematic manner for situations where a serious compliance violation or a material commercial risk has occurred. The objective of this process is to understand the true root cause of these situations and prevent them from happening again. The group risk management department has therefore been tasked to coordinate this new process. We are working closely together with the brands, internal audit, compliance, human resources, and others to get to the root cause. That is asking why did it happen using the so-called five whys methodology. Was the culture not adequate? Was the process not appropriate? Were the targets not realistic?
Based on a good and deep understanding of the root cause, we develop lessons learned that are then shared with the affected departments in the entire group worldwide. One last example of how the company has enhanced its efforts to manage risks better is our work with the business units to actively manage risks in a coordinated way, especially when multiple functions and brands in our huge group are involved. Group risk management has launched and steered several cross-departmental working groups to analyze potential risk scenarios, including simulations and deriving additional mitigating measures. For example, concerning Brexit, our fast-growing battery demand, potential sanctions, potential U.S. tariffs, or new cybersecurity requirements for connected vehicles in the future. This is helping Volkswagen and the business lines to identify key risks early on and start mitigation much earlier. One of the drivers for change has been the U.S. monitorship.
To be honest, the monitorship has been very helpful to focus our attention and resources on things that were not where they should be in the past. The monitor team has very intensely checked and tested if we have met our obligations to establish an effective ethics and compliance program. This included checking and testing our internal governance, including our risk management and internal control system. That meant we had to work very hard in the last almost four years. We made quite a few improvements to our policies, processes, and organization, but I am glad to say that we have delivered as promised and successfully completed the monitorship. Having improved our governance, the question is now: where do we go from here? Integrity is now part of our corporate strategy.
We have a very strong commitment at Volkswagen Group to treat topics like the environment, like compliance, like integrity and risk management with the same priority as our business priorities. We now have the required resources, processes, and tools for proper risk management and internal controls. C hange will continue after the monitorship, and this is only a milestone, as Hiltrud said earlier. The environment we operate in changes. Uncertainty about future development is likely to increase, and as we heard from Paul, we operate with multiple future scenarios. Therefore, it is important to also adopt the company's risk management in the future. Like Volkswagen Group, the group risk management function works very hard to stay ahead of the curve. We use an annual 10-point program to adopt and enhance our risk management direction, processes, and tools on an annual basis.
The change projects in the 10-point program are derived from benchmarking with other companies, from discussions with external experts about future trends, from identifying weaknesses, and so forth. On the chart, you see a few examples of our plan 2021 program. One of the new projects focuses on improving our so-called organizational resilience. For this, we have set up a cross-functional working group and also taken external experts on board. The objective is to systematically measure the current level of the organizational resilience, to analyze how Volkswagen can be made more resilient for the future, especially for future crisis and disrupting trends, and to start initiating the respective measures much earlier. The status of the entire 10-point program is reported quarterly to the group board of management and the audit committee for their supervision and direction.
Those, we believe, we ensure the sustainability of our risk management measures also in the future. Finally, risk management is one of the key components of our strategic long-term change program, called Together for Integrity. This way, we ensure that our risk management activities are well coordinated with other activities to maintain high ethical and compliance standards, as well as to have a robust governance throughout Volkswagen Group. With that, thank you very much for your attention.
Okay. Thank you very much, Hagen. Operator, we would like to now kick off on the Q&A portion of this session, please.
Great. Thank you. Again, that is star one to ask a question, and that's star one to ask a question. We'll pause for just a moment to allow everyone an opportunity. Then we'll take our first question from Nikolai Kempf from Deutsche Bank.
Yeah. Hi, Nikolai Kempf here from Deutsche Bank. Thanks for taking my question and thanks for hosting this event. My question would be on batteries and battery cells. We've heard some news that some OEMs had to change impacted cells which are damaged. How can you prevent this from this to happen, that you have to implement and build default battery cells in your new BEV vehicles?
Well, generally, we have a planning process, which is aligning the planned number of battery electric vehicles to the required supply of battery modules. For that, our procurement departments are making the appropriate long-term contracts with the relevant suppliers to ensure that there is sufficient supply in terms of batteries. That way we are trying to make sure there is sufficient supply throughout the next 10 years, basically.
Maybe Nikolai, if I could add one comment. We did confirm during our planning round that we have secured supply for the full term of our planning round.
Okay, thanks.
We'll take our next question from Anthony Najam from AXA Investment.
Yes. Hi. Thanks for taking the question and thanks for organizing. A lot of useful information to digest. I just wanted to follow up on one point, and maybe it was discussed and maybe I missed it, but on all, we arrived to a milestone in handling the issues that has been here in the past. For the future, is Volkswagen counting on including metrics and the monitoring of the risk assessment frameworks in executive remuneration, by any chance?
If we understood correctly, you're asking about reflection of ESG in remuneration?
Yes. About the future risk appetite. It is a subject for the future, if I understood, to monitor the risk appetite. Will it be reflected in the executive remuneration? Is it already reflected on some levels, managing the unexpected, et cetera?
Yeah. Maybe in general, everything on remuneration is actually within the responsibility of the supervisory board. Without giving too much information at this point, I can confirm that we are looking at the reflection of KPIs related to ESG within our remuneration. I think, in the near term, you will get some information through us, through the supervisory board on that. I f I could ask your understanding, today isn't the forum for it yet.
Thank you very much.
We'll take our next question from Kataz Pilzek from Union Investment.
Sorry. Thanks for taking, again, my question. I have a quick question on your slide 11. You describe here a couple of risks you have identified. Could you maybe share with us your process? How integrated are you, and are you going into people of the purchase department? How do you evaluate? You mentioned also before you have external experts who help you with some risks. Could you just give us maybe one of these examples on how you really did it, what the risks were, and what countermeasures you developed out of this, so that we can get a more practical view on this slide? Thank you.
Thanks for the question. Yes. I think there are two parts to the question. One is the general process. How do we involve the business? As I stated earlier, we have about 3,500 people participating in our bottom-up risk assessment every quarter. That's a substantial number of people making sure we use the wisdom of the crowd here. T hrough certain reporting thresholds, then we make sure that the relevant risks are reported up to the respective boards for acknowledgement, and if needed, additional actions. To be more specific, maybe just staying on the Brexit situation, for example. There, we have orchestrated a cross-functional working group that took participants from production, from sales, from the customs department, of course, from finance and many other departments into account.
We agreed on certain central premises for calculating different scenarios, and these scenarios were then used to also discuss whether this should be included in the plan or not. T his way we helped to form a uniform view on specific risk situations like the Brexit one.
