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Abstract

The purpose of this paper is to determine the overall quality of environmental disclosure

provided by the airline sector and asses factors that could be of influence to the quality of that

reporting. Previous literature strongly recommends an evaluation and comparison of CSR

initiatives in the environmental dimension among airlines (Gebel 2004, Hooper & Greenall

2005, Lynes & Dredge 2006). The study reported herein uses content analysis to establish

observations on Corporate Social Responsibility (CSR) information provided by the lead-edge

airlines. A cross-continental analysis will be performed to identify differences among

continents. Using data from sustainability reports, the environmental commitment of airlines

from all over the world is examined and examples reports are given. Specific environmentally

related CSR initiatives implemented in the airline industry are identified and their level of

adoption is examined. This study is designed to allow for an evaluation and comparison of the

state of environmentally related CSR and the reporting thereof among different airlines and

continents. The empirical analysis suggests that the airline companies recognize the increasing

importance of sustainability in their communication with the stakeholders. Great differences

were found in the reporting of the companies’ commitment to sustainability. Possible reasons

for this include the voluntary nature of reporting, variation in legislation, the differences in

required information by stakeholders and the degree of performance of sustainability. A factors

found relevant in determining the quality of reporting is the use of the framework proposed by

the Global Reporting Initiative.

Keywords: Corporate social responsibility, environmental disclosure, aviation, Global

Reporting Initiative, third-party assurance, CSR disclosure requirements, integrated

reporting.

2

Table of Contents

Chapter 1: Research Intention.....................................................................................................................5

1.1 Introduction.......................................................................................................................................5

1.2 Aviation and the Environment...........................................................................................................6

1.3 Outline of the thesis..........................................................................................................................8

1.4 Aim of the thesis................................................................................................................................9

Chapter 2: Theoretical Elaboration............................................................................................................10

2.1 Defining Corporate Social Responsibility.........................................................................................10

2.1.1 Economic sustainability............................................................................................................10

2.1.2 Social responsibility..................................................................................................................11

2.1.3 Environmental protection.........................................................................................................11

2.2 Motivations for CSR.........................................................................................................................11

2.3 Communicating CSR.........................................................................................................................15

2.3.1 Media for reporting CSR...........................................................................................................15

2.3.2 A sustainability reporting framework.......................................................................................17

2.3.3 Global CSR Disclosure Requirements........................................................................................20

2.3.4 External Verification.................................................................................................................23

2.4 CSR reporting and the airline industry.............................................................................................24

2.5 Environmental initiatives in the airline industry..............................................................................26

Chapter 3: Research Methodology............................................................................................................30

3.1 Hypotheses......................................................................................................................................30

3.2 Sample.............................................................................................................................................32

3.3 Methodology...................................................................................................................................33

Chapter 4: Results.....................................................................................................................................36

4.1 Reflection on sample.......................................................................................................................36

4.2 Descriptive statistics........................................................................................................................39

3

Chapter 5: Conclusion...............................................................................................................................47

5.1 Conclusions......................................................................................................................................47

5.2 Limitations.......................................................................................................................................49

5.3 Suggestions for further research.....................................................................................................50

References.................................................................................................................................................51

Appendix 1: Sample...................................................................................................................................57

Appendix 2: The Scorecard........................................................................................................................59

Appendix 3: Scores per airline...................................................................................................................63

4

Chapter 1: Research Intention1.1 Introduction

During the last two decades, concerns about the sustainability and social responsibility of

businesses have become a high profile issue in many countries and industries (Campbell 2007).

Increased pressure from consumers and investors, sharpened legislation, environmental

education and the uptake of eco-labels have led to growing demand for transparency about

corporate behavior on a range of issues (Kolk 2008). Especially intergovernmental bodies,

Non-Government Organizations (NGO’s) and the general public encourage firms to behave

socially responsible (Moreno and Capriotti 2009). This caused the paradigm to shift away from

valuing profit maximization as the most important objective of business, towards incorporating

Corporate Social Responsibility (CSR) practices into all operations. As a result, CSR has

become a subject of much interest within the academic world (KPMG 2005).

Companies generally present information on their sustainability effort and performance via

their website, news releases or CSR disclosures (Campbell and Sayer 2004). CSR disclosure

(sometimes also labeled ‘triple bottom line accounting’ or ‘People, Planet, Profit’) can be

defined as the information a company discloses about its environmental impact and the

relationship with its stakeholders, by means of relevant communication channels. The growing

CSR awareness is reflected in the increasing number of CSR disclosures (Kolk 2005).

Lyon and Maxwell (2006, 2007) find that firms with poor reputations disclose extensively,

while firms with excellent reputation disclose nothing, as they gain little by disclosing

successes since they are already expected to succeed. Accordingly, the focus of much of the

empirical research on environmental motivations lies with the ‘heavy’ industries sectors such as

the chemical, and transport sectors. Pressures from different stakeholder groups are reflected in

CSR disclosure: firms in consumer sectors may be closely monitored by consumer groups.

Hence, they will report more on social issues. Firms in polluting industries tend to have

relatively high levels of environmental disclosure, following that they are often being

monitored by environmental groups. Accordingly, polluting firms proactively disclose much

5

information on their environmental performance to reduce the possible political costs arising

from their despised activities (Deegan and Gordon 1996, Meek et al. 1995).

1.2 Aviation and the EnvironmentThe focus within this thesis lies upon the airline industry. The continuous growth of the

aviation industry, the global importance of the industry’s operations and its environmental

impact1 makes it a good sector to study in terms of environmental disclosure. Plus, the airline

industry holds an interesting juxtaposition: although the industry is part of the service sector, it

possesses various characteristics that are similar to the aforementioned ‘heavy’ industries:

intense regulation, high capital costs and a tendency towards oligopolies.

The public has criticized community noise exposure and the degraded air quality around

airports since the industry’s beginnings. More recently, however, attention shifted toward

limiting the effect of aviation on the global climate (Dallara 2011). The industry is greatly

contributing to the greenhouse effect and is considered one of the causes of global warming. In

particular, the atmospheric carbon dioxide levels are ever-increasing. Carbon dioxide is one of

several greenhouse gasses (GHGs), and causes harm to the environment. A small but growing

portion of global climate change is attributed to the aviation industry. Aviation induces climate

change results not only by emitting carbon dioxide, but also from emissions of nitrogen oxides

and water vapor. From calculations by the European Commission, it appears that the airline

industry is currently the fastest growing polluter in terms of greenhouse gasses. Trends of

global emissions of greenhouse gases from air traffic show a substantial autonomous growth.

