Document summary
Volkswagen (VW)’s admission that defeat devices were installed on 11 million vehicles to cheat on emissions tests caught many investors off guard and ignited a debate over the value of ESG considerations in the investment process. The resignation of the VW CEO and a one day drop in market value of USD 18 billion highlights the importance of adopting a holistic approach to company analysis that captures extra-financial factors.
MSCI ESG Research downgraded Volkswagen’s MSCI ESG Rating from BBB to CCC. The largest driver of the rating downgrade is attributed to concerns over business ethics and corporate governance practices (a combined 28% weight in the MSCI ESG Ratings methodology). Prior to VW’s admission that it cheated emissions regulations, the company’s corporate governance practices were already ranked low (28th percentile) relative to global industry peers due to the dual-class ownership structure that reinforced the Porsche and Piech families’ control and non-independent supervisory board. The scandal and corresponding implications for board leadership have now further degraded VW’s corporate governance ranking to the 6th percentile.