Why environmental, social and governance policy should be a key focus for the aviation industry

Discover why it is more important than ever for aviation businesses to identify the risks and opportunities arising from Environmental, Social and Governance (ESG) factors to safeguard itself for the future.

NEWS FOR CLIENTS

Environmental, Social and Governance (ESG) is The framework for assessing the impact of the sustainability and ethical practises of a company.

Given its links to a number of regulations and requirements that would be governed by ESG, the aviation industry must ensure there is a focus on planning for the impact of ESG policies.

Here we’ll investigate ESG in more detail and assess its potential impact on the industry.

Why is ESG strategy so vital?

The aviation industry is evolving at a rapid pace; new equipment and technologies, geopolitical questions, reporting requirements, and regulations are being developed to keep track of the omnipresent transition to a more sustainable global economy.

Given this direction it is more important than ever for aviation businesses to identify the risks and opportunities arising from ESG factors to safeguard itself for the future.

What Environmental Criteria exist?

The Environment element of ESG assesses an organization’s impact on the planet, which has a huge spotlight within the aviation industry.

An example includes placing a focus on a company’s total emissions (such as the policy), as a measure of its commitment to addressing global warming. If a business has a plan to transitioning to low carbon usage for example, then this would be looked upon favourably. The Greenhouse Gas Protocol Corporate Standard, is a useful tool for aviation companies to use in setting targets for a low carbon path.

It is important to note that there is reputational risk associated with the quality of ESG policies, as companies are compared with each other on how well they are tackling sustainability.

What Social Criteria exist?

The Social element of ESG accesses how a company treats and values its employees and broader community. Considerations can include:

  • An organisation’s labour management policies;
  • Its commitment to inclusion and diversity strategies as a way of fundamentally improving the business;
  • and its commitment to product safety and quality.

It is also important to consider the impact of ESG when recruiting within the aviation industry; candidates are increasingly placing a high premium on the sustainability credentials of their employers and are now increasingly aware of ESG topics. But a commitment to sustainability is not just about attracting talent, it’s also about retaining it, with 70% of 25–40-year-olds in the UK saying they would stay with a company with a robust sustainability plan.

What Governance Criteria exist?

The Governance element of ESG accesses a company’s corporate governance practices focusing on board structure, in particular board diversity, audit quality, transparency, and issues surrounding remuneration, including executive compensation. It’s also important to note that other elements of ESG can be considered a fundamental governance consideration, such as environmental legacy.

Key governance activities for companies include compliance with regulatory bodies, such as the International Air Transport Association (IATA) and International Civil Aviation Organization (ICAO), the latter of which has implemented the pilot phase of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

Conclusions

In a recent US survey by Marsh, 60% of respondents in the aviation and aerospace sector recognised climate change and ESG factors as impacting clients and customers, who are core to their business.

However, half of the companies questioned had a somewhat limited measurement of current climate change and ESG risks.

This research highlights the need for the industry to be better prepared for the transition to a more sustainable economy and highlights the need for businesses to assess the implications of ESG for their organisation by utilising industry data, risk indices, physical climate models, and key stakeholders’ perspectives. When it comes to recruitment, organisations should seek to mitigate as much risk as possible by building relationships with specialist agencies who are abreast of ESG themes such as AeroProfessional.

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