8 Aerospace and Defense

This table shows a list of topics identified as relevant by different stakeholder groups. They can be considered as stakeholders suggestions or requests for topics to be monitored or disclosed by organizations. Additional information about the project can be found at https://www.globalreporting.org/reporting/sector-guidance/s- Research/Pages/default.aspx 8 Aerospace and Defense 16 s Manufacturers of civil or military aerospace, aircrafts and defense equipment, parts or products. Includes defense electronics and space equipment. Sustainability Environmental Emissions to air Landing and take-off (LTO) cycle Local air quality concerns concentrate on effects created during the landing and take-off (LTO) cycle as these emissions are released below 3,000 feet (915 metres) and releases from airport sources (such as airport traffic, ground service equipment, and de-icing). The contaminants emitted by aircraft and airport sources can affect human health and the environment. 280 Business Due to the increasing amount of residential development surrounding airports and the continued growth of commercial air travel, air pollution surrounding airports has become a significant concern Sustainability s for Sectors: What do stakeholders want to know? Page 1 of 13

Fuel consumption and alternative fuels Total CO 2, NO x, SO x, VOC emissions in million tonnes 153 Financial Markets & Information Users Emissions to air 1. Greenhouse Gases 2. Acid Rain, Eutrophication and Smog Precursors 3. Dust and Particles 4. Ozone Depleting Substances 5. Volatile Organic Compounds 6. Metal emissions to air Aircraft manufacturers also achieve lower fuel consumption by reducing the weight of aircraft, for example by using composites such as fibre glass and carbon fibres. Although still in its infancy, demand for alternative fuels is expected to grow in the coming years. Several manufacturers and airlines are already involved in programmes to develop and test alternative fuels. 109 Mediating 166 Mediating Jet kerosene prices have doubled since their low point in early 2009. With a share of 25% of total airline costs, the impact on airlines profits is substantial. Beginning January 1, 2012, all flights arriving or departing from EU airports, regardless of nationality or operator, will fall under the EU Emission Trading Scheme (ETS). As a result, airlines will have to pay for their CO2 emissions. The use of aircraft with lower emissions will be advantageous for airlines aiming to save costs. One of the key goals of the EU s recently published White Paper on Transport, Transport 2050, is to use 40% of sustainable low- Sustainability s for Sectors: What do stakeholders want to know? Page 2 of 13

carbon fuels in aviation by 2050. A report from the Aerospace Industries Association supports the assertion that biofuels may reduce the industry s exposure to oil price fluctuations and create environmental benefits. Three US Air Force fighter jets have made flights using a blend of biofuel and traditional jet fuel. In fact, the US Air Force is aiming to obtain half of its domestic jet fuel from alternative sources by 2016. Fuel efficiency of aircraft Flight distance and load Sector Report In the context of transport, fuel economy is the energy efficiency of a particular vehicle, and is given as a ratio of distance travelled per unit of fuel consumed. In aviation, fuel efficiency correlates directly to the distance an aircraft can fly, the amount of payload it can carry and, importantly, better environmental performance. Aviation efficiency can be achieved through aircraft design, engine design, reducing weight on the air craft, aircraft navigation etc... 8 Business Unlike ground vehicles, which don t need to be optimised for efficiency to the same extent as aircraft because they can refuel often, long-distance aircraft must carry all their fuel with them. Fuel is expensive, heavy and takes up a great deal of storage room. Its weight can limit the range of an aircraft and it needs to be stored in tanks which affect the wing size and the payload able to be carried. The Beginner s Guide explores how manufacturers are designing engines and aircraft to use less fuel, how the air traffic control system Sustainability s for Sectors: What do stakeholders want to know? Page 3 of 13

works and how governments and the industry are working together to make it more efficient and how airports are putting in place a number of energy reduction measures. Nuclear waste management Nuclear power reactor decommissioning Enviro.aero has been established by the commercial aviation industry body, the Air Transport Action (ATAG) Nuclear decommissioning refers to safe handling, at the end of life, of nuclear power reactors and nuclear facilities. As the first generations of such reactors reach the end of their original design lives and some countries review their nuclear power programmes, the number of reactors to be decommissioned in the next ten years is set to increase significantly. Each decommissioning presents particular technical challenges and risks to human health and the environment. The cost of decommissioning varies greatly, depending on the reactor type and size, its location, the proximity and availability of waste disposal facilities, the intended future use of the site, and the condition of both the reactor and the site at the time of decommissioning. It represents a substantial share of the cost of a nuclear power reactor s overall operations. The term decommissioning refers to safe management at the end of life of many different types of nuclear facilities and sites. Decommissioning is carried out at power stations, fuel processing facilities, research reactors, enrichment plants, nuclear and radiological laboratories, uranium mines and uranium processing plants. Reactors 530 Mediating Sustainability s for Sectors: What do stakeholders want to know? Page 4 of 13