Are you then acting-
Does that answer your question?
Yeah, maybe just, are you then acting more as an advisor consultant, or do you also have the power or discipline to tell people that they have to change things or purchases or ways of dealing with certain suppliers?
I guess in the corporation, the role of risk management is somewhat different than in a financial institution where you would see credit risk managers, et cetera, making credit decisions. That's not the governance in the corporate world. In the corporate world, it's really the risk owner who takes the decision in the end, and the risk owner will always be some very high-level business person. W e will challenge, certainly, the way the risk is assessed and escalate independently through our second line role to the group board if we feel there is a second pair of eyes required to take a look at the risk assessment. T he decisions are made in the business.
Okay, Hagen. Thank you. We've also received two email questions. The first one is whether you could give us some more color on how the feedback loops work, what exactly happens in the whistleblowing system. The second question is related to software. We're extremely growing our own software. We see it as the key differentiator going forward. If you could give us some more concrete ideas around how we deal with cybersecurity risks and how that plays a role in our risk framework. Thank you.
Okay. Well, thank you for the questions. The whistleblower system is something that is, in Volkswagen, run by the compliance department, and obviously that has been a key focal point of the monitor who has looked at this very intensely. More to your question, I talked about the root cause analysis and lessons learned process, and the way we are using the information we are getting through the whistleblower system is, one, to make sure if there is any compliance violation, then this goes into a well-structured disciplinary process to deal with the personal wrongdoing.
Secondly, and this is what we do as group risk management, we also get the information that led to the wrongdoing and do this root cause analysis to understand whether the circumstance that led to this wrongdoing have a deeper background, another root cause, be it culture, be it targets, be it processes missing, be it budget missing. This way, we are trying to learn from these violations and prevent them from happening again. In terms of cybersecurity and how this is factored into the risk management system, yes, I can confirm the risk management team has been very deeply involved in the latest measures to improve the cybersecurity protection.
This is because the latest regulations with respect to cybersecurity that will kick in in 2022, coming from the United Nations Economic Commission for Europe board, in fact, require a very much risk-based approach to assess the security threats to the cars through software channels, and they actually make it a part of the homologation going forward. In order to set up our management systems properly, we have worked very closely as risk management, together with the responsible technical departments and quality assurance departments to set up a robust risk management framework to assess cyber risks as deep as necessary for the relevant functions in the cars and come up with a holistic risk assessment in the end, making sure this also flows into our risk reporting if required.
Okay. Thank you, Hagen, for your input today. We would like to, again, just take a very short break for COVID measures here in our room, and we will be back to you within a few minutes. Thank you. I would now like to welcome Ralf Pfitzner, who is our Head of Sustainability. Ralf has dialed in today from Munich, and you have already met him on numerous occasions over the last years. He will give us an update on the most relevant, or one of the most relevant topics, sustainability, with a focus on decarbonization. Over to you, Ralf.
Thanks a lot, Helen, and good afternoon, ladies and gentlemen. Happy to be virtually with you today, and to give a brief update on the most pressing topics in terms of sustainability within our group. If we start with the presentation and if you could immediately move to page 3, please. First and foremost, it is important for me to mention that sustainability is firmly embedded in our group strategy. It is not a separate topic, but meanwhile it is fully integrated on the one hand, if you look at the vision, which has been updated recently, but also if we look at the TOGETHER Strategy 2025+ action plan, with the different modules and, especially if we look into best governance, a brief update on that one.
We recently structured the entire module according to the ESG logic, so decarbonization, but also the overall action plan on how to improve our ESG performance and further topics are embedded there. T hat is very important for me to mention right from the starting point, that really sustainability is embedded and core of our business and not something which sits aside. If we move to page 4, talking about sustainability, and I think most of you are aware of it, sustainability is an extremely broad topic. W hat we have to do and what is also the task of our team here and our network is, on the one hand, to cover the breadth of all topics, the range from employee engagement over certain aspects of risk management.
You have seen in Hagen Repke 's presentation, when he started with the five top risks out of the World Economic Forum's Global Risks Report.
There are many crosslinks between risk management and us, but it is also about new mobility service, political positioning on carbon pricing and so forth. O n the one hand, a very broad topic. On the other hand, it is very important for us to focus on those topics that matter most. T his has been also a bigger effort throughout this year, on corporate level for the group, but also then trickling down to the brands that we have identified four top priority areas for sustainability at the group. T his is namely the first one, and I am going to talk about this in more detail in a minute, is decarbonization, our contribution to climate change mitigation. Then the second one is responsibility in supply chains and business, also including human rights topics there.
Right after this presentation, you will get an update by my colleague from the procurement department, Daniel Göhler. T hen there are two other aspects, one coming from the environmental side. It is circular economy, so actively managing resource cycles, how to optimize use of scarce resources and so forth. T hat is the other environmental topic. L ast but not least, it is how to design the required workforce transformation in a socially responsible manner on the one hand side, because electrification but also digitalization will bring massive changes to the workforce, to qualification requirements. O n the one hand, it is how to adapt to less labor in the supply chain, on the one hand side for components. On the other hand, how to bring in those qualified resources we need in the software area and for other digitalization purposes.
That's the four key topics which we identified and which we also now structure our activities along, including the next upcoming sustainability report. Let's move to decarbonization as a key topic for now, for the next 10- 15 minutes. You have seen, to a certain extent, these slides probably before if you have joined last year's ESG conference. We have set our goal, on the one hand, with a long-term vision for 2050 being carbon neutral, including our entire portfolio by 2050. The other thing is that we also set a bit more than a year ago, a target for 2025, reducing life cycle emissions over the passenger car portfolio by 30% versus 2015. What's new and most recent update, also to this group, in 2020, we also joined, let's say the club of so-called Science Based Targets initiative signatories.
We have set a target for 2030 for our Scope 1 and Scope 2 emissions. For manufacturing, that is accepted as well below two degrees pathway, and they're fully in line with the Paris Agreement. That's an important update from our side for this year. We have not only the 2025 target, but also now a new target set for 2030 in terms of the long-term planning. You have probably heard it before. It's in the political debate also a very important year, 2030, with a new Green Deal, European Union planning, updating EU emission targets. We feel quite confident that we've set a target for that timeframe now as well. L ooking first into that, what comes next within five years from now, this is the 2025 goal, reducing CO2 emissions over the vehicle life cycle by 30%.
