Dieselgate: what governments did, didn’t and should now do

Even the most cynical of corporate critics are being surprised at the revelations from Volkswagen. What does it also tell us about the role of governments?

The Volkswagen crisis has been escalating since September, when the company admitted that it had installed so-called ‘defeat device’ software in 11 million diesel vehicles so they appear to meet air-quality standards for nitrogen oxide, a gas which poses a threat to human health. The latest twist came this week when it admitted to understating CO2 emissions for about 800,000 vehicles sold in Europe and overstating their fuel economy.

What started in one market (the USA) just with diesel engines has multiplied: more markets, more fuel types, and more brands, with Audi and Porsche now implicated. So far no other manufacturing groups have been found at fault. However the regulators are circling, while the weakness of their testing is under scrutiny too.

VW’s share price has dropped 40% since September, destroying some €35 billion of shareholder value. Direct costs continue to mount – now estimated at €8.5 billion in fines, compensation and rectification, with unquantifiable long term damage to the brand. In academic circles, proof of the so-called ‘business case’ for corporate social responsibility is much debated; what is surely no longer in doubt is the cost of irresponsible actions.

Aside from annoyed regulators and outraged drivers, others are not letting a good crisis go to waste. For example, Greenpeace is cannily using the affair to drive take-up of electric vehicles – with a specific demand to VW to develop a “mass-market electric car that families can afford”. That’s both smart campaign tactics and astute advice to VW who certainly will need a game-changing story beyond “we’re sorry” if they are to recover their reputation.

And what of governments themselves?

What they did right was pursuing testing and issuing violation notices, at least in America, where the EPA (the US agency to protect human health and the environment) has led the way. It was this action that uncovered the wrongdoing: not VW’s ethics rules or a whistleblower, nor its own sustainability reporting and assurance, nor external scrutiny from the legion of rating and ranking agencies like DJSI.

What governments did not do, at least in Europe, was act swiftly on the available evidence. We’ve known for a decade that the real-life impact of diesel was below theoretical improvements in emissions. In my previous work as a London Assembly member, I was critical of the European Commission which was slow to enforce its environmental directives. I was questioning the London transport authorities as long ago as 2006 on action needed to improve air quality, where diesel was the principal villain. (So external rating and ranking agencies should have known of the problem, if they had gone looking.)

What should governments do now? One thing is to be a lot more inquisitive when their citizens’ health is at risk. Another is to be a lot less trusting about corporate culture that lets bad behaviour go unchallenged, even if one accepts (which I don’t) that it’s all down to a handful of rogue engineers.

Like Watergate before it, Dieselgate can teach us much beyond the specific cause célèbre about underlying corporate systems and a damaging lack of accountability.

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