The importance of ESG in aviation: Gediminas Ziemelis
The aviation industry has shown a high commitment to meeting the diverse expectations and interests of its key stakeholders, including employees, customers, governments, and regulatory bodies on matters pertaining to ESG issues. In its most facile form, ESG is a hypernym that describes a framework adopted by aviation players to address environmental (E), social (S), and governance (G) issues emanating from their core operations.
As an incipient domain, ESG has become the new focal point for airline companies, investors, regulatory bodies, aviation operators, and lessors worldwide. For a greater reason, there is increased focus on how the industry can achieve a paradigm shift towards environmental-friendly solutions, green financing efforts to drive sustainable performance and creating a positive impact in the global community.
Global airlines have embraced ESG efforts not only as a framework to drive sustainability but also to differentiate themselves and stand out in the highly competitive markets by making their brands more attractive to sustainability-conscious customers and other stakeholders.
The current situation is that the ESG landscape is nothing more than just an ‘alphabet soup’ as regards where different global carriers stand and their efforts to implement the environmental, social, and corporate governance objectives.
While global airlines in Europe, Latin America, Asia, and other countries around the world continue to invent solutions to address sustainability issues, there arose a more pressing issue that has created a clarion call for all industry stakeholders; the COVID-19 pandemic. The ongoing global pandemic has highlighted a compelling need for airlines to build resilience and implement long-term strategies to cushion the entire industry from high-impact shocks that have threatened to sabotage the ongoing efforts to address ESG issues.
Looking at ESG from an environmental perspective, we can contend that the aviation sector has made considerable progress in addressing the formidable carbon emissions problem. As of now, the industry accounts for over 2.4% of ambient carbon emissions reported globally. Fast forward, the industry will have to ramp up its efforts to achieve the 80% improvement in CO2 emissions per the regulations outlined by the Environmental Protection Agency (EPA), European Union Emission Trading System (EU ETS), and those stipulated by the ICAO under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The anticipation is that these regulations will provide both a short-term and long-term solution for the aviation CO2 problem and give a rundown of how global airlines can lower their net emissions footprint.
In some regions, for example Europe, airline companies have experienced insurmountable pressures to implement sustainability programs from environmentally conscious travelers, some of whom have started ‘flight shaming’ campaigns and blandishing the public to use alternative means of transport. Other global airlines have picked up lessons from the experiences of the European carriers to effectuate environmental obligations and protect their reputations from the growing threat of conscious consumerism among air travelers.
Markedly, COVID-19 has led to a shift in business priorities. Some airlines have buckled down on core operational areas and diverted their attention from environmental objectives.
Additionally, the inflection on addressing various issues related to the aviation culture has provided a better positioning for global airlines and placed them in the path of social sustainability. Even as airline companies continue to implement cost-cutting measures to relieve themselves from the harsh COVID-19 effects, on-time performance, service excellence, and passenger safety have remained at the core of all decision-making processes, notwithstanding the associated costs.
Many airlines have shown increased centeredness on reducing the prevalence of safety-critical incidents to instill confidence in the public and attract more business from air travelers. We are also seeing more airlines trying to improve labor relations with their employees and address the persistent power struggles with union leaders. Altogether, these efforts have a positive outcome on the satisfaction among stakeholders and a parallel effect on social scores for global airlines.
Imperceptibly, the global aviation industry has also continued to implement corporate governance practices to deliver a greater stakeholder value, improve compliance with existing business laws, and promote efficiency in decision-making processes. Given the financial uncertainties implicated by the global pandemic, there is a growing need for airlines to create governance strategies and models that will help them deliver their business objectives and meet the competing interests of all stakeholders. These include requirements for transparency, accountability, responsibility, commitment, and social responsibility. With the increased prominence on principles of good governance, we look forward to airline carriers starting to adapt business models that promote their sustainability priorities.
Although the outcomes of ESG remain largely inconsistent, we believe that aviation players who are yet to make ESG a priority should move towards environmental stewardship, social performance and adapt their governance practices and structures to deliver long-term value. Fundamentally, the particularism on ESG improvements will enable airline companies to mitigate the prevalent risks emanating from ESG-themed prospectuses and mounting pressures from various stakeholders.
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