Recognizing the sector’s contribution to environmental impact, and given the projected growth,

it is not surprising that aviation industries are at the forefront of the debate concerning

sustainability. Interest in the scope and effectiveness of airlines’ effort to control and lessen the

negative environmental and social impact of their business is growing globally (Kolk, 2008).

Subsequently, the airline industry is increasingly being encouraged to contribute to sustainable

development and document performance through the disclosure of social and environmental

information. The aviation alliances OneWorld, Skyteam and Star Alliance all drafted a

Corporate Social Responsibility Statement, setting out the commitments of all alliance-

members. Despite the increasing pressure, the airline industry was relatively slow at adopting

sustainability reporting. Research by Cowper-Smith and Grosbois (2011) showed that only 14

1 The technical aspects of the environmental impact of aviation is outside the scope of this paper.

6

out of 41 researched airlines produced corporate sustainability reports as of January 2009.

However, a more recent analysis by PricewaterhouseCoopers (2011) found that 30 out of a

sample of 46 airlines produced sustainability reports as of August 2011. In this sample, 61 out

of 73 reported on environmental issues as of September 2012. Airlines are clearly taking notice

and working to improve their corporate sustainability reporting.

The overall airline industry has ambitious goals to reduce emissions. The International Air

Transport Association (IATA)2 documented the plans in a report: ‘A global approach to

reducing aviation emissions – First stop: carbon neutral growth from 2020.’ Efforts include

commitments to put a maximum level on aviation CO2 emissions by the year 2020 through

improving fuel efficiency with an average of 1.5% annually, starting as of 2009.

Recently, the EU has extended the European Union Emissions Trading Scheme (EU ETS) to

the airline industry. The EU ETS, launched in 2005, is aimed at combating climate change and

was the first large emissions trading scheme in the world. After the energy industry, air

transport is now the largest sector included in the EU-ETS. As of January 1st 2012, airlines

receive tradable allowances covering a certain level of CO2 emissions from their flights per

year. The EU charges airlines flying in and out of Europe for their carbon dioxide emissions.

Any airline that does not comply faces a fine, and the EU has the right to ban persistent

offender airlines from its airports. Although the carbon-tax scheme came into force January

2012, fees do not have to be paid until March 2013. Nonetheless, these rules have drawn

protest from airlines around the world. At the end of 2011, the council of the International Civil

Aviation Organization (ICAO) demanded, without result, that the EU respect the principles

applied in civil aviation and refrain from applying EU law outside of its territory and to non-

European airlines respectively3. Another attempt to overturn the scheme, by the US, was also

rejected by the European Court of Justice stating that “the extension of the EU ETS to aviation

does not infringe the principle of territoriality of third countries.4” Intense resistance against

the European solo effort has developed in the meantime. Led by the US and China, 26 nations

are now protesting the EU's airline carbon tax. The Chinese aviation authority has banned its

countries’ airlines from paying the new European Union carbon charge. The Civil Aviation

2 The IATA is an international industry trade group representing 240 airlines.3 Source: Balance, Lufthansa Sustainability Report 20114 Source: European Commission website

7

Administration of China (CAAC) stated that airlines were not allowed to pay the EU charge,

increase freight costs or add other fees5.

In large part due to growing public concern about CSR and global warming, corporate

sustainability principles are becoming increasingly important. There is a need for airlines to

disclose information on their environmental performance. This thesis tests to see if the

increased importance of sustainability principles results in a higher quantity and higher quality

of reporting of sustainability performance. It is expect that the quantity is reflected by the

increasing amount of airlines actively reporting on their environmental actions and results. The

quality is represented by an increase in the solidity and comparability of environmental

disclosures.

Despite being a ‘hot topic’, there is currently little research on CSR practices and the reporting

thereof in the airline industry, and the current state of CSR in the industry is therefore largely

unknown. The literature strongly recommends an evaluation and comparison of CSR initiatives

in the environmental dimension among airlines (Gebel 2004, Hooper & Greenall 2005, Lynes

& Dredge 2006). The pivotal role of airlines in the environmental debate provides justification

for evaluating the quality of their environmental reports.

1.3 Outline of the thesis

This chapter elaborates on the concept of sustainability. The first part introduced CSR and the

second part focused on the environmental impact of aviation and the role CSR plays. Moreover,

the disposition and aim of the paper are discussed explicitly in this part.

As the discussion on CSR requires theoretical elaboration on the rationale of it, chapter 2 is

dedicated to previous literature. Literature on CSR, environmental disclosures and the

environmental impact of aviation is discussed. Also elaborated on are the format of reports, the

use of GRI guidelines, the possible influence of (local) regulation and alliance-membership. To

conclude, auditor involvement in assessing the reliability of sustainability reporting is

addressed.

The third chapter describes the chosen objects of analysis and the methodology. An analysis of

73 airline companies is presented to show the nature and content of environmental disclosure in

5 Source: Guardian, Tania Branigan, 6 February 2012.

8

general, and to compare and contrast companies’ progress in reporting on the sustainability of

their operations. Moreover, there is a review on the different media that was used by the airline

companies to communicate information on CSR.

The results in chapter 4 will present an indication of the current world-wide situation – the

status quo – with regard to aviation and CSR disclosure. The evidence gathered from airlines’

sustainability reports will used to elaborate on the transparency efforts. Moreover, potential

influences on quality by GRI, auditor involvement, legislation and alliance-membership are

discussed.

The final section of this research paper draws conclusions about the current state of

sustainability reporting in the airline industry, and will reflect upon possibilities and limitations

within this field of research.

