Environmental, Social, and Governance, commonly shown as ESG, is a catch-all for a set of non-financial metrics for companies to track issues becoming increasingly important to investors. It is a framework to track issues like sustainability, inclusion efforts in hiring and promotion, and many more things. An industry has developed around this to track company initiatiatives and performance, software to help manage efforts, and scoring of companies to rank how well each is doing.
The “E’ in ESG covers areas of sustainability and conservation. This takes into account a company’s utilization of natural resources and the effect of its operations on the environment. This covers both its own operations and more broadly across its supply chain. A theme park, for example, might establish and track initiatives to use more sustainable energy for its rides and reclaim more water in its water parks. It also may choose to partner with food and beverage vendors who also are taking initiatives of their own along these areas, as part of their own efforts to affect everything they can control. For many companies, commuting of employees and business travel by airplane are two large contributors of their energy usage and CO2 emissions. Thus, companies are increasingly looking to reduce their airline travel in order to meet their ESG targets.
Why Business Travel Is Targeted
Some companies, especially those with primarily people assets, travel a lot to support their business. These include consultants, accountants, and many types of contractors. For these businesses, they don’t produce a lot of CO2 with what they do, but rather with how they move around. Changing commuting patterns by allowing more work-at-home and reducing airline travel may be the biggest things they can do to support their internal ESG goals.
When the pandemic first hit, travel by airplane dropped over 90%. In that first year, this drop in air travel reduced worldwide carbon emissions by 7%. Even companies that have significant internal ESG opportunities can benefit from a reduction in their business travel. It is an easy thing to do, while other things are harder and thus less likely to happen. This doesn’t mean all travel has to stop to meet a goal, but maybe two people go instead of five. Or some meetings are still in person, while follow-ups are done by video. The company has the pressure to show they are responding, so saying “let’s fly less” is one of the easiest things they can do. Google Flights is now showing the average amount of CO2 emissions for each flight it displays, similar to how restaurants how the calorie counts on entrees.
What Some Companies Are Saying
This idea is already being parroted by many companies. A recent survey by Deloitte shows that a group of companies are planning to spend about 65% of their 2019 spend on travel this year. Some of this is pandemic related, but a lot is environmental sensitivity and the ability to move forward on established ESG goals. The CEO of Alloy labs said that “This isn’t about just reducing expense. This is about increasing effectiveness,” adding that he’ll likely travel once a month, rather than once a week.
Bain and Company has set a bold goal to reduce business travel emissions by 35% per employee. It can’t get much clearer than that. The Science-Based Target Initiative has enrolled over 2,500 companies that are committing to be net-zero on their emissions by 2050, and business travel is one of the key initiatives that many of these companies have stated among their key initiatives.
How Airlines Can Help With Their Own ESG Plan
Airlines can help themselves in two big ways against this anti-flying trend. First, they can make their business more sustainable by using renewable fuels, and setting their own target toward sustainability. As an industry, airlines have made one of the boldest goals by agreeing to be net-zero by 2050. This is quite remarkable, that an industry who is a risk of losing business because of sustainable actions by others are themselves saying they can do this. This allows companies who still want travel to take to take advantage of the airline’s improvements, by choosing to use airlines that are more committed and more effective at providing their product more sustainably.
Airlines can also understand this trend and adjust their businesses accordingly. Both Delta Airlines and United Airlines have stated recently that they are focusing on a new kind of traveler — the “premium leisure” traveler, to offset some of the business travel they expect to lose. Leisure travel is not expected to drop, and in fact it may increase, even as companies decide to travel less. Airlines recognizing this and the changes that this means for their aircraft, network, loyalty programs, and more will be ahead of the game.
How This Relates To The Pandemic
While this newer ESG trend is not specifically related to the pandemic, it is linked because of what happened during the pandemic. Businesses learned that many things could be done by video, and a lot of work could get done by remote employees. Several private equity firms have reported buying a complete business virtually, meaning never actually meeting, in person, the management team. How many times have you heard “can’t we do this by Zoom?”. It’s hard to imagine that businesses would be as comfortable with this if the pandemic did not happen.
What happened was that the pandemic forced the changes, and then pressure from investors pushed companies to get serious about their ESG targets. While there still may be plenty to do for the “S” and the “G”, the “E” can be addressed in large part by continuing protocols that have been in place for the last two years. This interia cannot be understated.
There are many reasons to believe that some portions of airline business travel are gone for good, and the emerging ESG targets for many companies will pressure this further. This is not the only reason that businesses will fly less, but it becomes one more reason to do the meeting by video or send a few rather than many.