Volkswagen Reaffirms ESG Targets, Bets on Circular Economy to Cut Costs

Key Points

• Volkswagen reaffirmed its ESG and climate targets, saying it has cut Scope 1 and 2 emissions by 60% and remains on track for net carbon-neutral production sites by 2040 and a net carbon-neutral company by 2050.
• The company is putting more emphasis on the circular economy, calling it a source of cost savings and resilience through recycled materials, used parts, and a new circular hub at the Zwickau plant.
• Volkswagen also highlighted cost and supply-chain pressures, including €5 billion in annual tariff costs, China market weakness, and complex raw-material sourcing across thousands of suppliers, while tightening governance and planning for a no-growth scenario.

Volkswagen ETR: VOW3 reaffirmed its sustainability targets and outlined new circular economy initiatives during its eighth sustainability conference, with executives saying ESG remains embedded in the company’s broader strategy despite a more difficult economic backdrop.

Dirk Voeste, who presented an update on Volkswagen’s regenerate+ sustainability strategy, said sustainability “will not go away” and described it as both a business driver and a source of challenges. The strategy is built around four dimensions: nature, people, society and business, each supported by key performance indicators.

Volkswagen Says It Remains on Track on Climate Targets

Voeste said Volkswagen has reduced Scope 1 and Scope 2 carbon dioxide emissions from its own facilities by 60%, ahead of its 50% target. He said the company remains on track toward making its own production sites net carbon neutral by 2040 and reiterated Volkswagen’s broader ambition to become net carbon neutral by 2050.

For Scope 3 emissions in the use phase, Voeste said Volkswagen is at nearly an 18% reduction by 2025, compared with a 2030 target of 30%. He also said the company is waiting for the Science Based Targets initiative, or SBTi, to finalize its automotive and mobility sector standard before deciding on recertification beyond its current commitment, which expires in 2027.

Voeste also highlighted Volkswagen’s electric vehicle plans, saying the company expects the ramp-up of battery electric vehicles to support its decarbonization pathway. He cited upcoming models in the Electric Urban Car Family, including vehicles promised below €25,000 and a future entry-level model expected below €20,000.

New KPI Tracks Sustainable Revenue

Volkswagen introduced a new sustainable revenue metric at the conference. Voeste said 19.9% of Volkswagen’s sales, or roughly €64 billion, are classified as sustainable revenues under a methodology based on EU taxonomy and other published frameworks. The category includes battery electric vehicles, plug-in hybrids, range-extended electric vehicles, mobility services and other selected business fields.

Voeste said Volkswagen does not yet have a target for the sustainable revenue KPI, but expects to provide an ambition level in the future. He said the methodology was published in a white paper and reviewed with the company’s Sustainability Council.

Other business-related sustainability metrics included Volkswagen’s Leitmotif Venture Capital Fund, which Voeste said has about $300 million dedicated to startups in decarbonization and circular economy, and the company’s green bond activity. A later presentation said Volkswagen issued about €20 billion in bonds in 2025, with more than half in green format, and expects green bonds to account for more than 40% of issuance this year based on May statistics.

Circular Economy Strategy Takes Center Stage

Guido Eickenroth, Head of Volkswagen Group Sustainability Strategy and Decarbonization, said circular economy is becoming increasingly important to the company’s resilience, costs and future business models. He said the company sees opportunities in used parts, recycled materials and improved resource efficiency.

Eickenroth said the European used-parts market was about €100 billion in 2023 and described it as an untapped profit pool. He also said recycled and reused materials can reduce carbon footprints while lowering dependence on virgin raw materials.

Volkswagen cited examples already in its product portfolio, including recycled PET bottles in the ID.7 interior and up to 40 kilograms of recycled polymers in the T-Roc. Eickenroth said the goal is not to create isolated “lighthouse” projects, but to bring recycled materials into volume vehicles.

Andreas Waling then detailed Volkswagen’s Group Circular Economy Hub, which is being developed at the Zwickau plant. He said Volkswagen is already dismantling cars there to learn how to scale circular economy activities, with the hub expected to go live by the end of the year and larger processing volumes planned for 2027.

Waling said Volkswagen is developing a modular ramp-up model for the hub, moving from 4,000 vehicles to 8,000 and eventually 15,000 vehicles. At a 15,000-vehicle scale, he said the hub could process at least 300 tons of qualified recycled polymers, 3,000 to 5,000 battery packs, 450,000 used parts and roughly 15,000 tons of scrap materials, primarily steel and aluminum.

Waling also discussed expected European rules that would require 15% post-consumer recyclates in new cars, with 20% of that amount coming from automotive closed-loop sources. He said that would equate to roughly 10 kilograms per new car beginning in 2032, requiring one old car to provide enough qualified recycled material for about three new cars.

Supply Chain and Raw Materials Remain Key ESG Focus Areas

The conference also reviewed Volkswagen’s Raw Materials Report 2025. The presenter said Volkswagen has more than 63,000 direct suppliers across 93 countries, with some supply chains extending as deep as nine tiers. The company said that complexity requires risk analysis, supplier engagement, sustainability ratings, audits, media monitoring and grievance mechanisms.

Volkswagen said about 87% of relevant Tier 1 suppliers have a positive S-Rating, with a target above 95%. The company also said its raw materials due diligence system is based on international frameworks including the UN Universal Declaration of Human Rights, ILO labor standards, OECD guidance and the UN Global Compact.

PowerCo’s battery raw material sourcing was also discussed. Volkswagen said suppliers that cannot meet strict ESG criteria are not considered as partners for battery raw materials, though the company acknowledged that some critical battery materials are sourced in countries where ensuring European-level standards can be challenging.

Governance and Cost Pressures

Volkswagen also outlined governance changes and business challenges affecting its transformation. The presenter said the company has strengthened regional independence, revised software governance, reduced committees and implemented a 2035 strategy. Audi was cited as having reduced 80% of its committees over the past 18 months.

The company also pointed to new pressures, including tariffs that it said are costing Volkswagen €5 billion annually, weakness in the Chinese market and rising export pressure from Chinese automakers into Europe. Volkswagen said it is preparing its next five-year plan on a no-growth scenario and is reviewing eight action fields intended to make the company more robust and resilient.

On governance, the company noted that Oliver Blume’s dual role was dissolved in January, Susanne Wiegand joined the Supervisory Board and now leads the Audit Committee, and board gender diversity increased to 45%.

About Volkswagen ETR: VOW3

Volkswagen AG manufactures and sells automobiles in Germany, Europe, North America, South America, the Asia-Pacific, and internationally. The company operates through four segments: Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. The Passenger Cars and Light Commercial Vehicles segment engages in the development of vehicles, engines, and vehicle software; produces and sells passenger cars and light commercial vehicles, and related parts; and offers motorcycles.

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