Balancing profit and sustainability: Assessing the impact of European Union environmental policies on the automotive sector

Abstract

The European Union (EU) has drafted policy documents to promote socially responsible practices among companies, emphasizing non-financial disclosure and sustainability reporting. This study compares the reporting practices and profitability of the EU region and the United Kingdom (UK) and investigates the responses of 48 automotive companies from 2019 to 2022. The findings reveal significant differences based on geographic location. UK companies demonstrate a positive correlation between the quality of sustainability reporting and profits, whereas the profits of automotive companies in the EU decrease as sustainability reporting quality improves. This study found that EU policies effectively enhance sustainability practices in the automotive sector by aligning them with the broader concept of corporate social responsibility (CSR), which goes beyond financial performance. Furthermore, it contributes to understanding CSR, emphasizes the need for tailored interventions based on geographical contexts, and highlights the risk of woke-washing strategies to comply with regulations without genuine sustainability efforts. The study also provides implications and recommendations for policymakers.