1.4 Aim of the thesisThis paper is aimed at answering the following research question: what is the overall quality of

environmentally-related disclosures in the airline industry, and how do different continents

compare? The objective of the research is to qualitatively evaluate the level of environmental

CSR disclosure within the airline industry across the continents. This is done by assessing the

environmental reporting quality – defined as the extent to which the reports of the sampled

airlines reflect the principles of the GRI standards and the environmental initiatives proposed

by IATA to reduce air transport's carbon footprint. Within this study, a framework is created in

order to allow for measurement and comparison. Another objective is to consider the impact, if

any, of the use of GRI, third-party verification, legislation and alliance-membership on the

quality of environmental reports.

The airline sector has one of the largest groups of stakeholders of any sector, and airlines need

to be responsive to all of them (PwC 2011). Finding answers to the question will help all

stakeholders – including communities, governments and standard setters – gain an insight into

how airlines are committed to our environment, and how solid reporting helps companies to

efficiently manage the world’s resources.

9

Chapter 2: Theoretical Elaboration

A discussion on Corporate Social Responsibility (CSR) requires an extensive theoretical

elaboration. This chapter covers the theory to provide the airline industry with a basis to engage

in environmentally responsible actions and provides an overview of techniques made available

to the industry to fulfill this responsibility.

2.1 Defining Corporate Social Responsibility Many scholars have proposed definitions for CSR (Rahman 2011). Yet, there is no universal

definition for CSR, making the development of theory difficult. Approaches include “the

obligation toward society assumed by business” (Bateman and Snell 2004). Or “a manager’s

duty or obligation to make decisions that nurture, protect, enhance and promote the welfare and

well-being of stakeholders and society as a whole” (Jones et al 2000).

The stakeholder model has become central to the CSR paradigm (Jones, 1995). Corporate

social responsibility focuses on corporate governance as a vehicle for incorporating social and

environmental responsibilities into the business decision-making process, benefiting not only

financial investors, but also employees, consumers, and communities (Gill, 2008). Generally,

corporate action on CSR concerns activities that go beyond legal obligations and beyond the

objective of profitability. We classify three types of sustainability, being social responsibility,

environmental protection or economic sustainability.

2.1.1 Economic sustainabilityReaders of sustainability reports often desire to know how the company contributes to the

sustainability of the economic systems in which they operate. An organization may be

financially viable, but this may have been achieved by creating significant externalities that

impact other stakeholders. Economic Performance Indicators are intended to measure the

economic outcomes of an organization’s activities and the effect of these outcomes on a broad

range of stakeholders6.

2.1.2 Social responsibility

6 Source: www.globalreporting.org

10

Social responsibility represents recognizing the needs of everyone, not just the shareholders. In

this category, social impacts associated with the various stakeholder-groups are addressed. It

involves all the company’s interaction and communication with stakeholders, including

customers, the employees, the local community and the society at large on issues like human

rights, employee welfare and product responsibility.

2.1.3 Environmental protection

This thesis is focused on the environmental pillar, which is aimed at achieving a higher

environmental performance. It concerns the effective protection of the environment and an

efficient use of natural resources. Environmental indicators reflect inputs (materials, energy,

water), outputs (waste, effluents, emissions) and the mode of impact an organization has on its

environment7. Organizational energy use can be split into direct and indirect energy. Direct

energy is energy that was consumed by the company’s operations, indirect energy is the energy

used by those who serve the company. Measuring energy use is relevant because the burning of

fossil fuels, to generate energy, causes the emission of greenhouse gasses. Emission indicators

measure standard releases of polluting gasses into the atmosphere.

2.2 Motivations for CSR

There are numerous theories to explain the incorporation of CSR into the management

equation. Reasons for environmental reporting were rarely explicitly explained in the reports

studied. In this paragraph, theories most relevant for understanding the incentive to manage and

report on environmental performance are discussed.

R. Edward Freeman (1984) was the first to introduce stakeholder theory, identifying

stakeholders of a firm and describing the importance of giving due regard to the interests of this

group. Freeman defined a stakeholder as “any group or individual who can affect or is affected

by the achievement of the organization’s objectives”. In his book, titled Strategic Management:

A Stakeholder Approach, he states that a ‘stakeholder approach emphasizes active

management of the business environment, relationships and the promotion of shared interests

to ensure the long-term success of the firm’. A modern organization has been entrusted with an

7 Source: www.globalreporting.org

11

extensive amount of economic and human resources, and therefore has the power to affect

many more people than the participants in the firm’s operations or transactions. Firms are to

incorporate the needs and values of all stakeholders within their strategic and day-to-day

decision-making process. CSR has also been defined “a complex web of interaction between an

organization and its stakeholders” (Sjöberg, 2003, p192). Groups and individuals that are

considered stakeholders by Friedman (2006) include employees, NGO’s, local communities

and future generations. The relationship between a company and its stakeholders entails

information asymmetry. Pressure arises for firms to communicate information relevant to the

different stakeholders. The way organizations interact and communicate with their stakeholders

is a key feature in the concept of CSR and environmental reporting. Stakeholder theory

therefore provides an accepted explanation to the voluntary corporate disclosures phenomenon.

In short, the stakeholder theory identifies the dynamic and complex relationship between firms

and their environment; providing a justification for incorporating strategic decision making into

the field of corporate social responsibility (Adenibi 2005).

Donaldson (1990) proposes stewardship theory and asserts that there is a moral imperative for

managers to be a good steward of the corporate assets and essentially ‘do the right thing’. This

theory describes an implicit corporate social contract between business and society, whereby

organizations agree to be a good steward of the society’s resources . Many of the organizations

studied for this paper emphasized in their CSR-reports how involved they were with our planet

and how they wish to contribute to conserving it. Air France-KLM states in the 2011

sustainability report: “we consider our responsibility to contribute to efforts to reduce CO2

emissions (p31).” Or as Aeroflot’s report writes: “We acknowledge our responsibility to

society and future generations for preservation of the natural environment (p34).”

Siegel and Javidan (2005) found that aspects of leadership are positively related to the

engagement of CSR by firms. Strategic leadership theory indicates that firms use the concept of

sustainability strategically. Corporations monitor the sustainability of their business not only

because it is the right thing to do, but also because they believe that it is in their best (financial)

interest to do so. As Lantos (2001) states, strategic CSR is exhibited when a firm undertakes

certain „caring corporate community service activities that accomplish strategic business goals

(p3).” Many economists have investigated the relationship between CSR and profitability.

