As customer preferences evolve in the wake of the climate crisis, the aviation sector has a big challenge ahead of it. By its nature, the sector is carbon intensive, and new technology will be needed in order to fully address it.
Edinburgh Airport has made considerable progress in addressing its impact on the environment despite those challenges. “Our view is that carbon is the enemy, not aviation,” says Graeme Gibson, Edinburgh Airport’s Finance Director. “Our approach is to do everything that we can in the meantime to reduce emissions with the activities that are within our control and support the industry more broadly in terms of its efforts to introduce new technology and new fuels.”
Its work in this area has picked up in the last two years. The airport has adopted a new sustainability strategy, the Greater Good strategy, and has hired a new Head of Sustainability. In the finance function, sustainability is now a constant consideration.
“We’ve taken something intangible and turned it into something very relevant to finance,” says Gibson. “We’ve tried to answer the question: what is the role of finance in sustainability?”
This all happened during COVID-19, explains Steven Naismith, interim Head of Retail and Surface Transport; it provided the space for the company to act. “It allowed for all those factors that we hadn’t talked about. It allowed us to step back and take the time to really plan how we want to make meaningful change, and to get the whole business behind it.”
The initial steps in the process were establishing an appetite to go further in tackling sustainability, and undertaking a materiality assessment to determine which climate and sustainability-related issues impacted the airport, such as carbon emissions, water quality and noise. “Noise around airports is a hot potato for communities that live under or near flight paths. So for us, it’s a really material issue.”
Having done that exercise, the company made a plan for how to deliver on its targets, which align with UN Sustainable Development Goals. It worked on integrating this within its company culture, ensuring that its people bought into those goals.
Once that was done, it became about practical steps. In the finance, that included bringing financial disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD) framework and developing a cost of carbon methodology.
“There was no great science to our cost of carbon methodology,” says Gibson. “We looked at best practice and the learnings from the A4S Academy, but ultimately we came up with something really simple; to put a number on carbon that was meaningful enough to influence decision making, but not punitive to prevent good decisions from being made.”
When it comes to Scope 3 emissions, its airline partners have been incentivised to switch to newer, more efficient aircrafts, through a rebate scheme. The airport has currently paid out more rebates than expected, so signs suggest it’s having a positive impact. It is now looking at further measures to encourage action among its airline partners.
With the airport’s retail partners, it’s a little more straightforward; many businesses are already working to mitigate their environmental impacts. “We’ve set out a clear standard and our objectives, and we’re working with our partners to exchange ideas on how to achieve those goals,” says Naismith. “We’re getting ideas from them that we can bring into our business.”
Suppliers have been asked to sign a pledge, introduced a year ago, that sets out a code of conduct that the airport expects them to adhere to, covering everything from carbon impacts to paying a living wage and working to tackle modern slavery. “It’s been a great success for us,” says Naismith. “It’s also been a good opportunity to talk about sustainability with our supply chain.”
Aligning with TCFD disclosures was more straightforward than expected; the company was already disclosing much of what it needed to do. “We’ve got a really strong governance framework and lots of really solid internal and external reporting,” says Gibson. “We’ve got really good ways of identifying risks and quantifying them. We were a bit apprehensive until we read the requirements and then we just went out and did it.”
The areas that were trickier included quantifying transition risk and scenario analysis, but the team accepted that it was a process of ongoing development. “When we disclosed TCFD for the first time last year, we were largely compliant but there was room for improvement. We’ve since developed our methodology for quantifying transition risk that will be reported in due course.”
With scenario analysis, the team looked at a number of climate change possibilities, including an orderly transition to net zero, a disorderly transition to net zero, and a ‘current policies’ status quo scenario, using data from a range of different organisations that have looked at these issues in detail. From there they tried to understand the impact that would have on the business in the long term, such as what it might do to passenger numbers and profitability.
“We’re looking at things like GDP, carbon taxes, the price of fuel,” says Gibson. “To some extent, it’s a bit speculative, because who really knows what’s going to happen? What it did do is allow us to assess the impact of climate change on the fundamentals of our business and to consider our commercial and operational responses. We then reported that to our sustainability subcommittee about a month ago. It is going to be included in our TCFD disclosure this year.”
One of the airport’s key objectives was to develop a way of measuring non-financial metrics in the same way as they approach financial ones. Part of that was the development of a sustainability scorecard reported to the Board on a regular basis. It is working on building a governance structure that mirrors what it has on the financial side. “We’re still on a journey, but we’ve made significant progress,” says Naismith.
This work has started to influence decision making in the organisation, particularly when it comes to governance.
“There is now a board subcommittee for sustainability that exists because the finance team pushed to create it,” says Naismith. There’s a monthly executive forum that meets to discuss all of the sustainability activity that’s happening across the business. And that provides direction for what’s going to happen within the next month, which this team pushed to create.”
The next step is a process of embedding everything further; taking the work on the carbon methodology, TCFD disclosures, the work with suppliers and its sustainable financing strategy and building on it.
“It becomes part and parcel, the same way that financial control and health and safety is part and parcel of the airport’s activities. We could do more across all of these areas,” says Gibson. For example, there are always more suppliers you can reach out to; we could start to capture emissions in our supply chain.”
“Collaboration is going to be key to unlocking everything across the sector,” adds Naismith. “We’ve got to a point where other teams in the business are coming to us to support those conversations, because they see the value that we add. To me, this big picture challenge is going to be solved by working as widely as we can.”
- Find out more about the Finance for the Future Awards.
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The Finance for the Future Awards recognise the organisations and individuals that are supporting the integration of sustainability into financial decision making.
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