QUALITATIVE ESG RISK ANALYSIS OF AIRLINES INDUSTRY. 

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QUALITATIVE ESG RISK ANALYSIS OF AIRLINES INDUSTRY

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LIST OF CONTENT. 01. Introduction ESG in the Air. 

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ESG IN THE AIR. A blue and white logo Description automatically generated. 

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The aviation industry, a cornerstone of global connectivity, is facing a critical juncture as environmental, social, and governance (ESG) considerations rise to prominence. 
  Disease outbreaks, such as COVID-19, have severely affected airline operations and finances, while also limiting customers’ mobility. 
  ESG improvements will enable airline companies to mitigate the prevalent risks emanating from ESG-themed prospectuses and mounting pressures from various stakeholders.
 The International Air Transport Association (IATA) has set a goal of achieving net-zero carbon emissions by 2050

...there is growing evidence that global warming already affects airline operations...
 (volatile pockets of clear-air turbulence, extreme weather events, etc.)

Reference:  2023 Aviation Industry Review & Outlook

MOTIVATION & OBJECTIVES. A blue and white logo Description automatically generated. 

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Reference: Global Risk Report 2024, Global Reporting Initiative

1. To comprehensively define ESG risks in the airlines industry.
 2. To identify the root causes and prevalent ESG risk factors that impact airlines' operations
 3. To explore effective mitigation strategies for addressing ESG risks in the airlines industry

The Global Risk Report 2024 ranks extreme weather events as the top risk over the long term of 10 years and seen as the second-most severe risk over the two-year time frame. The Airline sector has a strong impact due to the above risk. 
 According to the Global Reporting Initiative (GRI), the top ESG risks facing airlines in 2023 were climate change, health & safety risks, and regulatory risks.
 More aviation lenders and investors are including ESG performance metrics in their transaction analysis and business strategies.

METHODOLOGY. A blue and white logo Description automatically generated. 

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Reference: The S&P Global Sustainability Yearbook (2023)

Top five airline companies selected based on ranking provided by  S&P Global Sustainability Yearbook 2023 
 These companies are within the top 15% of airlines industry and have an S&P Global ESG score within 30% of their industry’s top performing company

Limitation: Results are not directly reproduceable for all airline companies as this research covers the top 5 companies from the S&P Global Sustainability Yearbook. Generalizability of  the findings is limited.

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Qualitative ESG Risk Analysis: Airlines Industry

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Top environmental risk as reported by all the selected companies

Majority of the companies disclosed resource management and pollution as areas of high importance for its stakeholders

80% of the sample companies rate biodiversity as an area of environmental concern for airlines industry

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[image] 1 700 Airplane Pollution Stock Illustrations Royalty Free Vector Graphics Clip Art iStock

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Environmental Risks Causes Impacts Key Mitigation Strategies Climate change


 Resource management 


 Pollution


 Biodiversity

▪ Carbon emissions ▪Use of fossil fuels and non-renewable energy sources ▪Deforestation  ▪Land use changes

▪Increased occurrence of extreme weather events  ▪ Air Turbulence and route changes ▪ Climate-related Supply Chain Disruptions ▪ Increased operational cost due to strict carbon regulations

▪ Deterioration of water quality ▪ Improper disposal of waste  ▪ Limited recycling and reuse of waste ▪ Reliance on non-renewable resources

▪ Limited availability of raw materials for operations ▪ Increased aircraft development and procurement cost ▪ Fuel Price Volatility

▪ Greenhouse gas (GHG) emissions and use of hazardous chemicals ▪ Fuel Spillage and Waste ▪ Noise Pollution

▪ Increased penalties under environmental regulations  ▪ Poor air quality ▪ Health issues for nearby communities

▪ Extinction of biodiversity species ▪ Land use and changes ▪ Deforestation and habitat destruction

▪ High risk of emergence of new diseases  ▪ Decline in tourism and air travel  ▪Disruption in natural resource availability

