The SOCIAL PERFORMANCE SCORE assesses vehicle production impacts on the people charged with vehicle manufacture and assembly and the environment. The score is based on criteria established by the United Nations (UN) Guiding Principles on Business & Human Rights, the UN Global Compact, the UN International Labor Organization's Fundamental Human Rights Conventions, and World Bank Governance Indicators. The assessment focuses on four core areas of interest:
1. Labor and human rights laws, policies and practices in country of assembly to assess the corporate advantage and externalized social impacts of automobile manufacturing;
2. Labor policies and practices of manufacturer to assess corporate commitment to socially responsible business conduct and efforts employed to mitigate gaps found in country of assembly’s social performance;
3. Environmental laws, policies and practices in country of assembly to assess the corporate advantage and externalized environmental impact of automobile manufacturing; and
4. Environmental policies and practices of manufacturer to assess manufacturer’s commitment to environmentally responsible business conduct and efforts employed to mitigate gaps found in country of assembly’s environmental performance.
The distinguished BEST SOCIAL PERFORMANCE AWARD is given to the Brand whose production chain ensures the highest level of protection for the rights of those tasked with all vehicle manufacture and assembly, while also minimizing life-cycle environmental and human health burdens.
Social life-cycle assessment (S-LCA) is an emerging field that has been supported by the recent work of the United Nations Environmental Program (UNEP) with the development of Guidelines for Social Life Cycle Assessment of Products. The S-LCA Guidelines present key social performance factors to consider when conducting an S-LCA, and provides guidance for the scope, inventory, impact assessment and interpretation phases of the S-LCA. Further, the framework detailed in the S-LCA Guidelines adheres to ISO 14040 and 14044 standards, with appropriate adjustments for the assessment of social and socio-economic issues.
ASG’s social performance assessment adopted the S-LCA Guidelines, but established a very concentrated boundary for the assessment. The boundary begins at the assembly gate of manufacturing and ends at product end-of-life. As this is an emerging field, the scope of the assessment is limited to mostly qualitative data, however the assessment still provides valuable information that adds transparency and creates valued opportunities for market differentiation.
We approached this task using the following distinct models:
The objective with a social performance assessment is to ensure manufactures are accountable to environmental justice principles, to all peoples in all places. The primary concern in our social performance assessment is fundamental human rights, and the preamble to the Universal Declaration on Human Rights is a relevant guide:
“Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world,
Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people,
Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law,
Whereas it is essential to promote the development of friendly relations between nations,
Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom,
Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms,
Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge,
Now, Therefore THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.”
The State Model assesses the country of assembly’s human rights and labor protection policies and practices qualitatively to evaluate the cost of complying with regulations that are applicable to the manufacturing sector. The underlying assumption in the State Model is that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with regulations currently in force.
As discussed in the previous environmental section, the extremely competitive nature of the automotive industry presses automakers to pursue cost-cutting strategies in order to remain price competitive, and labor costs can be a significant cost burden. Sizeable cost reductions can often be realized by moving manufacturing sites to countries with low labor costs, either a result of a less developed economy and/or weak labor protection laws and enforcement capabilities. These cost externalities follow traditional economic theory in a globalized economy, but the real cost is in fact externalized to the labor force and their communities and is not embodied in the price of the product sold in the marketplace. Our State Model incorporates a Social Cost Assessment to more accurately report the cost of manufacturing across borders.
One example can be viewed when comparing Hungary as a country of assembly with that of Sweden. The cost of labor and compliance in Hungary is significantly less than the cost of compliance in Sweden, yet when automobiles are sold in the U.S. market, the financial cost that was avoided by manufacturing in Hungary and that which was externalized to the Hungarian labor force is not passed on to the consumer. In this way, the consumer is paying a premium price for a product that does not embody the same overall value as the competitive product that was assembled in Sweden. According to the U.S. Bureau of Labor Statistics, International Labor Comparisons (August 2013) for automobile manufacturing, hourly compensation costs in Hungary are $10.91 (2012 U.S. dollars). This includes direct pay, social insurance expenditures, and labor-related taxes. Compare Hungary’s hourly compensation costs with that of Sweden’s $51.27, or the United States’ $45.34, or Germany’s $58.82 (U.S. Bureau of Labor Statistics, 2013) and one can see there is indeed a vast difference.
The State Model includes the following indicators to assess the State (country of assembly) duty to protect human rights, including ratification of the United Nations International Labor Organization’s Fundamental Human Rights Conventions:
The mere ratification of the Fundamental Human Rights Conventions and the implementation of these international laws into domestic legislation is not evidence alone that such rights are indeed protected for all peoples. Therefore, the State Model also incorporates additional indicators to assess quality of governance and ability of States to uphold and enforce the rule of law. The State Model incorporates the six dimensions of governance as identified by The World Bank’s Worldwide Governance Indicator Project (Kaufmann, 2013), with the underlying assumptions deriving from over 30 unique data sets. The six governance indicators include:
The Corporate Model evaluates the manufacturer’s human rights and labor protection policies and practices qualitatively to assess efforts employed by the manufacturer to mitigate gaps found in country of assembly’s mandates. While the State Model assumes that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with regulations currently in force, the Corporate Model looks to the manufacture’s commitment to social performance standards that may go above and beyond requirements and industry norms in the country of assembly.
