Hu Wei

Hu Wei

Tiger Smell Official Team

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Production | Tiger Smell ESG Group

Author | Hu Wei

Head Picture | Visual China

This article is the 084th article in the # ESG Progress Observation # series

Keyword for this observation: ESG rating

Article Summary

This article analyzes the performance of Ideal and Xiaopeng in ESG rating, and explores their differences in environmental, social responsibility, and corporate governance.

Ideal and Xiaopeng received MSCI's AAA level ESG evaluation, indicating that the two Chinese car companies are leading globally

Xiaopeng has inherent advantages in environmental performance, especially leading in disclosing scope three emission data

Although Xiaopeng's overall corporate governance is not as ideal, its anti-corruption actions may bring opportunities for its future development

On pages 84 and 85, the thickness of the 2023 ESG reports for Ideal (02015) and Xiaopeng (09868) is almost the same. They received MSCI's AAA ESG rating on September 23 and October 23 last year.

At that time, out of 48 global car companies that were included in the MSCI inspection scope, only 4 were able to achieve the AAA score. Currently, the number of car companies under investigation has increased to 71, but only 6 have been awarded this honor, and the leading positions of the two Chinese car companies have remained unchanged.

Both Ideal and Xiaopeng have included this achievement on pages 7 and 6 of their ESG annual reports, respectively.

Not many Chinese companies include MSCI rating results in their ESG annual reports. They are more willing to cite ratings or evaluations from other institutions, although their influence may be much smaller, their evaluations may also be much higher. There are even hidden rules among them. Staff members of a well-known international rating agency have privately revealed to me that some companies are not only the objects of evaluation by rating agencies, but also the financial owners, so the evaluation is not entirely objective. Of course, even without considering these issues, ratings from rating agencies can only be a reference at any time.

But MSCI, after all, is one of the most influential rating agencies in the world, and obtaining the best rating among all, at least indicates that the ESG performance of the two new power car companies from China will not be too poor. However, the more similar the two top students are, the more curious they are about their differences - using a magnifying glass to find their differences makes it easier for the company's problems to be exposed.

ESG ratings are generally comparable

ESG faces a headache inducing issue globally, with inconsistent evaluation criteria. Morning Star, also an internationally renowned rating agency, often gives different scores to the same evaluation object compared to MSCI.

The rating results of multiple mainstream domestic and foreign institutions currently included in the Sina ESG special page show that a total of 5 institutions have conducted evaluations of Ideal and Xiaopeng simultaneously, namely MSCI, Shangdao Ronglv, Zhiding, Morningstar (the latest rating is from Q3 last year), and Miaoying. The evaluation situation is roughly as follows:

1. Ideal and Xiaopeng are both at or above the upper level of the industry.

2. Ideal did not receive excellence in the evaluations of Shangdao Ronglv and Morningstar, while Xiaopeng only did not receive excellence in Morningstar.

3. Ideal is slightly ahead of Xiaopeng in terms of performance on Zhiding and Morningstar.

4. Xiaopeng won in the evaluation of the integration of green and wonderful business. Among them, Xiaopeng received an A - rating and an ideal B+rating in the commercial street's Ronglv; According to data provided by Miaoying, Xiaopeng is slightly ahead of the ideal score of 75.79 with a score of 77.44.

5. Apart from being rated AAA, the author was unable to obtain a more accurate rating from MSCI for both companies, making it difficult to judge between high and low.

According to the data provided by Miaoying, Xiaopeng's ESG score is 77.44 points.

According to the data provided by Miaoying, the ideal ESG score is 75.79 points.

In summary, in the eyes of the five mainstream rating agencies, the overall strength of Ideal and Xiaopeng is comparable. But Xiaopeng's impressive performance lies in receiving excellent reviews from four institutions, with an ideal of three.

Environmental performance: Xiaopeng has innate advantages

When we talk about new energy vehicles, we almost always associate them with popular phrases such as "low-carbon" and "environmental protection".

When evaluating automotive companies in ESG, the weights of the three dimensions are relatively balanced, but if a certain order is forced, environmental (E) performance is usually considered to have a certain priority. The data provided by Miaoying to Huxun also shows that the weight of environmental, social responsibility (S), and governance (G) ratings are 38.13%, 33.75%, and 28.13%, respectively.

In MSCI's evaluation, an important criterion is whether corporate carbon emissions meet the control target of 1.5 degrees Celsius for global warming. Both Ideal and Xiaopeng meet the standards, while Ideal seems to be better, with an implied temperature rise of 1.4 degrees Celsius in its business activities, which is better than Xiaopeng's 1.5 degrees Celsius.

