Nature Positive Role of the Automotive Sector China Deep dive

As comprehensively analysed in the global report, the automotive sector and its value chain heavily depend on a number of environmental assets and ecosystem services, including: –Freshwater supply and rainfall regulation –Cultivated biological resources –Climate regulation, soil and sediment retention –Flood protection –Metal, mineral and energy resources For instance, freshwater is essential for cooling and cleaning processes. High-impact commodities such as metals, rubber, leather, pulp and paper for packaging, and energy represent critical demands of this sector, while their production can significantly impact land.54 Therefore, nature loss caused by impact drivers like water use and land-use change greatly affects the industry’s production and business stability. Aligned with the global report and based on ENCORE’s sector-specific impacts and Science Based Targets Network (SBTN’s) sectoral materiality tools, this report covers the automotive sector’s impact on nature across its entire value chain, as illustrated in Table 3. Company-specific impacts and dependencies vary by business model and position within the value chain. For a detailed overview of the assessment process, please refer to Box 2 and the global report, particularly Box 2 and Figure 9. TABLE 3 By analysing the key upstream raw materials of the automotive industry, China’s industrial activity and the automotive sector’s impacts on nature, this report has identified the following findings, with a more detailed analysis: Finding 1: A dynamic automotive industry requires more from nature. The rapid expansion of the automotive industry and international trade has significantly increased activity in China’s automotive sector, heightening its impact and dependency on environmental assets and ecosystem services. The substantial demand for critical minerals like lithium and nickel for batteries has further intensified upstream mining activities.Finding 2: Limited focus on land-use-related materiality assessment and protection poses risks. From publicly available information, there has been minimal assessment of land-use change and ecosystem disturbance among Chinese automotive industry players. The industry’s dependence on raw materials, including essential minerals, is pushing automakers and other market participants to extend their operations from midstream and downstream to upstream. Their experience, however, is mainly in production management, with relatively limited experience in evaluation and governance methods across the value chain. This could potentially lead to further land use pressure and respective risks from limited assessment and action to address this impact on nature.Top four drivers of nature loss in the value chain of the automotive sector UpstreamMidstream (direct operations)Downstream Pollution Water use Land-use change and ecosystem disturbance GHG emissions Pressure materiality rating (ENCORE): High Medium *Manually adjusted based on expert feedback. Note: See methodology in the Appendix. While GHG emissions are one of the highest materiality drivers of nature loss for the automotive sector, this is included last in this document given the automotive sector’s net-zero transition has been covered extensively elsewhere. Nature Positive: Role of the Automotive Sector – China Deep-dive 19