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Human Capital

  • Labor Practices
  • Employee Health & Safety
  • Employee Engagement, Diversity & Inclusion

Business Model & Innovation

General Issue Category
(Industry agnostic)

Disclosure Topics (Industry specific) for:
Aerospace & Defense

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Energy Management

Energy Management

Energy is a critical input to the manufacturing processes of aerospace and defense companies. Purchased electricity represents the largest share of energy expenditures in the industry, followed by purchased fuels. The type of energy used, magnitude of consumption, and energy management strategies depends on the type of products manufactured. A company’s energy mix, including the use of electricity generated on-site, grid-sourced electricity, and the use of alternative energy, can play an important role in influencing the cost and reliability of energy supply, and ultimately affect the company’s cost structure and regulatory risk.

Waste & Hazardous Materials Management

Hazardous Waste Management

Aerospace and defense product manufacturing may generate hazardous process waste, including, but not limited to, heavy metals and wastewater treatment sludge. Companies face regulatory and operational challenges in managing waste, as some wastes are subject to regulations pertaining to their transport, treatment, storage, and disposal. Waste management strategies include reduced generation, effective treatment and disposal, and recycling and recovery, where possible. Such activities, while requiring initial investment or operating costs, can lower companies’ long-term cost structure and mitigate the risk of remediation liabilities or regulatory penalties.

Data Security

Data Security

Companies in the Aerospace & Defense industry may develop sensitive military and advanced aviation products, and companies in this industry may therefore be at a high risk for cyber attacks. A data security breach can be costly for a company and its clients when information systems are compromised. Ensuring data security may require aerospace and defense companies to invest in research and development and increase capital expenditures in the short to medium term to improve the security of their systems and their products. Significant or frequent disruptions or security breaches may result in regulatory action, legal action, or adversely impact revenues and brand value.

Product Quality & Safety

Product Safety

Product safety is an important consideration for aerospace and defense companies given the industry’s key role in commercial aviation and military operations. Product safety incidents could result in financial impacts, including increased costs, regulatory penalties, or brand-value impacts that could adversely affect market share. Additionally, counterfeit components have been found in the aerospace and defense supply chain, increasing the risk of safety incidents due to low product quality. Through product design, supplier vetting, and ongoing customer engagement involving maintenance and accident investigations, companies in this industry can ensure the safety of their products over the long term, mitigating potential financial consequences such as revenue loss due to repeated safety incidents or recalls.

Product Design & Lifecycle Management

Fuel Economy & Emissions in Use-phase

Customer preferences and regulatory drivers are increasing the demand for energy-efficient and reduced-emissions products in the Aerospace & Defense industry. Many of the industry’s products are powered by fossil fuels and release greenhouse gases (GHGs) and other air emissions during use. As the designers and manufacturers of most of the global aerospace and defense transportation fleet, companies in this industry have a unique opportunity to support many industries and government agencies that are striving to meet GHG emissions and fuel-management goals and imperatives. Products with higher fuel economy and lower use-phase emissions may be well positioned to capture expanding market share and adapt to changing customer preferences and regulations around fuel economy and emissions.

Materials Sourcing & Efficiency

Materials Sourcing

Aerospace and defense companies are exposed to supply chain risks when critical materials are used in products. Companies in the industry manufacture products using critical materials with few or no available substitutes, many of which are sourced from deposits concentrated in only a few countries which are subject to geopolitical uncertainty. Companies in this industry also face competition due to increasing global demand for these materials from other sectors, which can result in price increases and supply risks. Companies that are able to limit the use of critical materials through use of alternatives, as well as secure their supply, can mitigate the potential for financial impacts stemming from supply disruptions and volatile input prices.

Business Ethics

Business Ethics

Aerospace and defense companies may be vulnerable to regulatory scrutiny of business ethics because of their operations in regions with weaker government enforcement of business ethics laws. Companies in this industry have been found in violation of corruption and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act. Unethical practices may jeopardize future revenue growth due to reputational risks and can result in significant legal costs and a higher risk profile. As such, strong governance practices can mitigate the risk of violations of business ethics laws and resulting regulatory penalties or brand-value impacts.

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