But apart from that, Ideal's environmental performance in other perspectives is inferior to Xiaopeng's.

The Corporate Climate Action Index (CATI) released by the Public Environment Research Center (IPE) shows that Xiaopeng's score of 13.80 out of 100 is slightly better than the ideal score of 13.30.

One of Xiaopeng's leading strengths is that it has already begun to disclose emissions data for Scope 3. (Editor's note: Simply put, scope one refers to the direct carbon emissions generated during the operation of the enterprise, such as the carbon emissions generated by the company's use of its own fuel vehicles; scope two refers to the indirect emissions generated by the enterprise's use of energy purchased from utility suppliers, mainly electricity; scope three refers to all other indirect emissions except for scope two, such as the carbon emissions caused by the vehicle enterprise's purchase of tires from upstream manufacturers and tire production.)

It is generally believed that Scope Three accounts for 90% of a company's total carbon emissions and is extremely difficult to calculate, so the industry almost considers Scope Three as the key to emission reduction efforts. Including MSCI, it also considers whether a company discloses scope three as one of the evaluation factors for environmental performance.

On many rankings, Xiaopeng has received extra points as a result, although it has disclosed very poorly - only counting "purchased goods and services" and "employee travel", with a total of 5491 tons of carbon emissions in 2023- almost equivalent to no disclosure. In contrast, Geely (00175) has calculated and disclosed more than 10000 times Xiaopeng's range of carbon emissions.

Don't neglect small things and start disclosing the scope of three emissions. Xiaopeng is always ahead of most domestic enterprises - not just automotive companies.

Zhang Xiang, a visiting professor at the Yellow River University of Science and Technology, introduced to the Tiger Smell ESG team that compared to the ideal mass production and sales of extended range electric vehicles, Xiaopeng, which specializes in pure electric vehicles, has inherent advantages in environmental performance. "Driving an ideal car may consume fuel and emit more carbon dioxide."

The environmental score provided by Miaoying to the Tiger Smell ESG group showed that Xiaopeng's score of 83.06 was significantly better than the ideal score of 74.59; More specifically, in terms of greenhouse gas emissions, Xiaopeng also scored 75.55 points better than the ideal score of 66.38 points.

The data of China's automotive industry chain carbon disclosure platform is more intuitive. The platform collects product lifecycle carbon footprint data for 59 Xiaopeng models and 10 Ideal models. It shows that among Xiaopeng models, the highest carbon emission is 243.85gCO2e/km, and the lowest is 172.25gCO2e/km. Among them, there are 32 models with a carbon emission below 200gCO2e/km; The ideal car model has the highest carbon emissions of 303.46 gCO2e/km, and the lowest pure electric vehicle MEGA Ultra has also reached 269.28 gCO2e/km - more than 10% higher than the highest carbon emissions of the Xiaopeng model.

Xiaopeng's carbon footprint data performs better than ideal. (Screenshot from IPE official website, data sourced from China's automotive industry chain carbon disclosure platform)

Social responsibility: Both car companies have weaknesses

According to MSCI's public evaluation, Ideal and Xiaopeng have similar social responsibility performance: leading in "labor management", average in "product quality and safety"

From the rating provided by Miao Ying to the Tiger Smell ESG group, in the S dimension, Xiaopeng's score of 79.68 points is slightly better than the ideal score of 78.90 points, but the difference can be almost negligible. Considering the issue of weight, Ideal is mainly lagging behind Xiaopeng in terms of labor management, with a difference of over 13 points.

Zhang Xiang believes that the ideal loss of points can be reflected in recent layoffs, where "almost one-fifth of employees will be laid off.".

Last week, Tiger Smell Automotive Group published an article titled "Ideal layoffs, quick, accurate, and ruthless", pointing out that within Ideal Company, the news of layoffs has caused anxiety in some departments that have not yet announced the results of layoffs; If the outsourcing team is included, the turnover scale may reach the level of ten thousand people. "On the surface, layoffs may seem like a correction to the contradiction between past rapid expansion and business development, but at its core, structural adjustments and layoff actions reflect Ideal Automobile's prediction of future business development."

Interface News also published an article last week mentioning that layoffs will lead to the contraction of the pure electric team. This may be related to lower than expected sales of Ideal MEGA and a significant reduction in current sales guidance.

Ideal CEO Li Xiang announced at the first quarter financial performance meeting on May 20th that he will not release pure electric SUV products this year.

But as of now, Ideal has not denied the rumors of layoffs last week.