Prohibition on transport of endangered species

Forbidding the use of unauthorized species

World Natural Heritage Sites Preservation

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Top social risk as reported by all the selected companies

80% of the companies highlighted labour and human rights as topics of very high importance for stakeholders

Majority of the companies disclosed D&I as a material ESG topic for the business impacting its credit materiality

60% of the companies outlined social supply chain management as a key risk for the stakeholders as well as the business

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Social Risks Causes Impacts Key Mitigation Strategies Health & Safety




 Labour and human rights 


 Diversity, Equity, and Inclusion (DEI)




 Supply Chain

▪ Poor maintenance or malfunctioning of equipment and aircraft ▪Non-compliance with safety regulations ▪ Adverse weather events or disease outbreak

Deterioration of Labour Management Relations ▪ Inadequate working conditions ▪ Weak policy stance on labour and human rights

▪ Workplace Discrimination and Inequality ▪ Lack of Diverse Representation in Leadership ▪ Unconscious Bias in Hiring & Promotion

▪ Increased Flight Safety Incident Risk ▪ Bad public perception regarding airline safety ▪ Reduced customer demand and changes in travel behaviour ▪ Increased operational cost

▪ Decrease in employee retention ▪ Declining employee physical and mental well-being ▪ Diminishing investor confidence and stakeholder value ▪Legal actions and regulatory penalties

▪ Low employee retention and satisfaction ▪ Brand reputation and image ▪ Low competitiveness  ▪ Inadequate customer service and communication due to less diverse staff

▪ Increased global network dependencies ▪ Geopolitical instability ▪  Economic instability and market fluctuations ▪ Supplier disputes and strikes

▪ Rapid shifts in demand for air travel  ▪ Flight delays and cancellations ▪ Increased level of regulatory compliance due to varied supplier base  ▪ Operational inefficiencies ▪ Compromised service quality

IATA Operational Safety Audit (IOSA) certification

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Top governance risks  having very high material impact for business as reported by majority of the companies

Integrity stock vector. Illustration of culture, design - 101225433

BCP - business continuity Plan business concept. Vector stock illustration.  | Stock vector | Colourbox

All companies mentioned BCM/ incident risk management as areas of high importance for the business and stakeholders

80% of the companies emphasised data privacy and security as high importance governance topics for investors and its stakeholders

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Governance Risks Causes Impacts Key Mitigation Strategies Ethics, anti-corruption and anti-competition




 Business continuity management


 Information security and privacy protection

▪ Operations in high-risk countries (Corruption Perception Index) ▪ Involvement of intermediaries and agents (Complex supply chain) ▪ Lack of transparency in financial statements ▪ Poor due diligence and background check standards

▪ Occurrence of adverse weather events ▪ Outbreak of pandemic ▪Dependence on technology ▪ Supply chain vulnerabilities

▪ Weak control and unauthorised access to critical information ▪ Cyberattacks  ▪ Geopolitical tensions ▪ Inadequate encryption methods

▪ Customer dissatisfaction and  increased regulatory scrutiny ▪ Downturn potential investments ▪ Deter potential talent and increase turnover rates ▪ High probability of revocation of operations licenses

▪ Decreased passenger confidence ▪ Adverse effect on financial health ▪ Operational inefficiency

▪ Tampered public relations  ▪ Legal consequences due to failure to comply with data privacy regulations  ▪ Violation of customer privacy

Anti-corruption and anti-competition protocols

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Transitional Policy Changes Technological Changes Behavioral Changes

Changes in social policies and regulations Changes in market sentiment

Inadequate management of E&S Non-compliance with codes/frameworks

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Explore the correlation between ESG risk integration and financial profitability in the airline sector

Investigate the potential impact of emerging technologies, such as sustainable fuel and AI-driven operational efficiencies, on reducing ESG risks in the airline industry

Examine how ESG risk integration and mitigation methods have evolved, particularly before and after COVID-19 and their impact on financial performance.

