The Importance of ESG in the Aviation Industry

Environmental, Social, and Governance (ESG) factors are becoming increasingly important in the aviation industry. Stakeholders like customers, investors, and governments expect companies across the sector to follow ESG principles, significantly impacting corporate strategy and operations.

Research shows a strong link between ESG performance and financial success. According to McKinsey & Company, companies prioritising sustainability outperform their peers financially and have better market valuations. Bain & Company highlighted that strong social initiatives, such as improved labour practices and community engagement, can lead to a 3% rise in profitability. McKinsey also notes that strong governance practices, such as transparency and accountability, contribute to a 7% reduction in risk and volatility, improving financial stability and investor confidence.

Investors are looking closely at companies’ ESG performance when deciding where to invest. A report by MSCI highlights the growing importance of ESG factors for investors and introduces an innovative approach called ESG-first portfolio construction. This strategy integrates environmental, social, and governance considerations throughout an investment process. The report showcases the effectiveness of the ESG-first approach through a sample portfolio. Compared to traditional benchmarks, this portfolio achieved a significant 15% improvement in its ESG score and a remarkable 30% reduction in its carbon footprint. Notably, the portfolio also delivered a 1.5% annualised active return, debunking the myth that ESG investing sacrifices financial performance. This approach offers a compelling solution: improved ESG characteristics, reduced environmental impact, and competitive financial returns – all rolled into one strategy.


Environmental Responsibility

The aviation industry has a meaningful impact on the environment, with commercial aircraft contributing 2.4% of CO2 emissions from fossil fuels. To tackle this, industry players are exploring options like sustainable aviation fuels (SAFs), investing in newer, fuel-efficient aircraft, and exploring electric and hybrid propulsion systems.

With the ambitious goal of reaching net-zero carbon emissions by 2050, everyone in the industry is pitching in. This includes ABL Aviation, which is a signatory to the Aircraft Leasing Ireland (ALI) Sustainability Charter. The Charter’s goal is to establish a framework for assessing and disclosing sustainability alignment for the leasing community and provide actionable guidance on how to achieve greenhouse gas (GHG) reduction ambitions.  The Charter’s participating companies commit to supporting the wider industry’s goal of achieving net zero carbon emissions by 2050, improving the efficiency of aircraft fleets, and helping the industry move towards a greener future.

Social Impact

The social side of ESG in aviation focuses on better labour practices, passenger safety, and community involvement. The industry faces challenges like staff shortages and the need for more inclusive workplaces. To address these, companies are investing in employee training, promoting diversity, and improving workplace safety. Passenger safety is not left out, with ongoing investments in safety training and technology to protect passengers and build trust.

Beyond these core areas, the social impact of ESG also includes innovative solutions that prioritise workforce well-being during challenging times. ABL Aviation demonstrated this with their remote aircraft delivery during the COVID-19 pandemic. This approach allowed business transactions to continue despite global restrictions. By prioritising safety, ABL Aviation ensured a secure working environment for all involved and set a new standard for remote aircraft deliveries in the aviation industry.

Community engagement is equally important. Industry players support local projects, educational programmes, and environmental initiatives, strengthening community bonds and demonstrating social responsibility. A good example of community engagement is ABL Aviation’s Cedar Tree Project in the Middle Atlas region of Ifrane, Morocco, which aims to plant 55,000 cedar trees over 100 hectares in five years. With 4,000 trees already planted, the project is progressing towards its annual goal of 11,000 trees. This initiative protects the environment, creates jobs, and encourages environmental responsibility among residents.

Good Governance

Good governance practices are essential for building trust and ensuring long-term success in the aviation industry. Good governance promotes operational efficiency and effective risk management by ensuring openness, accountability, and regulatory compliance. These advantages are crucial in a highly regulated industry like aviation.

Several initiatives promote good governance in the aviation industry. An example is International Air Transport Association (IATA), which sets global standards and best practices to improve safety, security, and sustainability. IATA’s programmes include comprehensive training for industry professionals, rigorous operational standards, and promoting transparency and accountability among member airlines. These efforts help maintain high governance and operational excellence.

The Aircraft Leasing Ireland (ALI) Sustainability Charter also promotes good governance by requiring signatories to practice transparent reporting, consistent stakeholder communication, and accountability in achieving environmental and social goals. The Charter emphasises leadership in carbon disclosures and progress in developing low-carbon technologies.

ESG principles are more than just guidelines; they are essential strategies for the growth of the aviation industry. Eileen O’Donnell, Chief Finance Officer and Sustainability Champion at ABL Aviation emphasises the efforts of industry participants, “Sustainability is at the heart of what we do at ABL Aviation. Integrating ESG principles is more than just satisfying corporate responsibilities; it is a strategic necessity for continual improvement and long-term success. Our partnerships play an important role in this effort. For example, we have supported Air France’s fleet renewal through the delivery of seven A220-300 aircraft, with more to come. These fuel-efficient aircraft help airlines meet their sustainability targets, contributing to the industry’s overall goals.”

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