Basically what we expect to see here on page 6, is that, for sure, driven by electrification, be it hybrids or be it plug-in hybrids, the tailpipe emissions in the use phase will be reduced. On the other hand, we will see a bigger importance of the fuel supply chain, namely on the electricity side, which is getting more important depending on which type of energy the Battery Electric Vehicles are going to use. We will also see an increasing importance on the supply chain side. This is mainly driven due to the battery and the weight of the battery and the resources needed for that. A quick reminder that only 2% of life cycle emissions are associated with manufacturing in-house. That's a very tiny little part.
On the other hand, this is also where some economically attractive opportunities lie within, and that's why we tackle those as well. It's also important from our point of view because we have to walk the talk in terms of manufacturing, so act on those things which we can actively influence. Overall, we expect to see a certain part of that target coming from portfolio changes by the electrification, but there is more to be done in order to achieve those 30%. If we move to page 7, you see how we are tackling this. There are two main aspects in it. First is we have defined a clear hierarchy on how to approach decarbonization. First priority is really to avoid emissions by increasing energy efficiency, by changing processes that emissions doesn't occur at all. That's the most important point and first step wherever we can.
Second one, whenever we need energy, reducing carbon emissions can be done by switching to renewable energy sources, not only in manufacturing, but going beyond to all steps of the value chain. Last but not least, for example, for the commitment which we have out for the ID.3, ID.4 and more cars to come that are going to be handed over as a carbon neutral car to our customers. There we compensate those currently unavoidable residual emissions, for example, via investments in forest compensation and reforestation. This is, let's say, only the last measure if the other activities are performed. The second key message on this slide is that we act all along the value chain.
Having talked about those 2% carbon emission in manufacturing, in the in-house production, there we continue to increase energy efficiency, which you see in the middle of the slide, but same as renewable energy supply. We are also moving back to our supply chain by forcing our battery cell manufacturers, for example, to use green power for manufacturing the battery cells for the ID.3. This is moving towards closed-loop recycling in the case of aluminum, for example, to secure high-value material flows. It is going towards the customers, on the one hand with offerings in the use phase for electrification, green electricity for usage in the use phase, and by further increasing energy efficiency and low emission of the passenger car portfolio itself by the portfolio.
Last but not least, and you will see one slide on this in a minute, it is also about closing the loop end-of-life and recycling. If we move to page 8, as mentioned earlier, one part of the big transformation comes from the portfolio change and also in terms of achieving the 2050 goal, having in mind that you need probably at least 10 years for feature renewable. The end of production for conventional ICE or CO2 emitting cars will be roughly 10 years prior to that date in 2050. Within the next years and all the new models announced, including the most recent investment budgets of, I think, EUR 73 billion for the next five years in future technologies, we are going to see up to 70 new pure battery electric vehicles and approximately 60 plug-in hybrids by the end of the decade.
We will approach now, and also supported and driven by the Green Deal scenario, at least in Europe and probably also by additional means by the new Biden administration, a faster transformation towards carbon neutral cars. If we move on, and probably in the interest of time, let's skip page 9 because this is simply, let's say, a ramp-up of the new models which are coming on the market. Expectation is roughly 20% of portfolio being electric in 2025, 30% at least, and this is still without the Green Deal in 2030, but these numbers will be significantly different if we take into account the Green Deal. Let's move to page 10.
It was just today that the press release went out from the colleagues in China that the two plants in Anting and Foshan have been converted to ID.3, ID.4 manufacturing plants including also that the Foshan plant is supplied renewable energies already this year. We are transforming the manufacturing base. We started in Zwickau a year ago, where the ID.3 is manufactured and ID.4. We have seen Anting, Foshan, Dresden as well. Then in the years to come, we will have, on the one hand in the U.S., Chattanooga by 2022 and then Emden following in 2023. The ramp-up of the portfolio on the sales side obviously goes in line with adaptation in the manufacturing footprint. If we move to page 11, a few words about batteries and components.
The battery is obviously the most costly component, but it is also decisive for the performance of the cars. Therefore, I think, remember the question that came in earlier on battery supply. We have strategic relations with a number of suppliers for the battery cells to secure the supply we need as of today and for the next years to come. That is done by contracts with targeted suppliers. We are going beyond that. As you know, we have established the joint venture with Northvolt back in 2019, are investing roughly EUR 450 million for that joint battery factory that is going to be built right now in Salzgitter in Germany.
This is on the one hand to secure additional supply, but on the other hand, also in order to better understand cell manufacturing, cell technologies, and be able to scale and use scale effects also in terms of cost out for battery manufacturing, that we are not dependent on suppliers only in that area. Another joint venture, especially for Chinese battery cars, is the joint venture with Gotion. Looking forward into the future, there is also the established shares in QuantumScape when we are talking about solid state batteries, which is basically the next generation of batteries to come somewhere in the mid-2020s. Having talked about batteries, if you move to page 12.
It is quite obvious that such an expensive and decisive component for the performance of the cars also needs to be taken care of end of life, because on the one hand, there is value within, and there is either for a second life, for example, so for remanufacturing or mobile power banks or stationary storage, where you do not need, let us say, 100% or 90% full battery capacity after a number of years. The other one is also closing the loop in terms of securing raw material supply, which is becoming more important in the future. For this, we have developed a concept and also, right now we are about to open a pilot plant at Salzgitter where we are dismantling and recycling a couple of thousand battery cells or packs in the future from next year onwards. That is quite important in terms of sustainability.
It helps us on the one hand also with decarbonization, but obviously in terms of waste management, circular economy as well. Last but not least, it is also creating a certain amount of employment when we deal with recycling ourselves. Moving to page 13 now, a few examples on what we have achieved since setting up that decarbonization program. One single item that in terms of numbers might sound small, with our carbon fund of EUR 20 million a year, which we have set up last year, we managed already in the first year to save roughly 170,000 tons of CO2 per year. Which is compared to the overall global footprint, probably not too much. I t is interesting in so far since the measures we have been funding with that and unlock those measures, they are also economically very attractive.
The average payback time of those ones has been, on average, less than three years for LED lighting, HVAC supply, wet processes and things like that. To put it in a broader perspective, overall, the specific emissions between 2019 and 2010 per produced vehicle have been reduced by close to 40%. Despite an increase in total manufacturing, we reduced the carbon emissions overall. Moving to page 14, as I mentioned, the second big priority is moving to renewable energies. There, as of today, the current status is that we are already beyond 40% of renewable energy in terms of total power consumption. We have set this year new goals in order to ramp that up. One aspect is that we want to be at 100% renewable energies for the external power supply in Europe by 2023 already, and globally by 2030.
