Relevant Issues (4 of 26)
- GHG Emissions The category addresses direct (Scope 1) greenhouse gas (GHG) emissions that a company generates through its operations. This includes GHG emissions from stationary (e.g., factories, power plants) and mobile sources (e.g., trucks, delivery vehicles, planes), whether a result of combustion of fuel or non-combusted direct releases during activities such as natural resource extraction, power generation, land use, or biogenic processes. The category further includes management of regulatory risks, environmental compliance, and reputational risks and opportunities, as they related to direct GHG emissions. The seven GHGs covered under the Kyoto Protocol are included within the category—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).
- Air Quality
- Energy Management
- Water & Wastewater Management
- Waste & Hazardous Materials Management
- Ecological Impacts
- Human Rights & Community Relations
- Customer Privacy
- Data Security
- Access & Affordability
- Product Quality & Safety
- Customer Welfare
- Selling Practices & Product Labeling
- Labor Practices The category addresses the company’s ability to uphold commonly accepted labor standards in the workplace, including compliance with labor laws and internationally accepted norms and standards. This includes, but is not limited to, ensuring basic human rights related to child labor, forced or bonded labor, exploitative labor, fair wages and overtime pay, and other basic workers' rights. It also includes minimum wage policies and provision of benefits, which may influence how a workforce is attracted, retained, and motivated. The category further addresses a company’s relationship with organized labor and freedom of association.
- Employee Health & Safety
- Employee Engagement, Diversity & Inclusion
Business Model & Innovation
- Product Design & Lifecycle Management
- Business Model Resilience
- Supply Chain Management
- Materials Sourcing & Efficiency
- Physical Impacts of Climate Change
Leadership & Governance
- Business Ethics
- Competitive Behavior The category covers social issues associated with existence of monopolies, which may include, but are not limited to, excessive prices, poor quality of service, and inefficiencies. It addresses a company’s management of legal and social expectation around monopolistic and anti-competitive practices, including issues related to bargaining power, collusion, price fixing or manipulation, and protection of patents and intellectual property (IP).
- Management of the Legal & Regulatory Environment
- Critical Incident Risk Management The category addresses the company’s use of management systems and scenario planning to identify, understand, and prevent or minimize the occurrence of low-probability, high-impact accidents and emergencies with significant potential environmental and social externalities. It relates to the culture of safety at a company, its relevant safety management systems and technological controls, the potential human, environmental, and social implications of such events occurring, and the long-term effects to an organization, its workers, and society should these events occur.
- Systemic Risk Management
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Greenhouse Gas Emissions
As a result of its heavy reliance on hydrocarbon fuels, the Airlines industry generates a significant amount of emissions, over 99 percent of which are in the form of carbon dioxide (CO2). The industry is thus subject to compliance costs and risks associated with climate change mitigation policies. The main sources of greenhouse gas (GHG) emissions for airlines companies are aircraft fuel use and emissions, ground equipment, and facility electricity. Aircraft fuel use is the largest contributor to total emissions from the industry, and fuel management is a critical part of reducing emissions. Management of the environmental impacts of fuel usage includes increasing fuel efficiency through fleet upgrades, retrofits, and optimization of flight speed and route design as well as and incorporating alternative and sustainable fuels. These initiatives require capital expenditures, but in the long-run can reduce fuel costs and decrease a company’s exposure to the risks of GHG emissions programs and regulations.
Many workers in the Airlines industry are covered under collective bargaining agreements that cover fair wages, safe working conditions, and freedom of association, which are among basic worker rights. Unionization of key personnel may result in higher labor costs via wage or benefits increase. At the same time, labor practices can impact the long-term profitability of the business. Effective management of, and communication around, issues such as worker pay and working conditions can prevent conflicts with workers that could lead to extended periods of strikes, which can slow or shut down operations and damage a company’s reputation, potentially reducing revenue and market share.
The Airlines industry is characterized by competitive margins due to high fixed capital and labor costs and competition with government-subsidized carriers in some markets. This pushes airlines to find economies of scale through alliances or consolidation, leading to concentration of the market. The industry is also characterized by high barriers to entry due to limited landing rights and increasing airport congestion. Together, these characteristics may lead companies to engage in anti-competitive practices that increase prices for consumers. As a result, antitrust authorities have scrutinized certain airline industry practices such as airport slot management, predatory pricing, and alliances and mergers. This creates a material risk to investors stemming from legal fees, reputational risk, costs associated with a delayed merger or acquisition transaction, and limits on growth by acquisition or merger.
Critical Incident Risk Management
Accident & Safety Management
Given the nature of air travel in which accidents can result in significant consequences, passenger safety is paramount in the Airlines industry. Although air travel is one of the safest modes of transport, airlines are held to very high safety standards and consumers expect accident-free operations. Furthermore, as products transported by air tend to be high-value or perishable goods, delivering them safely and in a timely manner is a priority for any carrier. Airline accidents may result in significant environmental and social externalities and require companies to pay for remediation and compensation of victims. Safety incidents or violations of safety regulations can have a chronic impact on a company’s reputation, increasing its risk profile and cost of capital, and lead to lower demand from passengers as well as cargo shippers, hurting revenues. Larger accidents, even if they occur rarely, can lead to significant and long-term impacts on reputation and revenue growth. Providing adequate safety training and ensuring the health and well-being of crew members is critical to ensuring safety. Equally important is timely and adequate maintenance of aircraft, which can help companies minimize the chances of technical failure and avoid severe regulatory penalties for non-compliance.
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