12

Gamerschlag et al (2010) discovered that higher profitability is associated with more

environmental disclosures. For one, this may be caused by a positive external effect of CSR on

the organization’s reputation. According to the reputation perspective, perceptions of firms’

concern for the wider society may influence judgments of the public, with social

responsiveness signaling that firms have a achieved relationships with potentially powerful

groups in their environments. Thus, an organization’s communication with external parties

about its CSR policy and performance may generate goodwill with employees, consumers and

investors (Fombrun and Shanley 1990). Many airlines promote their environmental awareness

in order to attract more customers. Since caring for the environment is becoming more

important to passengers too, making them aware of corporate sustainability can help win their

loyalty and give ‘greener’ airlines a competitive edge (PwC 2011). According to a research

conducted by the Carbon Disclosure Project (2010), corporate travel sustainability management

is taking off. Nearly four in ten Global 500 companies publicly reported carbon emissions from

employee travel in 2010, a figure growing at about 10% annually. Air travel is the leading

category for travel sustainability management: flights account for the lion’s share of

companies’ travel carbon footprints and travel expenses. An increasing number of firms is

measuring, reporting and managing their emissions from business travel. Firms selecting flights

based on lower environmental impact, and not just on price and convenience, creates

opportunities for airline operators. Aircraft operators that can succeed in meeting fuel economy

demands of the coming decade stand to gain enormous competitive advantages (Brighter Planet

2011). Air Berlin is one of the airlines in this sample to recognize the opportunities that lie

ahead, as their 2011 annual report reads: “The environmentally-aware and sustainability-

conscious customer segment is growing strongly. Meeting the needs of these discerning

customers, particularly families and business travelers, brings with it high growth potential

because preserving the environment is a value added to which our customers attach great

importance (p68).”

The resource-based view theory, proposed by Barney (1991) and closely linked to strategic

leadership theory, explains that when companies engage in CSR strategically, they can yield a

sustainable competitive advantage. In this light, effectively dealing with increasing scarcity or

price of natural resources can result in efficiency gains. Purchasing ‘environmentally-friendly’

aircraft engines is a good example, as these engines are more fuel-efficient and thus allow

13

airlines to maintain lower costs. Since the biggest single expense for any airline is fuel cost,

with the least opportunity to mitigate movement in price8, it is beneficial to reduce fuel

consumption wherever possible. Airlines are therefore heavily incentivized to minimize its use.

Russo and Fouts (1997) tested the resource-based view theory empirically and discovered that

companies with a higher level of environmental performance perform financially better. That

conclusion, ‘it pays to be green’, is consistent with a resource-based perspective.

Slack resources theory also proposes a positive relation between corporate social performance

(CSP) – often used as a synonym for CSR - and corporate financial performance (CFP).

However, it follows a temporal reasoning that different from the resource-based view theory. It

proposes that CFP comes first, and is followed by CSP. Good financial performance (i.e. high

CFP) creates slack resources that are necessary to engage in corporate social responsibility (i.e.

higher CSP) (Waddock and Graves 1997).

Political cost theory proposes that managers are concerned with political considerations,

including preventing explicit or implicit taxes, or other regulatory actions (Healy and Palepu

2001). An overview of regulations currently in place will be presented later in this chapter. In

addition to politicians, NGO’s and other stakeholder groups increasingly force companies to act

in favor of their specific interests. By disclosing information on their environmental

performance, companies attempt to minimize the (potential) political or societal costs.

In conclusion, various theories are in use to explain the incorporation of CSR into the

management equation. Throughout this paper, light will be shed on sustainability issues

utilizing the different theoretical lenses proposed by previous research. From the theory, so far,

one could conclude that companies would profit from recognizing green issues not as

compliance but as new growth engine.

2.3 Communicating CSR

Any initiative undertaken by corporations to gain legitimacy and the confidence of the public

through responsible corporate behavior must be accompanied by a capacity to communicate

with – and respond to the demands of – stakeholders (Moreno and Capriotti 2009). Companies 8 Source: South African Airlines, annual report 2011

14

can realize numerous benefits by measuring and reporting corporate social performance.

Accurate measurement and solid reporting enables organizations to better evaluate their risks

and opportunities, identify cost savings, and manage resource use.

2.3.1 Media for reporting CSR

Sustainability disclosure enables companies and organizations to communicate sustainability

information in a way that is similar to financial reporting (Gamerschlag et al 2010). Credible

reporting is foundational in sustainability engagement and relates more closely to sound and

globally accepted accounting practices than most people realize9. Taking a look at the

Corporate Value Chain (Scope 3) Accounting and Reporting Standard of the Greenhouse Gas

Protocol10 reads that the “GHG accounting and reporting of emission inventory shall be based

on the following principles: relevance, completeness, consistency, transparency, and

accuracy”11. These principles are directly related to the principles of financial accounting.

Moreover, the reporting guidelines provided by the Global Reporting Initiative (GRI) were

developed hand in hand with investor groups that were looking for consistency of data similar

to that of financial reporting.

CSR disclosure covers the economic, environmental and corporate social performance of the

organization. It explains the company’s policy on sustainability issues, describes the problems

it encounters and presents CSR performance. Systematic sustainability reporting gives

comparable data, with agreed disclosures and metrics12. This thesis is concentrated on

disclosures in the environmental dimension. Environmental disclosure covers topics such as

resource use and environmental performance. In conclusion, CSR disclosure relates to the

voluntary and mandatory provision of information on issues that are important to a wide range

of a company’s stakeholders.

For stakeholder communication to be successful, environmental information must reach the

right audience. There are different media available to communicate information on CSR. One

way for companies to report on CSR is to dedicate a section to CSR in the annual report (15%

9 Source: UPS, sustainability report 201110 The Greenhouse Gas Protocol is the leading international carbon accounting standard setter.11 Source: ‘Corporate Value Chain (Scope 3) Accounting and Reporting Standard’. Greenhouse Gas Protocol12 Source: www.globalreporting.org

15

in this sample). It is more common, however, that companies provide stand-alone CSR or

sustainability reports to communicate their corporate social performance, in addition to the

annual reports. In the study performed by PwC (2011), publishing separate CSR reports were

by far the most popular method to communicate on sustainability topics. In this sample, nearly

40% of the airlines published a separate sustainability report.