With an asterisk for China, because there, not in all Chinese provinces is it currently feasible to contract renewable energies. W e are working on that in terms of policy advocacy as well. That is the aspect of reducing emissions by moving to renewables. Third aspect, a glimpse on that, for the carbon neutral handover of the cars to our customers, like the ID.3, we are engaged in projects such in the Katingan and Mentaya Forest Protection Project, protecting roughly 150,000 hectares of tropical forest on Borneo. These projects typically not only have positive effects in terms of CO2 mitigation, so protecting natural things, which is quite important, especially if we are talking on about a 1.5 degree scenario. T hey also have additional biodiversity benefits and typically support other sustainable development goals because the local communities also benefit from those projects and revenue streams that come into it.
We are aiming for further expansion of these activities as well. Concluding on the decarbonization side, in order to have a few minutes of discussion for Q&A with you, I would like to, among all these manifold aspects of sustainability, one thing that it is quite important to do stakeholder engagement with investors, but also NGOs and other focal groups in society. We are having regular stakeholder dialogue events, for example, on the future of work this year. The other thing is that back in 2016, right after the diesel crisis began, we commissioned a sustainability council with some prominent individuals supporting the board of management, and really acting as a critical advisor. Not only telling us what the company is doing good, but also telling us directly what the company should do differently or supporting new initiatives.
They have been also very helpful in creating new initiatives, be it in stakeholder dialogues, be it the most recently founded CEO alliance, where Herbert Diess brought together a dozen CEOs from leading European companies that jointly will support the Green Deal and also not only talk, but act on decarbonization in joint projects. That's quite important for us in terms of engaging and getting insights from the outside world. Last but not least, to conclude here, a lot of information can be found, as usual, in the sustainability report. Next year, the report will be structured along the new focus areas.
Aside to that, we have additional communications means such as the Shift magazine, our website, and others in order to openly talk about more sustainability topics, because that's important for us in terms of being engaged with our employees, but also being engaged with our stakeholders. Thank you for listening, and now I'd like to hand over to Helen and open the floor for a couple of questions.
Thank you, Ralf, and I'll pass on that message directly to the operator. Please open our Q&A round.
Great. Thank you. Again, if you'd like to ask a question, that's star one. We'll take our first question from Henning Cosman from HSBC.
Hi, good afternoon. Thank you for taking the question. Mr. Pfitzner, thank you very much for the presentation. I would like to ask you something about the trajectory to your European CO2 targets for this year. Your CEO, Herbert Diess, has recently stated that the target might be missed by a gram or so. I just wanted to ask you how you feel about that from an ESG perspective. What do you attribute this missing the target to, and how that may position you also for next year? Because of course, some of the allowances in theory could be used over three years. If you were to miss this year, I suppose that implies that you will have used up all the allowances in the first year already, leaving you with nothing on those allowances left for 2021 and 2022.
R eally just how you feel about this from an ESG perspective. Is it potentially harmful from a reputational standpoint? Could it possibly affect sales into fleets who may pay more attention to this? If you could just comment on this a little bit. Thank you very much.
Yeah, Henning, thanks for that question. I already anticipated that one question might come on the CO2 compliance in the European Union. I have nothing to add to the values that our CEO recently communicated because it has been a very tough year and as we all experienced, COVID-19 disrupted so many plans and activities, including also CO2 compliance or causing some delays on the ID.3 side and so forth. Being responsible for sustainability and ESG, obviously the feeling, it is really unfortunate that there is likely to be a slight miss of the targets. That is, yeah. I wish it would have been, let us say, a match in terms of landing at the 97 grams, I think, which is the overall goal for the group, the specific one.
On the other hand, what keeps me, let us say, confident that despite that small miss, the strategy is in place, and I think the strategy is fundamentally thought through. It is backed by investments, and so despite that, let us say, headwind in 2020, we are quite confident that we will be on track in the next years to come. D espite a slight, let us say, reputational buzz or issue, we have not seen any signal so far from, for example, fleet customer, coming back to your question, that there would be a negative impact on that one. To summarize, it would have been better to really completely meet it, but it is like it is in this very special year, and let us look forward and execute the strategy.
Okay. Thank you.
If I could just expand a little bit on Ralf's answer. We also confirmed during our recent planning rounds that we have embedded full CO2 compliance throughout the plan. E ven if there is a slight miss, we are fully focused, and we see it as somewhat of a disappointing timing, but we are fully on track for the next coming years. One other little point in relation to the financial impact. If we do have a miss, we will not see an EBIT effect in this year because we have made some conservative provisioning. Operator, we could now take your next question, please.
Thank you.
Thank you. We will take our next question from Philippe Houchois from Jefferies.
Yes, good afternoon. Thanks for taking my question. Thank you, Ralf Pfitzner, for your presentation and your slides are quite good. I have a couple of questions. One is, looking at your slide 12 on the recycling of battery materials. I look at your first use and remanufacturing second life, and you mentioned more stationary applications. Do you think as battery longevity keeps surprising on the upside, that it could be a chance to actually reuse batteries in the previously used batteries, partially reconditioned into a new vehicle for second life in vehicle applications, not just for stationary? The second question, if I can, is on the. There is no mention at all in your presentation of hydrogen. It is clear Volkswagen doesn't really believe in hydrogen. I agree with you.
I am just wondering if you can help us, give us the two-line reason why Volkswagen doesn't believe hydrogen is applicable for cars. Thank you.
Great. Thank you, Philippe Houchois. On the question on the batteries and using fully reconditioned batteries, for, let's say, not a second life in other applications, but in new cars. I am not the battery expert, but from what I hear that this is probably far down the horizon. Because there are always some trade-offs in terms of longevity. W hat to invest in order to maintain battery capacity. Then in that case, not only for about 200,000 kilometer, but let's say 400,000 kilometer or 20 years lifetime. Also being myself in sustainability and circular economy for meanwhile a couple of decades. If technologies change within the next 10 years, and I have been briefly talking about solid state batteries. I t is quite difficult to plan for batteries as of today with today's technology. Certain amount of cobalt content and so forth.
There are so many unpredictable factors in that I would not bet for that the same battery type and same capacity, same technology will be the most efficient one in 20 years from now or 15 years from now. T here I believe mechanical recycling to get, let's say, up to 95% of the materials is a better approach, plus second life for stationary storage. The two cents on, or five cents on hydrogen. There are a couple of reasons why we believe hydrogen is not the best option. F irst one, in terms of price or cost for fuel cell driven cars. Within the next 10 years, we didn't see a significant cost effect.
