Volkswagen's diesel emissions scandal

On 18 September 2015, the US Environmental Protection Agency issued a notice of violation over nitrogen oxide emissions from certain Volkswagen 2.0 litre diesel cars. Volkswagen had used engine control software, later found to be an unlawful "defeat device", that made cars pass laboratory tests while emitting far more on the road. The company said the discrepancies affected about 11 million vehicles worldwide with EA 189 diesel engines.

In March 2017, Volkswagen pleaded guilty in the US to conspiracy and obstruction of justice and agreed to $4.3 billion in criminal and civil penalties, including a $2.8 billion criminal fine. This came on top of a $15 billion US civil settlement with regulators and car owners, including $11 billion in restitution. Seven Volkswagen employees were charged in the US.

Legal claims continued in Europe for years. By 2021, the scandal had cost Volkswagen more than €32 billion in fines, refits and legal costs, and its former chief executive agreed to pay about €10 million in damages to the company.

• A gap between laboratory results and real-world emissions.
• Strong pressure to meet tight emission rules while selling diesel cars as "clean".
• Problems that came to light through regulators' scrutiny rather than the company's own controls.

• Product compliance can be the most material ESG risk for a manufacturer.
• The full cost of misconduct, including recalls, refits, compensation and lawsuits, can be many times the regulatory fine.
• High ESG scores before a scandal do not prove good practice. Look for independent tests of product claims.
• Governance and culture failures often sit behind environmental scandals.