Sustainability reports have been subject to criticism, especially when made in isolation from

records of financial performance. The preferred method is seen to be the combination of these

two reporting methods in an integrated report. Integrated reporting is a recent development that

combines the analysis of financial and non-financial performance in one report - which is to

demonstrate the connectivity between both financial and non-financial reporting. As some

argue that integrated reporting is ‘the language for sustainable business’, others resist the idea

of ‘soft’ CSR concepts being as material as ‘hard’ metrics. In practice, integrated reports vary

little from annual reports with a CSR-section. In our sample, only 4 airlines choose to integrate

CSR-related aspects in their annual report, as opposed to publishing a separate CSR-report. A

clearly defined relationship between components of reporting and recognition of the priorities

of different stakeholder groups is absent in 3 out of 4 integrated reports in this sample. While it

is critical that the various components in the integrated report are tightly connected and related

to each other, this may be difficult to achieve. Across the world, efforts are currently under way

to develop an internationally accepted framework for integrated reporting (ACCA 2012).

Although still in its infancy, integrated reporting became a mandatory listing requirement in

South Africa.

Instead of publishing complete reports, companies may also choose to provide information on

CSR-related issues on their website. In this sample, 26% communicated information on their

sustainability performance via their website, without publishing a separate. The airlines did so

by creating a ‘sustainability tab’ on their website, posting updates on social and environmental

information periodically. The world wide web has become an essential instrument for the

communication of CSR issues (Moreno & Capriotti 2009). Among the 73 airlines investigated,

well over 80% have a specific sustainability section on their corporate website.

While former studies have often focused on either annual reports (Cormier and Gordon 2001)

or on specific sustainability reports (PwC 2011), we focus on all the relevant communication

channels for CSR disclosure into account. As the web is increasingly being used to

16

communicate information on CSR, all kinds of reports provided proactively on the companies’

website are included in this research. Not included are other sources of information such as

press releases, leaflets, advertisements or corporate videos.

In conclusion, the purpose of CSR reporting, and by extension environmental reporting, is for

firms to enhance transparency. In order to demonstrate credibility and successfully satisfy the

information needs of the different stakeholder groups, disclosures must be of good quality. The

contents of environmental reports should be reliable, relevant and comparable.

2.3.2 A sustainability reporting framework

CSR and sustainability reporting are fairly new concepts. Sustainability accounting is still in

early development and companies have to look outside of their accounting and management

protocols to find guidance. In traditional financial accounting, there are strict rules and

standards and compliance to the legislation is verified by external auditors. In voluntary

disclosure, however, there is little legislation on how and what to disclose. The creation of

sustainability reporting frameworks has provided some guidance to how organizations can

disclose relevant and comprehensive information on their sustainability performance.

Especially the use of performance indicators to measure environmental performance is seen as

adding significant value in reporting practice: “Apart from displaying to stakeholders that the

organization is taking seriously its environmental and social responsibilities, indicators are a

central part of effective environmental management as they allow the tracking of improvements

and thus assist in setting future priorities (Hooper and Lever 2002)”. However, the proliferation

of CSR issues has led to the creation of organizations and agencies that manage several

different indexes and rating systems without any unity of criteria (Márquez and Fombrum,

2005). As a results, corporate environmental information is difficult to use for external

evaluation and benchmarking. Factors thwarting comparison of data are differences in

definitions, measure problems and the provision of information that is hard to verify. Existing

reporting frameworks that attempt to address these issues and provide sustainability reporting

guidance include AccountAbility’s AA1000, the Accounting for Sustainability project or ISO

26001 (International Standard for social responsibility). Most frequently used are the G3

guidelines of The Global Reporting Initiative (GRI). The GRI is a Dutch multi-stakeholder

organization that promotes economic, environmental and social sustainability. It pioneered the

17

world’s most commonly used sustainability reporting framework. The GRI defined

internationally applicable and accepted guidelines - comparable to the IASB for the financial

reporting. Core element of their approach is the ‘multi-stakeholder engagement process’.

G3, a comprehensive framework, sets out the principles and appropriate performance indicators

that organizations should use to measure and report their economic, environmental, and social

performance13. The GRI guidelines provide indicators for all three CSR perspectives: core

indicators and additional indicators. Core indicators are of interest to most stakeholders, and are

therefore relevant for most companies. Additional indicators are only of interest to some

stakeholders and companies (GRI 2010). Because of the voluntary nature of the guidelines,

organizations have the flexibility to decide what information to disclose, and what not to

disclose.

The cornerstone of the Framework are the Sustainability Reporting Guidelines. The latest

version of the guidelines – known as the G3 Guidelines - was published in 2006. GRI

guidelines contain the results of an on-going international discussion in which many different

target groups are involved, including experts, NGO’s, consultants, auditing companies and

associations. The diversity in parties involved in the development of the guidelines is key in the

creation of a support base for the proposed guidelines. Although GRI is not free from

criticism14, it is regarded the most relevant institution in the context of CSR disclosure (Moneva

et al. 2006). The majority of the airlines (60%) in the PwC-sample that published an annual

corporate sustainability report used the GRI G3 guidelines as a basis. This number increased to

63% in our sample. A first draft of the fourth generation of GRI’s Guidelines –G4 – is currently

available for public comment. It should improve on content in the current G3 Guidelines with

strengthened technical definitions and improved clarity. G4’s final draft will be influenced by

the results of this international public consultation. The GRI-website reads that the final draft

will be ready for approval by GRI’s governance bodies in December 2012, before the planned

launch in May 2013.

To indicate that a report is GRI-based, report makers must declare themselves the level to

which they have applied the GRI Reporting Framework via the system of ‘Application

13 Source: www.globalreporting.org14 For more information on this subject, read “GRI and the camouflaging of corporate unsustainability” by Moneva, Archel and Correa (2006).

18

Levels’(see figure). Application Levels communicate what disclosures prescribed by the G3

Guidelines have and have not been made, and thus reflect the degree of transparency of a

company’s report. A declaration of Application Level highlights which set and how many

disclosures have been covered in the report. The levels are titled A, B or C with level A ranked

most extensive. Companies can have their the self-declared level checked by the GRI. A plus

(+) is added whenever the report is externally verified (see figure 1).