Or let's say we see much more scale effects on the BEV sides that enable being BEVs on par with the conventional ICEs or even being better in terms of TCO. That's the cost side. The other one is the sustainability aspect. Because in order to really decarbonize transport, the question is, where does the hydrogen come from? You can decarbonize only if you use green hydrogen. Then you are in a much more inefficient energy value chain because you have to use renewable energies to power an electrolyzer. You have losses there. Then you have to store the hydrogen and then reconvert it in the fuel cell again. In comparison, I think it's 40% more energy you need end to end. Unless we have unlimited, very, very cheap surplus renewable energy, this is not a pathway which is feasible.
Last sentence on hydrogen. We will need hydrogen in other applications. It might be to a certain extent in heavy-duty transport, but even more important, we need that green hydrogen for the steel industry, some high-temperature processes in industrial applications, and we need it for aviation, more or less. These are the application areas where we will need a lot of hydrogen as an enabler for the green economy, but not for passenger cars.
Understood. Thank you very much.
Operator, if we see correctly, we have a colleague from Sustainalytics still in the line waiting, and we would run over a little bit to take the question from this important stakeholder who, of course, looks very critically at our ESG ratings. Over to you, Catherine.
Thank you very much. You may have answered a lot of this already. I was just curious about your insights on the expected growth in electrification and how to address having appropriate and sufficient infrastructure across industry sectors and for society at large.
Yeah. Thanks, Catherine. It's quite obvious. On the one hand, we already see it now with the new e-models coming on the market and the uptake and the very good sales side in the first steps. It's quite obvious that infrastructures are decisive for the uptake of e-mobility. Therefore, we invest on our own significantly in charge points at our premises, at our dealerships, and so forth. We also have that IONITY joint venture founded together with other OEMs. There is Electrify America and also in China, a corporation really ramp that up fast. T hat's up and running. Question is, could we do more?
I think there is a yes, and there are also some plans underway to further expand activities in that, let's say, infrastructure charging activities, because this is. Especially if you look beyond Germany, for example, to other countries, there needs to be done more in order to accelerate that transformation.
Okay. Thank you very much, Ralf. We can immediately move into our next session. We've added a new topic to this year's agenda. W e've invited Daniel Göhler, he's our Head of Sustainable Supply Chain Management, to give you input into where we are, what's our position for now, and of course, to take your Q&A once he's completed his presentation.
Hello, everybody. Also a warm welcome from my side to the ESG Conference 2020. It is a pleasure for me to show you today our approach for handling sustainable supply chain management. As Helen said, I am responsible for the sustainability strategy of the Volkswagen Group procurement organization. In the following minutes, I will show you our approach, but also the main milestones we achieved in 2020, and I am happy to answer your questions after my presentation. We are currently focusing on three main topics we are dealing with every day. The first one is environmental topics, and here we have a strong focus on decarbonization currently, so continuously reducing CO2 equivalent emissions in the supply chain. The second one is social topics, with a focus on human rights and responsible raw material sourcing. The third one is compliance with a focus on anti-corruption.
To show you in a nutshell our approach, the first and maybe most important thing is that we have transparency. Transparency about the business partners, the companies which are involved in our supply chains and sub-supply chains, but also we need transparency about their sustainability performance. Transparency is one of the preconditions and is some kind of umbrella for the overall strategy. The strategy itself is divided in three main process steps. The first one is prevent. Prevent sustainability risks, but also prevent sustainability violations. The second one is detect. Identify the sustainability risks and violations. The third one is react accordingly. Starting with the prevention, it is always the baseline of all our work to set clear sustainability requirements to our business partners. We are doing that with our code of conduct for business partners, which is part of all our contracts with the suppliers worldwide.
Here we have set clear requirements, for example, for environmental requirements, for workers' rights, for fair market behavior, and so on. Additionally, depending on the risks we see in the supply chain, we have specification documents in addition, for example, for the battery supply chain. This year, we started to introduce for all new sourcings with the battery suppliers, a specific raw material responsible sourcing specification document, requiring, for example, 100% transparency from tier 1 to the mine. Also, for example, we have specific requirements for using 100% renewable energies in the production of the cells. Additionally, one other main aspect of this first process step is to share knowledge and to sensitize the suppliers when it comes to sustainability topics and supply chain. We have workshops with suppliers but also supplier events. We are offering different kinds of e-learning formats. We have face-to-face trainings, normally.
This year it is a bit special situation, so we try to do as much as we can also in digital format. Now you can see the second step, how we would like, or how we are currently detecting also sustainability risks and violations in the supply chain. One of the main milestones in 2019 was the introduction of the S-Rating process. S means here sustainability, and we have different criteria to choose a supplier at the end of the day. We have costs, we have quality, we have a technical rating. Now in addition, we also introduce in our worldwide processes, sustainability and the sustainability performance of the supplier as another key aspect for choosing the right one. The sustainability performance evaluation is based, in the first step on a self-assessment questionnaire.
The self-assessment questionnaire gives us a better overview of the established management systems at the supplier site. In addition, we are doing, for example, country risk analysis. Based on this first evaluation, we are doing also risk-based in-depth assessments. For example, if we identify an additional risk at the supplier site, at the production site, for example, we are doing also on-site checks. in 2019, we had roughly an average three deviations found in these on-site checks per supplier. It is more or less all the time that we find something. Of course, then the suppliers need to react accordingly with a corrective action plan. In general, no contracts for potential business partners are possible when they have no or a negative S-Rating. Of course, this huge process is implemented via internal guidelines, processes, and additional IT tools internally.
The beauty of the procurement organization within VW is that we are using worldwide more or less the same standards and procedures. The rollout for this whole process went very well in the last year. We are continuously rolling it out to smaller entities this year and the beginning of next year. Another aspect is the reaction, how we react to identified risks and violations. Here the first step is a violation management process, where we take into consideration, for example, hints from employees, from suppliers, or from NGOs, from press articles and so on. There is a worldwide, clearly described process, how to react on these hints, and how to improve the sustainability situation of the respective supplier.
In addition, we heard that also in the other presentations before, a good working network worldwide is key for its success, and is also key for really improvements locally. We have a worldwide sustainability procurement network established with more than 40 employees worldwide, working every day in Mexico, India and so on, to tackle the issues, to go in direct contact with the suppliers, and improve continuously the sustainability performance. When it comes to the N-tier supply chain or the sub-supply chain, we receive, especially in the last two years, a lot of questions how we handle the risks in the cobalt supply chain, the risks in the mica supply chain and so on. It is challenging, to be honest. It is really challenging because we have more than 40,000 suppliers worldwide.
