Flying Green: Navigating ESG in the Aviation Industry

Navigating the future of flight requires not only technological innovation but also an unwavering commitment to sustainable practices that align with the global imperative to combat climate change. For the aviation industry, this entails a precise balance between Environmental, Social, and Governance (ESG) concerns. 

Central to this balance is the need for transparent and comprehensive reporting standards that provide stakeholders, from investors to regulators, with clear insights into an airline's sustainability trajectory. In this blog post, we will explore key topics shaping the future of ESG and ESG reporting in the Aviation sector, including:

• ESG Frameworks 
• Key ESG Reporting Metrics 
• ESG Developments - Sustainable Aviation Fuel (SAF)
• The Future of ESG Reporting in Aviation

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Frameworks 

At the forefront of the aviation sector's ESG journey is the critical importance of clear and comprehensive reporting standards. These standards serve as guiding lights, offering stakeholders from investors to regulators a window into an airline's sustainability path.

SASB

When it comes to ESG reporting within the Aviation industry, The Sustainability Accounting Standards Board (SASB) stands out. SASB is an independent nonprofit organisation that focuses on developing industry-specific sustainability accounting standards to help companies disclose financially material, industry-specific ESG information to investors. SASB's goal is to facilitate more consistent, comparable, and relevant reporting of ESG factors that can impact a company's financial performance.

SASB standards are designed to be industry-specific, which means they take into account the unique ESG issues and risks that are most relevant to companies operating within a particular industry. The standards cover a wide range of topics within the ESG framework, including environmental issues like carbon emissions and water management, social factors like labour practices and human rights, and governance factors like executive compensation and board diversity.

Aviation companies use SASB standards to report their ESG data in a way that is tailored to their industry. Here's how they typically use SASB:

Identification of Material Topics: Aviation companies review SASB's industry-specific standards to identify the ESG topics that are most relevant and material to their business. For example, an airline might focus on topics such as fuel efficiency, noise pollution, safety records, and labour practices.

Data Collection and Reporting: Once the material topics are identified, aviation companies gather relevant data on these topics within their operations. This data is then integrated into the company's annual sustainability or ESG report. The reporting follows the guidelines provided by SASB, ensuring consistency and comparability in reporting.

Performance Measurement: SASB standards often include key performance indicators (KPIs) that help aviation companies measure and track their ESG performance over time. These KPIs can be used to assess progress, set goals, and demonstrate improvements in areas of material importance.

Investor Communication: One of the primary purposes of SASB reporting is to communicate relevant ESG information to investors. By using SASB standards, aviation companies can provide investors with standardised and industry-specific data that allows them to assess the company's ESG performance and risks in a way that is comparable to other companies in the same industry.

Risk Management: SASB reporting helps aviation companies identify and manage ESG-related risks that could impact their financial performance. By disclosing these risks and the company's strategies for addressing them, companies can enhance transparency and build investor confidence.

Regulatory Compliance: In some cases, SASB reporting might be aligned with regulatory requirements for ESG disclosure. By using SASB standards, aviation companies can ensure that they are meeting industry-specific disclosure expectations.

By using SASB standards, aviation companies can provide investors with standardised and industry-specific data that allows them to assess the company's ESG performance and risks in a way that is comparable to other companies in the same industry.

Key Metrics

Building on the standards set by SASB, the effectiveness of any ESG reporting mechanism is its ability to measure and communicate through precise metrics. Beyond the SASB, three metrics are particularly important within the Aviation industry:

Carbon emissions

In 2022 aviation accounted for 2% of global energy-related CO2 emissions, having grown faster in recent decades than rail, road or shipping. While many airlines are investing in more fuel-efficient aircraft, alternative fuels, and operational efficiencies to reduce emissions, carbon emissions remain a primary ESG metric for airlines.

Product Safety and Quality 

As a pivotal ESG metric, product safety and quality ensures that aircraft operate optimally and passengers travel securely. Factors include aircraft maintenance, crew training, and adherence to safety standards such as the International Civil Aviation Organization’s (ICAO) Global Aviation Safety Plan (GASP).

Labour Relations and Employee Safety

As the airline industry relies heavily on its workforce, from pilots and cabin crew to ground staff and engineers, metrics that track employee safety (i.e., injury rates), job satisfaction, and labour relations are essential. Evident by the frequency of news about airlines experiencing strikes, measuring aspects of employee well-being are integral for evaluating the social responsibilities of an airline.

In 2022 aviation accounted for 2% of global energy-related CO2 emissions, having grown faster in recent decades than rail, road or shipping.

ESG Development - Sustainable Aviation Fuel (SAF)

While metrics provide a snapshot, the real-world adaptations, like the adoption of  Sustainable Aviation Fuel (SAF), show the industry's forward motion.

SAF is a term for non-petroleum-based fuels in aircraft. These can be derived from a variety of sources, including recycled waste oils, agricultural residues, and even municipal waste. The promise of these fuels would offer reduced carbon emissions, lessening the industry’s environmental footprint. 

The enthusiasm surrounding SAF is not without contention, however. The debate on corn ethanol, for example, demonstrates the nuances of ensuring SAF’s genuine environmental benefits. Although corn is viewed as a viable biofuel source, there are tangible concerns about associated land-use changes, including deforestation. Only last year, scientists at the University of Wisconsin-Madison published a paper revealing that the push for biofuels, stemming from the 2007 Renewable Fuel Standard, led to an increase in US cropland, potentially challenging the very sustainability goals SAF aims to achieve. 

With an ambitious target to hit net-zero emissions by 2050, airlines recognise SAF's pivotal role. Leading carriers like United Airlines and Alaska Airlines, in tandem with agricultural groups, biofuel producers, and global oil conglomerates, are rallying for enhanced tax credits under the recent Inflation Reduction Act.

Yet, this move isn't universally lauded. Environmental advocates express concerns that bolstering tax benefits for existing aviation fuel might deter airlines from investing their resources in pioneering newer, greener fuel alternatives. 

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The Future of ESG Reporting in Aviation.

As we consider advancements like SAF, it’s also essential to look at how the very process of ESG reporting in aviation will evolve in the coming years.

In the dynamic aviation landscape, not only are technological advancements like Sustainable Aviation Fuel (SAF) and electric aircraft shaping the future, but also the evolving frameworks of ESG reporting. Much like our previous three blog posts, we expect that the European Sustainability Reporting Standards (ESRS) will have a significant impact on ESG reporting within the aviation industry.

To learn more about the ESRS, read our article on ESG in the Textiles Industry, or ESG in the Real Estate Industry‍

Conclusion

In the rapidly changing skies of the Aviation industry, the push for sustainability, underscored by clear ESG reporting, is not just an imperative—it's the future. The sector's dedication to transparent reporting through mechanisms like the SASB, a commitment to pivotal metrics, and the pursuit of innovative solutions such as SAF, are markers of a proactive stride towards a more sustainable aviation world. 

As stakeholders, it's imperative to be vigilant, ensuring that the flight path chosen today aligns not only with the immediate industry needs but also with the broader goals of a sustainable future for our planet. Through consistent reporting, technological adaptation, and stakeholder engagement, the sector remains poised to play its part in shaping a more sustainable tomorrow.

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Sources

SASB - About Us

US airlines ally with farmers to seek subsidies for corn as jet fuel

iea - Aviation

ICAO Global Aviation Safety Plan

ESG Industry Materiality Map

Eye on ESG - Aviation Leaders Report 2023

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