The Corporate Model assesses specific corporate policies and practices to identify core social commitments that displace industry norms with a company’s moral code that crosses all national borders.
The Corporate Model contains 11 social performance indicators:
The State Model assesses the country of assembly’s environmental policies and practices qualitatively to evaluate the cost of complying with environmental regulations that are applicable to the manufacturing sector. The underlying assumption in the State Model is that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with environmental regulations currently in force.
Due to the extremely competitive nature of the automotive industry, automakers pursue cost-cutting strategies in order to remain price competitive, and environmental compliance can be a significant cost burden. Sizeable cost reductions can often be realized by moving manufacturing sites to countries with low environmental compliance costs, either a result of less restrictive environmental regulations, or weak enforcement capabilities. These cost externalities follow traditional economic theory in a globalized economy, but the real cost is in fact externalized to the environment and is not embodied in the price of the product sold in the marketplace. Our State Model incorporates an environmental cost assessment to more accurately report the true cost of manufacturing across national borders.
To illustrate, let’s compare Mexico as a country of assembly with Canada. The cost of environmental compliance in Mexico is significantly less than the cost of compliance in Canada, yet when automobiles are sold in the U.S. market, the financial cost that was avoided by manufacturing in Mexico by externalizing that cost to the environment, is not passed on to the consumer, but rather used to increase profit margins for the automaker. In this way, the consumer is paying a premium price for a product that does not embody the same overall value as the competitive product that was assembled in Canada, where some environmental compliance costs were internalized.
The location in which a product is assembled should influence the purchase price of the product, but in the automotive industry there is little distinction in this regard. Rather, the price is typically driven by the competitive market set. This is one example where ASG is bringing transparency to the automotive value assessment – those vehicles that are assembled in countries with strict environmental protocols are positively distinguished from those assembled in countries with weak environmental protocols.
These same principles apply with socioeconomic indicators as discussed in proceeding sections. Direct labor costs and labor health and safety compliance regulations differ across countries, yet the cost of the automobile sold in the U.S. market does not reflect the real cost difference between different sites with varying costs of compliance.
Our State Model closely aligns with a model developed by the Yale Center for Environmental Law and Policy (YCELP), the Center for International Earth Science Information Network (CIESIN) at Columbia University and the NASA Socioeconomic Data and Applications Center. The significant work conducted in this area by this collaborative, is in fact used in practice by governments to assess high-priority environmental issues regarding a country’s environmental health and ecosystem vitality.
Our State Model incorporates environmental indicators at a national level, with data sourced from the UN Department of Economic and Social Affairs, World Health Organization, UNICEF, NASA Socioeconomic Data and Applications Center, CIESIN, Central Intelligence Agency, UNEP World Conservation Monitoring Centre, Food and Agriculture Organization of the UN, International Energy Agency, amongst many others.
The State Model includes the following environmental indicators:
The Corporate Model evaluates the manufacturer’s environmental policies and practices qualitatively to assess efforts employed to mitigate gaps found in the country of assembly’s environmental norms and mandates. While the State Model assumes that a manufacturing site adheres to industry norms in the country of assembly, which may or may not comply with national environmental regulations currently in force, the Corporate Model looks to the manufacture’s commitment to environmental standards that may go above and beyond environmental compliance requirements and industry norms in the country of assembly.
The Corporate Model assesses specific corporate policies and practices to identify core environmental commitments that displace industry norms with a company’s environmental code that crosses all national borders.
Our 12 Corporate Model environmental indicators include:
The Automotive Performance Index (API) applies statistical methods to demonstrate each vehicle rating in relative comparison. For example, the vehicle that performs highest in environment performance in a given class obtains a rating score of 100. Each vehicle in its class is then compared relative to the top-performing vehicle with a rating score reflecting the statistical difference in performance outcomes. A score of 91 translates to a 9% environmental performance deficit as compared to the top-performing vehicle.
Due to the API’s relative vehicle rating method, vehicle class divisions were identified as a critical input - these class divisions are detailed here.
While the Automotive Performance Index is indeed an exhaustive list of vehicles to trim level detail, with each vehicle assessment reporting over 200 unique data outputs (the culmination of thousands of data inputs), ASG has taken additional measures to ease the burden of sorting through all data points and all vehicle assessments. We have developed key performance categories and sorted all vehicles in each class according to Environmental Performance, Social Performance, Economic Performance and All-Around Performance. The vehicle in each class with the best score in each unique category is named the performance award winner (i.e. Best Environmental Performance Award winner). The vehicle in each class that scores highest combined scores in Environmental Performance, Social Performance and Economic Performance is named the ASG Best All-Around Performance Award winner.
One step further, we also name the Best 5 All-Around Performance Award winners in each class to provide consumers with a concise product comparison guide.