We have more than nine tier levels, sometimes from the first tier supplier to the mine. 100% transparency all the time for all the suppliers is currently not possible. Of course, we have a strong focus on the main risk supply chain. We identify in the first step, the main sustainability risks, for example, on raw material level or on parts level. Then we start to go into detailed discussions with the respective suppliers. We go in direct partnerships with them because, of course, we always need to talk to them directly, because they are our direct business partners. If we would like to understand the sub-supply chain better, it is always important to involve them in all main discussions. This is not the only thing we are doing.
For example, this year we established and developed a raw material sustainability due diligence management system for taking into account the specific risks we see in the supply chains. Of course, it is not something where you have just one tool to find measures and mitigate the risks. You need to define the specific measures for all the raw materials specifically, because all different supply chains differ from each other and therefore, of course, you have also other stakeholders involved. Data collection is one of the key aspects to get a better understanding. In some cases, we are also going directly to the producing countries of the raw materials. We are discussing with NGOs directly in the respective countries to better understand the situation, the first step, and then, again, react on the problems and risks we found.
To give you an overview in a nutshell what we did in 2020 and about our milestones. For environmental topics, for example, we defined a clear roadmap to reduce the CO2 equivalent emissions until 2025, and we set a clear target also to reduce the supply chain specific emissions by 1.1 ton CO2 per vehicle. Also, as discussed before, we used or we integrated new requirements into our contracts, for example, the requirement to use 100% renewable energy in the battery cell production. Another lighthouse project which recently started is that we would like to use CO2 as a decision criterion, also in our sourcing process. We started now with the first sourcing, and this will roll out in the next year.
We are currently in the pilot phase, but we think that we need to have this as an additional criterion also in the development process of a new project, to early influence the decisions also of the suppliers, how to set up their own production processes, how to choose energy providers, how to choose material suppliers, and so on. When it comes to social topics, as mentioned before, we set up a strong human rights due diligence management system for raw materials this year, and we are planning to roll that out in the following year. Another important aspect, is the specification document to require 100% transparency for battery raw materials, but also to give clear requirements about a continuous auditing process in the sub-supply chain, for establishing also responsible sourcing practices in the sub-supply chain according to the OECD Due Diligence Guidance.
Additionally, what we are currently doing is also audits along the supply chain, especially in the cobalt business, to get the transparency, but also to better understand the sourcing behavior of the sub-suppliers. Currently, we are additionally piloting a mining audit standard, and this will also roll out next year further. For the compliance topic, of course, we have these comprehensive supplier sustainability requirements I mentioned at the beginning of my presentation. I n addition, I think this is very important, a strong corruption due diligence system was also established as part of the S-Rating process. Last but not least, I would like to give you an overview and then short outlook for our future activities. We would like, and we are continuously in discussion with several initiatives to pilot also new innovative approaches for more transparency in the supply chain.
Because currently we have the problem that if you audit a supply chain and you get the results, and the auditor goes to the next company, of course, the supply chains can change very fast, especially if you talk about hundreds and thousands of sub-suppliers. In this case, we need to focus in the future on the high-risk supply chains and establish also innovative approaches to continuously track and trace the material, which is used in our parts and cars. The systematic due diligence approach and management system is something which will be further rolled out in the following years in the procurement organization worldwide. Of course, another very important step is the further harmonization of standards and tools.
Because only if you find a way to get cross-recognition, to get same standards in the automotive industry, but also in cross-sectoral discussions, you will have the possibility to get the suppliers on board. You need acceptance from the supplier side, because if you use 10 different tools for assessing the sustainability performance of the supplier, this approach will fail. Therefore, we are very active in different cross-industrial initiatives like in econsense, the Global Battery Alliance, Drive Sustainability, and so on. Last but not least, as mentioned before, CO2 as a group wide evaluation criterion is something which is piloted currently and will be rolled out further in the following years. That was the approach in a nutshell, and now I'm happy to answer your questions.
Operator, over to you, please, to open the Q&A.
Great. Thank you. Press star one to ask a question. W e'll take our first question from Stephen Reitman.
Yes, good afternoon. You mentioned that you have introduced global standards, but how do you deal with also parts of China, where sometimes compliance among suppliers is less transparent?
Thank you for the question. Very good. For China, or for Chinese suppliers, we are using the same criteria for evaluating the suppliers. W e are using the same on-site check standards. We are using the same self-assessment questionnaire. I n this case, we need 100% comparability between the assessment results of the different suppliers. Therefore, the standards we are using for assessing the suppliers are the same.
Are you confident also that you can actually achieve good results in terms of actually uncovering all the aspects of their own supply chains?
Sorry, could you repeat the question, please?
I'm sorry. Well, I was just saying that you're confident you can also track all their sub-suppliers as well as adequately as you can in other markets.
Yeah. For the sub-suppliers, as mentioned before, we are currently focusing on the high-risk supply chains to identify also the sub-supply chain partners. Currently, we are in direct contract relationship with our tier 1 suppliers, but further down, we also require from our suppliers that they pass on our sustainability requirements, and of course, it's also their responsibility to identify the supply chain risks and sustainability risks. I n addition, for the high-risk supply chains, we are also focusing on own standards and checking the suppliers, of course, always hand-in-hand with our direct supplier base.
Thank you.
Okay. Daniel, we've received two questions per email. The first one you mentioned, we have to certify about 40,000 suppliers. The question would be, do we really have enough resources? What time limit, or how have we set ourselves a timeline to expect full coverage, full standardization, and to be happy with the state of 40,000 suppliers? The second question is, we realize the importance of decarbonization and compliance. At the same time, suppliers have cost constraints, and we do give our target pricing levels passed on to our suppliers. H ow do we expect, and how do we support suppliers to be able to bear the extra costs of decarbonization and compliance?
Okay. Thank you for the questions. To go to the first question, the 40,000 suppliers. I think it's important to also take into consideration the different business models of the suppliers. We started with the main suppliers delivering the parts to our products to us, and therefore, for all of them, it is currently part of their sourcing process that the S-Rating is fulfilled, that they have a positive S-Rating. If they have no S-Rating currently in our systems available, or there's a negative S-Rating, it's not possible to nominate them. That's the first step, and then, we have a huge number also for service providers. Here we did a risk analysis to identify the first high-risk business models and started with the rollout there and continuously rolling the approach out to also the other business models.