that power submarines and ships (including ice breakers and aircraft carriers) must also be decommissioned. The biggest growth area for decommissioning is civilian nuclear power reactor which the peat accumulated. Radioactive waste disposal Social Labor conditions Consistent labor standards in all facilities Decommissioning typically generates two-thirds of all the very low, low, and intermediate level waste produced during a reactor s lifetime. As the number of nuclear power plants scheduled for decommissioning grows, countries need to be prepared to handle these levels of waste. The scale of the task ahead will require national and international regulation, extensive funding, innovative technology and large numbers of trained workers. One lesson that begins to emerge is that nuclear power plants should be designed from the start for safe and efficient decommissioning Decommissioning generates waste that can be categorized as low, intermediate and high level nuclear waste. Although the radioactive waste volumes are relatively small, high level waste contains 95 per cent of the radioactivity in waste from the nuclear power industry. It will need to be kept isolated for thousands of years Traditionally, aircraft manufacturers have had large labour forces with high wages and strong unions. However, intense competition is forcing many companies to cut costs and eventually relocate operations. These developments pose an increased risk for strikes against A&D companies. Due to the technologically sensitive nature of aerospace manufacturing, labour is generally 530 Mediating 166 Mediating Sustainability s for Sectors: What do stakeholders want to know? Page 5 of 13

shifted within the manufacturers country. However, some companies have begun transferring labour to emerging markets. This change also stems from the fact that the largest growth in the A&D industry is occurring in regions like China, India and the Middle East that will, in turn, try to transfer jobs and technology to their own economies. Aircraft manufacturers deal with strong unions that are large and well organized. Manufacturers face an increased risk of strikes due to planned relocation of operations. This causes unrest, which can result in new bargaining agreements and therefore higher labour costs for the companies involved. Historically, this sector has one of the least globalized workforces. This is changing as companies enter into joint-ventures in emerging markets or build manufacturing plants overseas. It is important that manufacturers apply the same labour standards throughout their facilities and implement monitoring systems. Controversial weapons Production and trade Sector Report As a result of these conventions and societal norms, a growing number of financial institutions are avoiding financial relationships with companies involved with these types of products. In run up to the Arms Trade Treaty, defense companies will increasingly be required to have proper policies and transparent reporting on their arms sales. 166 Mediating Sustainability s for Sectors: What do stakeholders want to know? Page 6 of 13

The A&D sector is the only industry that falls under the scope of international conventions prohibiting the development, production and trade of certain products, for example cluster munitions. Sustainalytics research indicates that approximately 60 listed companies are involved in so-called controversial weapons. Based on international conventions and ethical norms, the following weapons tend to be considered controversial: anti-personnel landmines, biological and chemical weapons, cluster weapons, depleted uranium, nuclear weapons and white phosphorus. In addition to the controversial weapons conventions already in place, governments are currently negotiating an additional Arms Trade Treaty expected to take effect in 2012. This treaty will cover the trade of conventional arms with controversial end-users Product innovation Emissions, energy consumption, efficiency and costs Sector Report In the commercial airline space, the convergence of economic and regulatory incentives has strengthened the link between environmental and economic performance. As a result, there has been a sustained push for products and technologies that lead to lower emissions and energy consumption, higher overall efficiency and lower operating and maintenance costs. This trend is likely to persist regardless of future macroeconomic developments, providing an incentive for continued innovation. 460 Financial Markets & Information Users Sustainability s for Sectors: What do stakeholders want to know? Page 7 of 13

Safety and reliability of aircraft Quality control in the supply chain In order to spread the risk burden of product qualityrelated claims, manufacturers increasingly transfer product quality risks to their suppliers. All major aircraft and engine manufacturers have faced severe product quality issues. These issues relate to insufficient safety management, supply chain management and challenges with new technologies. 166 Mediating Ensuring the safety and reliability of aircraft is of great importance to the airline industry. Human tragedies, huge financial claims and loss of reputation and business are all at stake. In light of these consequences, the industry takes product quality management extremely seriously. Through outsourcing manufacturers try to share the costs and the burden of product related risks. However, outsourcing creates extra risks in managing the production process and maintaining quality standards. Corruption Illicit arms transfers Sector Report an examination of the risk that arms are transferred in a process which risks being undermined by corruption at any stage 511 Civil Society Organization The arms trade particularly susceptible to the risk of corruption as a vehicle for illegal and undesirable arms transfers. Illicit arms transfers have negative consequences for international humanitarian law, human rights, and sustainable development as well as for efforts to combat violent organised crime and terrorism. Sustainability s for Sectors: What do stakeholders want to know? Page 8 of 13