REFERENCES. A blue and white logo Description automatically generated. 

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Benchmark Aviation CO2 Emissions with IBA’s Carbon Emissions Index. (2022). IBA. https://www.iba.aero/insight/benchmark-aviation-co2-emissions-with-ibas-carbon-emissions-index/
 Key trends for global aviation in 2024 - the IBA Perspective. (2024). IBA. https://www.iba.aero/insight/key-trends-for-global-aviation-in-2024/
 Chen, C., Su, C., & Chen, M. (2022). Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns. Journal of Air Transport Management, 102, 102229. https://doi.org/10.1016/j.jairtraman.2022.102229
 ANA Group. (2022). Annual Report 2022. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_ALNPY_2022.pdf
 China Airlines. (2022). 2022 China Airlines Sustainability Report. Retrieved from https://calec.china-airlines.com/csr/en/download/2022/2022-en-CSR.pdf
 ESG Materiality Map Airlines. (2022, July 20). In S&P Global Ratings. Retrieved from https://www.spglobal.com/_assets/documents/ratings/research/101563874.pdf
 EVA Air. (2022). EVA Air Sustainability Report 2022. Retrieved from https://www.evacsr.com/archive/doc/EVA_CSR_EN_2021.pdf
 IATA (2023). IATA Global Outlook for Air Transport. In International Air Transport Association (IATA). https://www.iata.org/en/iata-repository/publications/economic-reports/industry-statistics-fact-sheet-december-2023/
 JAL Group. (2022). JAL Group Integrated Report. Retrieved from https://www.jal.com/en/sustainability/report/pdf/index_2022a.pdf
 Company ESG Risk Ratings and scores - Sustainalytics. (2024). sustainalytics.com. https://www.sustainalytics.com/esg-ratings

THANK YOU FOR YOUR ATTENTION. A blue and white logo Description automatically generated. 

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BOOST Playful Abstract Creative Presentation 

 Reference:  2023 Aviation Industry Review & Outlook

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 Reference: Global Risk Report 2024, Global Reporting Initiative

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 Reference: The S&P Global Sustainability Yearbook (2023)

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 Benchmark Aviation CO2 Emissions with IBA’s Carbon Emissions Index. (2022). IBA. https://www.iba.aero/insight/benchmark-aviation-co2-emissions-with-ibas-carbon-emissions-index/
 Key trends for global aviation in 2024 - the IBA Perspective. (2024). IBA. https://www.iba.aero/insight/key-trends-for-global-aviation-in-2024/
 Chen, C., Su, C., & Chen, M. (2022). Understanding how ESG-focused airlines reduce the impact of the COVID-19 pandemic on stock returns. Journal of Air Transport Management, 102, 102229. https://doi.org/10.1016/j.jairtraman.2022.102229
 ANA Group. (2022). Annual Report 2022. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_ALNPY_2022.pdf
 China Airlines. (2022). 2022 China Airlines Sustainability Report. Retrieved from https://calec.china-airlines.com/csr/en/download/2022/2022-en-CSR.pdf
 ESG Materiality Map Airlines. (2022, July 20). In S&P Global Ratings. Retrieved from https://www.spglobal.com/_assets/documents/ratings/research/101563874.pdf
 EVA Air. (2022). EVA Air Sustainability Report 2022. Retrieved from https://www.evacsr.com/archive/doc/EVA_CSR_EN_2021.pdf
 IATA (2023). IATA Global Outlook for Air Transport. In International Air Transport Association (IATA). https://www.iata.org/en/iata-repository/publications/economic-reports/industry-statistics-fact-sheet-december-2023/
 JAL Group. (2022). JAL Group Integrated Report. Retrieved from https://www.jal.com/en/sustainability/report/pdf/index_2022a.pdf
 Company ESG Risk Ratings and scores - Sustainalytics. (2024). sustainalytics.com. https://www.sustainalytics.com/esg-ratings