The GRI emphasizes on their website that their Application Levels are not grades, do not relate

to an assurance process and do not provide an opinion on the sustainability performance of the

reporter nor on the quality of the information in the report.

In conclusion, GRI developed the only internationally recognized CSR reporting standards and

guidelines. The G3 guidelines provide the much needed uniformity in environmental reporting,

and have been described as ‘essential to producing a balanced and reasonable report on an

organization’s environmental performance’. On this basis, it may be justified to benchmark the

quality of airlines’ environmental reporting against the GRI standards.

Figure 1: GRI Application Levels

19

2.3.3 Global CSR Disclosure Requirements

A patchwork of national regulations and international agreement has developed that now

compels business to consider the social and environmental implications of their activities

(Márquez and Fombrum 2005). Many countries have adopted conventional international

standards regarding engine noise and have prescribed numerous directives for environmental

conservation. According to the Initiative for responsible Investment at Harvard University

(2012), there has been an increase in the number of social reporting requirements driven by

regulatory bodies around the world. Regulatory incentives have played a key role in advancing

the field of sustainability reporting. Hence, companies in the airline industry are confronted

with numerous regulations and standards. Table 1 summarizes CSR disclosure requirements set

by governments that are relevant to the aviation sector. The table provides an overview of the

examination of environmental reporting policies in place today. As a relatively wealthy en

developed region, the current CSR climate in Europe differs from those in the less developed

parts of the world (CSR Europe 2009). Europe, frequently seen as a trendsetter in this area, has

legally defined CSR duties, whilst social and environmental responsibilities may fall under

voluntary CSR commitment elsewhere. According to the report by CSR Europe (2009),

however, “the increasing interest in business opportunities associated with innovative CSR

approaches, together with the growing stakeholder expectations for corporate accountability

and responsible business practices both within and outside Europe, continue to push the CSR

agenda forward (p2).”

20

EUROPEDenmark 2009 The country’s 1,100 largest listed companies are required to include use

of natural resources and overall CSR performance in their annual report. France 2009 Listed companies are obliged to report social and environmental

information in an annual report. Companies with >500 employees in high emitting sectors are required to publish GHG emissions.

Germany 2004 Companies are required to report annually on key financial and non-financial indicators that materially affect the company.

Greece 2006 An analysis of environmental and social aspects necessary for “an understanding of the company’s development, performance or position” should be included in the directors’ reports.

Italy 2007 material environmental, social and governance (ESG) factors are to to be included in annual corporate reporting.

The Netherlands 1999 Companies are required to publish information on their environmental performance and environmental management system.

Sweden 2007 State-owned companies are required to publish sustainability reports in accordance with GRI guidelines.

United Kingdom 2010 Listed companies are required to report on environmental issues if relevant to stakeholders' understanding. Companies that use more than 6,000MWh per year are to report on all emissions related to energy use.

ASIA-PACIFICAustralia 2001 Listed companies are required to disclose violations of environmental

legislation in their annual report.China 2008 Listed companies are required to disclose more information about their

environmental record.India 2008 The board of directors’ reports must contain information on

conservation of energy.Indonesia 2007 Companies involved in operations that affect natural resources are

obligated to create, implement, and disclose CSR programs.Japan 2005 Specified companies are required to produce annual reports on their

activities related to the environment. These companies must report on specific indicators including the amount of GHG emissions, amount of release of chemical substances, and total amount of waste generation.

Malaysia 2007 Listed companies are required to publish CSR information on a "comply or explain" basis.

LATIN-AMERICAArgentina 2008 Local and international companies with >300 employees are required to

generate annual sustainability reports in accordance with GRI guidelines.

Ecuador 2002 Companies causing emissions or spills that affect the environment must publish an annual report of environmental activities.

NORTH-AMERICACanada 1999 Listed companies are required to provide information on specific

pollutant emissions.United States 2010 Large emitters of GHG are to report data on their GHG emissions.AFRICASouth-Africa 2009 Listed companies are required to publish an integrated report.

Table 1: Overview of CSR disclosure requirements

21

2.3.4 External Verification

Consumers often find it difficult to determine whether or not a company’s internal operations

live up to their standards for social responsibility (McWilliams et al 2006). Frequently,

stakeholders express doubts about the reliability of information in CSR reports, pointing at

inconsistencies between words and actions (‘greenwashing’). A research (pending publication)

recently conducted by Leeds University and Euromed Management School analyzed over four

thousand CSR reports, published over the past 10 years by companies all over the world. The

researchers found numerous “unsubstantiated claims, gaps in data and inaccurate figures”15.

The level of asymmetric information concerning the companies’ internal operations may be

addressed by the company itself or by an external party (McWilliams et al 2006). Feddersen

and Gillian (2001) state that NGO’s, or activists, can play an important role in addressing the

concern of consumers that perceive information on CSR as biased, coming from senior

management. Responding to the issue of perceived asymmetry, more than a quarter (29%) of

the airlines in our sample indicated that they had formed or planned to form partnerships with

NGO’s. Moreover, companies started asking external parties, including most notably

accounting firms, to verify their reports. An increasing amount of airlines, 46% in our sample

compared to 37% in the earlier study by PwC, engage accounting firms to provide an assurance

report on key metrics. They do so in order to promote transparency and to provide further

confidence in the information presented in their CSR report. UPS, a US cargo airline, motivates

the third-party verification of their 2011 sustainability report as follows: “we provide outside

stakeholders with both assurance and verification of our carbon inventory, so they can trust our

reporting and compare it widely (p57)”. Responding to increased demand, a niche within audit

and assurance services emerged (Kolk, 2008) and the accounting firms (Big Four) have been

expanding their sustainability services over the last decade.

Currently, external auditing is only recommended by governments and the GRI. Concerning the

value of an CSR audit, Gelinas (2007) stated that CR assurance provides both external and

internal value to an organization. External value because 1) the firm demonstrates its

commitment and seriousness in managing the CR agenda, 2) the overall trustworthiness to

stakeholders is improved and 3) there is third party confirmation of compliance to stated 15 Juliette Jowit. “Howlers and omissions exposed in world of corporate social responsibility”. The Guardian, 24 November 2011.