For the corruption check, for example, I mentioned before, we are currently focusing on business models within high active corruption risks. Then this will also further integrate it in all procurement organizations worldwide. The second one, regarding the decarbonization and the cost constraints. I think, of course, it is a journey for the whole industry, for all sectors worldwide, more or less. Therefore, we need to work hand in hand with the suppliers. We would like to start with clear targets, CO2 targets for suppliers. On one hand, they should be ambitious but also realistic. It doesn't make any sense to bring them to zero from one day to another, because they need to change their production processes. They need to change also the supply chain. Each and every CO2 target we're setting has an influence also on all actors in the supply chain.
We are very aware of that, and therefore it's a step-by-step approach, and we are starting with the main components, where we see also the biggest influence on a short-term reduction of CO2. Afterwards, step by step, we will continuously dig deeper into the supply chain and identify further suppliers and parts where we can roll out this approach.
Okay. Thank you very much, Daniel, for joining us today. For those on the line, we'll take a short break before beginning with our last session. Welcome back, everybody. Now moving on to another topic, which is new on our agenda for this year. Of course, we fully realize the negative impact of controversies in our key ESG ratings. For this reason, we've added the topic of human rights to today's program, and I would like to welcome a colleague, Barbara Lamprecht. She is our Head of Coordination for Business & Human Rights within the Volkswagen Group. Over to you, Barbara.
Thanks so much for giving me the chance to talk about business and human rights today. I am very happy to give you some information and insights what we are doing on this topic in the company. As you might be aware, human rights is developing from a soft law to a hard law topic. As you can see on this overview, there are quite some laws and regulations developed in the last decade. Starting from 2011, the topic became more tangible for business because the UN Guiding Principles were developed. Next year, there will be a 10 years anniversary for the UN Guiding Principles, and this is why the whole UN organization, especially the UN working group on business and human rights, decided to make the next 10 years the decade of implementation of business and human rights due diligences. This is driving the topic massively.
As you might see on this slide, recently, we are discussing this topic also on the German and European level. We are expecting this year a new regulation, the so-called German Value and Supply Chain Initiative. The German government is discussing this topic recently, and we are expecting a decision already this year, latest, first quarter next year. Another element of discussion is the draft for the European Value Chain Law, and this was announced from European Commissioner for Justice Didier Reynders already quite some months ago. We are expecting a draft for this law also first half of next year. An absolutely new development, which is even not mentioned on this slide because it is so new, there is an initiative for corporate sustainability governance and there is a consultation phase running.
This is an even wider field because not only human rights, but also environmental and governance topics shall be covered. Interesting developments are going on, but this is not the only reason why we take care of this topic. There are also initiatives like the National Action Plan on Business and Human Rights from the German government, what you can see on the top left of this chart. The German government already started the so-called industry sector dialogue for the German automotive sector March this year. From our group side, the brands Volkswagen, Audi, and Porsche are actively participating. What means actively in this context, there are three working groups about the essential elements for human rights due diligence, and we have members from every of the three brands in every working group.
Also, sustainability ratings are becoming more and more important, and the rating you can see here, the RobecoSAM rating also shows our performance from last year on the human rights topic. I am very happy that we already received a forecast of the new performance for this year. In human rights topic, we could increase our performance about 41%, which means we develop from an average area much higher into the direction to become a much better performer. This is also for sure one of our targets to heavily improve in these ratings. As you are for sure, fully aware that also governments have to take care of their human rights due diligences. This is the background why the federal investment guarantees are also checked based on the IFC performance standards since 2018.
H ere we have a close collaboration with our colleagues from the finance area within the company, and we are happy that we are working here close together. Last but not least, also the Non-Financial Reporting Directive, EU based, is forcing companies not only to report on their financial KPIs, but also on the non-financial KPIs. This information is included in our sustainability report. You might have heard from this earlier from my colleague, Ralf Pfitzner. Y early progress has to be shown and has to be substantiated. You have to have evidences for that what you are reporting, because also these reports are monitored afterwards. How are we doing this to take care of our human rights due diligence? We are very happy that we can use the existing compliance management system and can implement business and human rights in the management system according to the UN Guiding Principles.
You can see on this slide the outer blue circle, which shows the main elements you have to have from the UN Guiding Principles perspective on business and human rights. There must be a strategy, policies, processes and procedures, communication, training, measuring impact, and auditing and reporting. If you have a closer look, you are realizing that these are also the elements you need in a compliance management system. T he first element is compliance culture and values, which means there must be the basic business and human rights documents and policies available. We are very happy that we can announce this year on the 10th of December, which you might be aware that this is the International Day of Human Rights. We will announce our new and last Friday from Volkswagen Group board and unions signed so-called Social Charter.
Which is also from now on including the declaration for business and human rights about the company's responsibility in this area. The compliance objectives are clearly defined with the so-called salient business and human rights issues. Here, based on the human rights, we selected the nine most important areas from business responsibility as, for example, good working conditions, collective bargaining, no child labor, no forced labor, everything about tolerance, discrimination, and human securities. One of the key elements is everything about the risk management, and I will come to this topic with some separate slides after giving you here the overall overview. Compliance program and processes are key elements in the management system. For sure, we have heavily tested whistleblower system, which is enabling internal and external people to call and give hints about potential human rights violation.
Also, we have the consulting function implemented, represented by my team, which is a build-up of experts on business and human rights of lawyers, but also of colleagues taking care of strategy, reporting, and communication. We have in the compliance organization defined responsibilities, and we have a worldwide structure, which means at the end, we can reach all of our so-called controlled entities to check them about their human rights performance. We developed training concepts, basic and advanced trainings, and for sure, we are communicating continuously internally to raise the awareness for this topic in the company, but also externally to make people aware that industry players take this topic serious and take action even before laws or regulations are placed.
Last but not least, monitoring and improvement is the key in every management system because you can always learn, you can always improve, and we all are fully aware that the human rights topic is a never-ending process. It is always a way to go, but we are happy that we are moving on this way. Continuously we are reporting, as I mentioned, for example, for the sustainability report or the annual report for ratings and rankings, and this is a core element also of our work. A s promised, I would like to give you some more details about the risk management, because the management of human rights risks is one of the key elements in our system. How are we doing this? You have to have in mind, when we talk about the scope of the compliance team, that we talk about nearly 800 controlled entities.
How to manage them? What have we done? In the first step, we checked the so-called brutto risk. What is the potential gross risk? What is a potential risk exposure regarding business and human rights? Here we have two elements which are very important. First, we have to understand in which country one entity is based. You know that round about two-thirds, for example, of our production sites are in countries where we have a medium or high Maplecroft Business and Human Rights Index. The Maplecroft Index is a worldwide accepted index, which is built up of round about 30 sub-indices. Every facet of human rights is mirrored in this index and shows a very clear position of the country. This is put together with our business model risk. We also took our different business models and gave them a category.