Corruption, lobbying, conflicts of interest, proprietary information Political, procurement, personnel, financial and operational Related to Political, Procurement, Personnel, Financial and Operational risks From Global Principles: zero tolerance to corruption, use of advisors, managing conflicts of interest, respect for proprietary information The Aerospace & Defence sector is often seen as prone to bribery and corruption. This largely relates to the intense competition, high financial stakes and secrecy surrounding military procurement. Defence companies depend on governments in two ways: through procurement and export licenses. As a result, intensive lobbying is an almost integral feature of procurement in this industry. Transparency International (TI) describes the defence sector as one of the most secretive, and one in which it is difficult to openly discuss corruption issues. An initiative to combat bribery and corruption comes from two main industry bodies. The Aerospace Industries Association of America (AIA) and Aerospace and Defence Industries Association of Europe (ASD) have jointly developed the Global Principles of Business Ethics for the Aerospace and Defense Industry. These principles provide guidance to the sector on issues that may impact ethical business conduct. 446 Civil Society Organization 6, 166 Mediating Sector Report Sustainability s for Sectors: What do stakeholders want to know? Page 9 of 13

Other Business strategy Confidentiality approach Political accountability Ethical business conduct Nuclear weapons - Nuclear materials, technology and information On the weaponry and defense side of the business, the current geopolitical situation has led to an increase in both traditional and new security challenges that call for more flexible and intelligent technologies as well as solutions providing for better integration of systems and resources. Given the increasing focus on reputational and LTO (license to operate) issues, companies exposed to the industry s civilian and defense segments need to pay extra attention to local and international regulatory and ethical issues. Controlling who may or may not have access to nuclear materials, technology and information clearly has a key role to play in controlling the proliferation of nuclear weapons. There are various measures of political accountability that can be measured (contributions, disclosure, board oversight). Note that this topic is applicable to more than the three industries noted. Essentially the political accountability practices of any company that is owned by public stockholders. Political contributions, the amount of disclosure and board oversight are among the data items that would be helpful in a sustainability report. 460 Financial Markets & Information Users 219 Civil Society Organization 394, 616 Financial Markets & Information Users In making investment decisions (especially for investors interested in socially responsible investing) is would be helpful to understand how a given company is exposed to political risk (i.e. are they backing the winning Sustainability s for Sectors: What do stakeholders want to know? Page 10 of 13

candidate, are they subject to potential retribution, why do they find it necessary to make political contributions, etc.). I have found the information I reference to be helpful in constructing investment portfolios that take into account this attribute of sustainability. Since it is not currently an established parameter in the socially responsible investment industry (www.ussif.org), adoption by the Global Reporting Initiative would go a long way in moving the topic of political accountability forward. 1 All references can be found at https://www.globalreporting.org/reporting/sector-guidance/s-research/pages/default.aspx Sustainability s for Sectors: What do stakeholders want to know? Page 11 of 13

References All references can be found at https://www.globalreporting.org/reporting/sector-guidance/s-research/pages/default.aspx 6 Aerospace Industries Association (AIA) & Aerospace and Defence Industries Association of Europe (ASD), Global Principles of Business Ethics for the Aerospace and Defence Industry. [Online] Available at: http://www.asd-europe.org/fileadmin/user_upload/client_documents/attachments/ethics_global_principles.pdf, [Accessed 25 February 2013]. 8 Air Transport Action (ATAG), Beginners Guide to Aviation Efficiency, 2010. 109 153 166 Department for Environment, Food & Rural Affairs (DEFRA), Environmental Key Performance Indicators: Reporting Guidelines for UK Businesses, 2006. European Federation of Financial Analysts Societies (EFFAS) and Society of Investment Professionals in Germany (DVFA), 2010. KPIs for ESG - A Guideline for the Integration of ESG into Financial Analysis and Corporate Valuation, Frankfurt am Main: EFFAS. European Social Investment Forum (Eurosif) & Sustainalytics, 2011. Aerospace & Defence 13th in a series. [Online] Available at: http://www.eurosif.org/images/stories/pdf/research/eurosif_aerospace-defence_2011_web.pdf [Accessed 25 February 2013]. 219 Greenpeace International, 2004. Proliferation control no excuse to avoid disarmament, Amsterdam: Greenpeace International. 280 International Civil Aviation Organization (ICAO), 2011. Airport Air Quality Manual, Montréal: International Civil Aviation Organization (ICAO). 394 Nowak, T., 2012. Low Fee Socially Responsible Investing. 1st ed. Grayslake: Quantum Financial Planning LLC. 446 Pyman, M. (2011). Building Integrity and Countering Corruption in Defence & Security: 20 Practical Reforms, London: Transparency International UK Defence and Security Programme. 460 Robeco SAM, 2012. The Sustainability Yearbook 2012, Zurich: Robeco SAM. 511 Transparency International, 2011. Strategic Export Controls, London: UK Parliament. Sustainability s for Sectors: What do stakeholders want to know? Page 12 of 13

530 616 United Nations Environment Programme (UNEP), 2012. UNEP Year Book 2012, Emerging Issues in our Global Environment, Nairobi: UNEP Division of Early Warning and Assessment, United Nations Environment Programme. Zicklin Center for Business Ethics at the Wharton School of the University of Pennsylvania, 2012. CPA-Zicklin Index of Corporate Political Accountability and Disclosure, Washington, D.C.: Center for Political Accountability. Sustainability s for Sectors: What do stakeholders want to know? Page 13 of 13