22

standards/guidelines. The internal value is created by 1) increased confidence in the reliability

and quality of assessed management systems, data collection, report preparation process and

ultimately disclosed information and 2) professional third party recommendations for

improvement of reporting is gained.

In short, independent third party assurance adds credibility to a business’ reporting and the both

the number of organizations demanding, and providing, this service is increasing.

2.4 CSR reporting and the airline industry

Stakeholder pressures, as well as the resulting political costs, are influenced by the industry to

which a company belongs (Brammer and Millington 2006). Companies with a high

environmental impact receive more attention from environmental lobby groups; these groups

try to influence politicians and the general public to impose costs on those firms with poor

environmental performance. Consequently, these firms have more incentives to disclose CSR

information in general and environmental information in particular to reduce the impending

costs (Deegan and Gordon 1996). For instance, chemical companies are likely to be more

sensitive about disclosures to the public than companies in most other industries (Meek et al

1995). Previous literature confirms that industry membership is associated with corporate

disclosures (Deegan and Gordon 1996, Holder-Webb et al 2008, Meek et al 1995).

The first companies to publish environmental reports were those in the petro-chemical industry

in the early-90’s. For example, Shell released its ‘Progress Towards Sustainable Development’

report back in 1991. Gamerschlag et al (2010) provided evidence of a significant systematic

variation across industries in Germany regarding their propensity to make CSR disclosures.

Consistent with some earlier work (e.g. Brammer and Pavelin 2006) the authors found that

companies from so-called ‘‘environmentally-sensitive sectors’’ (such as the chemical and

transportation industries) provide more information on environmental issues: ‘These companies

have a long tradition of (and experience with) CSR campaigns, as they have been confronted

with powerful stakeholders from the environmental movement since the early 80s.

Accordingly, they proactively disclose information on their environmental performance to

reduce the possible political costs arising from their despised activities (p16)’.

23

One of the reasons for the airline industry to actively practice CSR is to make an effort to

change the negative public opinion of the sector. Most public concerns lie with the emissions of

toxic gasses into the atmosphere, and the noise generated by flying. These are both issues that

are covered in the environmental section of the CSR report. The focus in this research lies with

the environmental part of the sustainability report, since concerns and issues within the airline

industry lie especially in that area.

GRI provides sector guidance, makes reporting more relevant and user-friendly for

organizations in diverse industries16. However, GRI has not (yet) developed GRI standards for

the airline industry specifically. PWC (2011) found that the lack of standards for key data

parameters within the airline sector is an issue: airlines report on different indicators, or define

indicators differently. This thwarts the comparability across the sector as a whole. A study by

Hooper and Greenall (2005) demonstrated that, despite an increase in the availability of

quantitative data and some consistency in the use of key performance indicators, comparing

social and environmental performance across the aviation industry is fraught with difficulties.

Variations in the exact definitions of the indicators used and the suite of functions embraced by

the term “airline” are identified as fundamental obstacles to effective sector benchmarking

(Hooper and Greenall 2005). In this research, this issue has been addressed. The scorecard

designed for this study is designed in such a way that outcomes are not influenced by how a

parameter has been defined by the writer of the report. It merely measures what relevant

corporate sustainability indicators and initiatives airlines report on.

2.5 Environmental initiatives in the airline industry

The aviation community – airlines, airport operators, aircraft manufacturers and policymakers –

has shown various environmental initiatives, allowing it to serve as a more sustainable industry. 16 Source: www.globalreporting.org

24

Figure 2: The 4 pillar strategy proposed by IATA

The International Air Transport Association (IATA) has established a four pillar strategy to

achieve sustainable aviation. The strategy is described in IATA’s report ‘A global approach to

reducing aviation emissions’ (2009). The strategy’s objective is to reduce emissions based on

the four-pillars of investing in improved technology, improving operational efficiency, building

and using efficient infrastructure, and using positive economic instruments to provide

incentives (see figure 2).

The first pillar is aimed at significantly reducing the environmental footprint of the air transport

industry through investing in technology. Emerging technologies, that answer to complex

issues, pose challenges as well as opportunities to the aviation industry.

Revolutionary changes in aircraft and engine design have been identified as having the

potential to significantly reduce the magnitude

of the environmental impact. The increasingly

stringent international standards have created

significant environmental constraints in the

design and operation of aircraft. Many airlines

point out that they work closely together with

aircraft manufacturers to ensure

improvements in airframe and engine

technology. Both operators and NGO’s

increasingly encourage aircraft manufacturers

to emphasize efficiency gains in their product

development. As a result of cooperation within

the aviation industry, Boeing introduced the Boeing 787 Dreamliner in 2009. The aircraft, with

low emission engines and made primarily of advanced composite materials, is considered the

most environmentally advanced in the world. However, long-term solutions such as fleet

modernization must be combined with quick fixes involving improvements to airplanes that are

already in the air. Jet configurations maximizing overall aircraft engine efficiency include the

installation of winglets and the frequent washing of engines. Winglets mounted on the wingtips

of aircraft improve the aerodynamics and lower jet fuel consumption. Engine/compressor

25

washing removes surface contaminants and lowers the engine’s operating temperature, which

extends engine life and reduces its fuel consumption17.

Another important aspect of improving aviation technology is the development of alternative

fuels. Currently, the targeted economies of scale do not allow sustainable biofuel to become

available in sufficient quantities at an acceptable cost18. Viable sources for low-carbon biofuel

have been identified, however, the challenge that now lies ahead is to industrialize this process.

Many airlines in our sample state in their report that they conduct or support testing of

alternative fuels. In 2011 alone, 6 operators in our sample have conducted one or more

commercial flights on biofuel.

The objective of the second pillar is to improve the efficiency of aircraft operations. More

efficient aircraft operations can save fuel and minimize CO2 emissions. IATA recommends the

implementation of advanced navigational aircraft technology, enabling procedures such as

Required Navigation Performance (RNP). RNP allows airplanes to fly a optimal path between

two 3D-defined points in space.