You can imagine that a production site with maybe 800 employees based in India might have a higher growth risk than an office from the financial services team where 10 people are selling insurances, maybe in a Singapore office. This is how we could dedicate the growth risk to our entities. In the next step, we provided so-called compliance measure sets to the entities. These measure sets are tailored to the risk exposure regarding business and human rights risks. An entity with a low risk exposure will receive a basic measure set. An entity with a medium risk exposure will receive an extended measure set. An entity with a high risk exposure will receive a comprehensive measure set. If you have a look, what are the basic elements?
Here you will find everything around policies and guidelines and multiple program components which the entity has to implement. In the extended measure sets, there will be additionally reporting requirements and maybe entity specific measures. In the comprehensive measure set, there will be also internal controls and especially self-assessment tools included. Also, there is a clear requirement on the organizational set up. There has to be a person which is dedicated to this topic. Maybe not the full capacity, but for sure there must be someone taking care of this. This was, let me say, an overview of our activities I would like to give you today. Maybe now you have some questions for me.
Thank you very much, Barbara. Operator, feel free to open the line for questions.
Great. Thank you. If you would like to ask a question, again, that is star 1. That is star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Kataz Pilzek from Union Investment.
Yes. Hi there. Good afternoon. Thanks for your presentation. As we have you now with us today, I would like to raise maybe a little bit a tricky question, if I may. This is regarding your production site in the Xinjiang area and the related issues with the Uyghur nationality. Maybe just can you give us from your experience, what are you undertaking there in terms of, are you doing personal audits there? Are you sending people over? How is your visibility really on that site? Is there anything you can share with us to get us more confidence that this negative press coverage might be ending at some point? Thank you.
Thank you so much for this question. To be honest, I would have been disappointed if it would have not been raised because the media coverage on this topic is so extremely high. You can be sure that we take this topic absolutely serious. I am also happy that my colleagues from the Volkswagen Group in China are also taking this topic serious. You might have heard from the media talks two weeks ago where Dr. Wöllenstein, the CEO of Volkswagen in China, gave a detailed background information about the situation there. As you might be aware, this facility is a joint venture facility. Which means Volkswagen has not the full control about this entity, not the full management control.
You are for sure aware that the China government was giving in a very early beginning, rules and regulations about topics like this, that we have to have a joint venture partner for our production sites. We have been very aware even when the plant was opened from the minority situation. There is an agreement, a common understanding between the Volkswagen Group in China and the SAIC Volkswagen joint venture partner that also minorities are represented in the workforce and also on the white collar level. This is a very important topic. What is also taking place is that regularly from the business processes, colleagues, German colleagues also from SAIC Volkswagen are for regular meetings also in the plant. Also colleagues from PR team or from human resources or even from the union side, visited this plant.
The last visit was autumn last year, shortly before the COVID-19 situation came up. We are also in exchange with the Volkswagen Group colleagues from China that we are planning to do self-assessments in the Chinese entities. What I am describing for the monitoring and improvement process, for example, is not only valid for our own entities in China. It is absolutely our intention also to have these processes in the entities of the Chinese joint venture partners. This is why we are going for the discussion with the joint venture partner with a three-step approach where we also would like to do self-assessments, but also a monitoring and in the last step, maybe even external audits in these entities. Maybe for your background information, I myself lived for six years in China, in Beijing.
I am very aware of the cultural context of the China colleagues, and it is very important that you get a good connection between the German and the Chinese joint venture colleagues to manage this topic successfully.
Operator, do we have any other questions in the line?
It looks like we do have one more question from Clare Richards from Church of England.
Hello, Barbara, colleagues. Thank you for your time today. I just wanted to give a note of appreciation for the time and effort that your team puts in to trying to promote greater transparency and disclosure on these issues. In particular, most recently, your willingness to participate in the Workforce Disclosure Initiative again. My question, though, relates to the recently published Corporate Human Rights Benchmark. As you will be aware, that for the first time was assessing the autos industry as a whole, hadn't looked at that before. The industry across the board wasn't assessed terribly well, and there are many areas for improvement that have been noted.
I just wondered, Barbara, if you had any comments in response to that Corporate Human Rights Benchmark, CHRB assessment. In particular, I think an area where Volkswagen was marked down was on policies and governance, and whether VW recognizes that assessment and whether anything might be in the pipeline to address that over the coming year. Thank you.
Thank you very much also for this question. Really appreciate it. The CHRB benchmarking is a wonderful tool to focus on this topic, not only in the compliance team and in the areas where the colleagues are working on this topic, like human resources or the purchasing team. You heard my colleague Daniel prior. We are very happy that finally, really finally, there is an internationally recognized benchmark on this topic. We are fully cooperating with CHRB. We were participating in the pre-meetings where the methodology was introduced and also where feedback was requested. So one of my team members joined this consultation phase. The results are not a surprise for us because they are, let me say, collected already now, more or less half a year ago now. In the meantime, we are making quite some progress.
With some of the elements, we are also not exactly happy about the result because we have the feeling maybe some of our information we provided was maybe not correctly understood. A nyhow, there is also a post-consultation phase. Again, we are actively participating in this consultation phase. By the way, only six car manufacturers were actively participating, three of them of Germany, one of the U.S., and two other ones. I can tell you that we take this benchmark very serious. We have an internal working group together with our colleagues from other brands. We are elaborating the measures which we would like to take action next year and where we would like to improve. Luckily, this benchmark is very close connected with the UN Guiding Principles.
T hat you don't get me wrong, we are not working to have a better position in the benchmark. We are working to further improve our topic. S ince their activities and our actions are based on the UN Guiding Principles, we are working in the right direction. Also, for sure, we hope and we are striving for a much better position in the future. I don't know whether we will reach it next year, but we have a very clear idea where we would like to end up.
Great. Thank you very much, Barbara, for your insights today. We'd like to wrap up now. We thank you very much for your endurance this afternoon. It was quite a long session and, of course, for your valuable input. As always, we look forward to continuing this constructive dialogue. If you have any further queries or questions or topics you would like to be raised, please let us know. We hope you have a nice evening. For those in a different time zone, we hope you have a nice day. Please stay healthy in these difficult COVID times. Thank you.
Thank you. Again, that does conclude today's call. You may now disconnect.