If these news can ultimately be confirmed, the loss of points in "labor management" may also lead to a decline in the Ideal E score - pure electric products could have better environmental performance compared to extended range electric vehicles.

MEGA is a pure electric product under the Ideal brand. (Image source: Ideal Automobile Official Website)

Miaoying's data also shows that Xiaopeng's score of 70.47 in product responsibility is slightly behind the ideal score of 72.00.

If we look at the data from the national 12315 consumer complaint information disclosure platform, the difference between Xiaopeng and Ideal is more obvious in terms of product or service quality. The Tiger Smell ESG team searched for "Xiaopeng Motors" and "Ideal Cars" on the platform. As of April 2024, there were 108 complaints related to Xiaopeng, while Ideal had 56. It is worth mentioning that since last year, the sales of Ideal Automobile have far exceeded that of Xiaopeng.

Zhang Xiang analyzed, "Since its establishment, Ideal Automobile has firmly established its own intelligent manufacturing base and supply chain system to ensure a stable and effective quality control system. Through its own direct sales system, including retail, delivery, and after-sales maintenance and service, it has improved service quality and commercial efficiency."

Corporate Governance: The AB Side of Xiaopeng's Anti Corruption Campaign

According to the evaluation provided by Miao Ying to the Tiger Smell ESG group, Xiaopeng's overall score of 67.13 in the G dimension is inferior to the ideal score of 73.68.

But with some segmentation, Xiaopeng also has a leading position. MSCI's public evaluation information shows that Ideal's performance in terms of "impact on investors" is relatively poor.

A recent news story happened to be related to this.

Lawson Law Firm, a global investor rights law firm, recently announced that it has filed a class action lawsuit on behalf of investors who have purchased Ideal stocks and publicly solicited investors to participate in free class action lawsuits. The plaintiff believes that the public statement of Ideal Automobile contains false information and misleading information, violates securities laws, and harms the interests of investors; For example, when Ideal launched its first pure electric vehicle model MEGA, it exaggerated the market demand for vehicles and the effectiveness of operational strategies.

On May 16th, Ideal publicly responded through the media that there were indeed related lawsuits, but the accusations were unfounded. Ideal will do its best to protect the interests of the company and shareholders.

Regarding another important sub evaluation item in the G dimension, MSCI's public evaluation information shows that Xiaopeng's performance in "corporate behavior (such as fraud, corruption, money laundering, antitrust violations, etc.)" is inferior to ideal.

The outside world has also been paying attention to this for a long time, which is related to the issue of "anti-corruption". In October last year, several employees, including Li Feng, Vice President and Head of Procurement Department of Xiaopeng Motors, were suspended from work to cooperate with the investigation.

After the news spread, it briefly sparked public opinion. Xiaopeng stated that the Li Feng incident is a normal anti-corruption and integrity promotion behavior of the enterprise. Subsequently, multiple media reports pointed out that the incident was caused by Xiaopeng Automobile's strengthening of internal supply chain management, involving multiple levels of anti-corruption, and also involving police intervention.

A middle-level official from a listed company in the automotive parts industry told me that it is not uncommon for enterprise staff to use orders in their hands to take and demand kickbacks from upstream and downstream partners during their interactions; But it is not common for companies like Xiaopeng Motors to increase overall procurement costs to some extent.

At that time, many media reports linked "anti-corruption" with Xiaopeng's "efficiency improvement and cost reduction", which also reflected the seriousness of internal corruption issues in enterprises.

Xiaopeng is not unjustly accused of losing points in corporate governance.

However, it should be noted that there are also many voices in the industry that believe that Xiaopeng's anti-corruption storm is an initiative. Many media reports have mentioned that "Iron Lady" Wang Fengying joined and became the CEO of Xiaopeng at the beginning of last year, focusing on supply chain management and reducing procurement costs. The Li Feng incident was a by-product of this reform.

Compared to the number of themed training sessions and anti-corruption education exhibitions shown in the ESG annual reports of many companies, Xiaopeng's anti-corruption governance has clearly been implemented. From this perspective, if we continue to take proactive actions, Xiaopeng's corruption problem is likely to become history.

As mentioned earlier, reducing procurement costs, "anti-corruption" is not only an important sub topic of ESG, but also directly linked to the financial performance of enterprises. After experiencing pains, if Xiaopeng can overcome the production and sales downturn since last year, there is clearly a chance for its corporate governance to make up for its shortcomings.

This is also one of the core purposes of optimizing ESG performance - to benefit investors.

理想与小鹏的另一场PK

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