Another key for saving fuel is weight reduction; the lighter the aircraft, the less fuel it burns.

Common weight-reducing initiatives include the use of lighter equipment (e.g. Air- France

KLM), the introduction of passenger luggage weight limits (e.g. EasyJet) and optimizing the

amount of drinking water carried onboard (e.g. Qantas). During this study, it became evident

that some carriers will do anything to save fuel. Extreme weight-reduction measures that were

encountered in the reports include Ryanair ordering to their flight crew to lose weight,

American Airlines removing one olive from every salad served on board its flights and “Please

toilet before boarding” - a voice from the China Southern check-in counters to remind

customers to use the lavatory before getting on the plane.

Pillar 3, efficient infrastructure, is to reduce carbon emissions through improved flight profile

optimization. According to IATA, air traffic control infrastructure modernization presents a

major opportunity for fuel and CO2 reductions in the near term. It promotes the next generation

Air Traffic Management system to find the most fuel efficient flight path. The development and

use of new flight operational practices is taking off. An example of a new operational practice

17 Source: Aegean, CSR report, 2009. 18 Source: Cargolux, sustainability report 2011.

26

is the Continuous Descent Approach (CDA), in which pilots take a continuous glide path

toward their arrival airport rather than “stepping down” in levels of altitude, minimizing noise

impact and saving CO2 during take-off and landing.

Economic instruments, described by the fourth pillar, are aimed at stimulating the reduction of

emission through carbon offset programs and emission trading. In an emissions trading scheme,

such as the EU ETS, airline operators can choose the least costly option to meet its emissions

quota. It can lower its production, improve its energy efficiency, or buy extra allowances from

other entities that emit less than their quota (IATA 2009). From the analysis, it became clear

that over half (or 53%) of the airlines are currently preparing themselves for the inclusion of

aviation into the European Trading Scheme.

Another approach to reducing emissions is to offset carbon emissions. A carbon offset is a

certified financial instrument to reduce emissions and is performed in order to compensate for

or to offset an emission made elsewhere. In the reports from the sample, 22 airline companies

(or 40%) indicated to have some sort of carbon offset program. Offsets are typically achieved

through tree-planting initiatives or financial support, by either the entity or paid for by the

passenger, of projects that reduce the emission of greenhouse gases.

Important environmental issues that fall outside of the scope of IATA’s four pillars include fuel

dumping, deicing procedures and noise impact.

The dumping of fuel (or fuel jettison) under exceptional circumstances cannot be avoided.

When aircrafts are forced to make an unscheduled landing for technical or medical reasons,

they often need to empty the fuel tanks until the aircraft’s maximum permissible landing weight

is reached. Although fuel dumping is usually accomplished at a high enough altitude, where the

fuel will dissipate before reaching the ground, it causes air pollution. GRI guidelines prescribe

aircraft operators to report on the occurrences of fuel jettison and the amount of fuel jettisoned.

When operating in cold climates, the ice and frost that forms on the fuselage and wings of

aircraft must be removed before take-off for safety reasons. The application of chemicals - a

mixture of propylene glycol, salt and hot water - is used for deicing. If not captured and

threaded, the chemicals and salt may reach water bodies in concentrations that are toxic to the

ecosystems. Initiatives to mitigate the environmental impact of deicing include capturing and

threading deicing runoff (e.g. Air France-KLM and replacing chemical deicing fluids with

27

bioglycol, a new environmentally friendly deicing fluid made from 98 percent soybean (e.g. US

Airways).

Concerning the hindrance caused by noise, there are aircraft noise regulations and standard that

apply. Any aircraft obtaining certification for operation since January 2006 is required to meet

the noise certification limits set out by the International Civil Aviation Organization19 (ICAO),

also referred to as the ‘ICAO Chapter 4 requirements’.

Flight operations account by far for the biggest consumption of energy. However, more and

more airlines apply sustainable practices not only in the air but also on the ground. Airlines are

increasingly seeking to minimize their environmental impact by examining their ground

operations as well. Initiatives in place includes responsible utilization of resources by ground

operators, maintenance facilities and offices in order to reduce consumption of energy, water

and paper. Another area of focus within this aspect is the amount of waste produced. Solutions

common in the airline industry are the recycling of onboard waste, proper handling of

chemicals and the evaluation of biodegradable materials.

19 The International Civil Aviation Organisation (ICAO) is a specialized agency of the United Nations and authoritative within the aviation sector.

28

Chapter 3: Research Methodology

In the following paragraphs, the research methodology will be presented. Starting with a

presentation of the hypotheses that will be utilized in order to answer the research question:

What is the overall quality of corporate sustainability reporting in the airline industry, and how

do different regions compare? This will be followed by an illustration of the sample-

composition, after which the methodology will be introduced and elaborated on.

3.1 Hypotheses

Due to its significant environmental impact, the aviation sector is in need of legitimizing its

operations to protect the industry’s reputation and secure long term viability. In order to do this,

effective communication to stakeholders is key. Corporate disclosures must be of a good

quality if they are to be effective. Environmental reports are a critical part of the industry’s

attempts to restore or enhance stakeholder and investor confidence. Following from the theories

previously discussed, it is argued that the higher the quality of reporting, the more successful

the industry’s legitimizing strategy is presumed to be and the higher its stakeholder influence

(Adenibi 2005) . Achieving the objective of airlines to satisfy stakeholders by demonstrating

accountability and transparency to stakeholder requires standards that enable end-users to

easily asses and compare environmental performance of individual airlines as stated in the

environmental report. Standardization is a trend, and the GRI-framework has become the de

facto standard for sustainability reporting. Up to 2010, the majority of airlines used GRI G3

guidelines as a basis for their corporate sustainability report (PwC 2011). The following

hypothesis helps us gain an insight into the extent GRI helps aviation companies to enhance the

quality of their report:

H1: Using the GRI-framework for sustainability reporting increases airlines’ environmental

disclosure quality.

Business norms and standards, regulatory frameworks and stakeholder demand for CSR can

vary substantially across nations and regions (McWilliams et al 2006). Differences in the

29

environment for CSR are likely to affect CSR disclosures. Regulatory incentives and cultural

aspects influence the issues which companies select as worthy of disclosure (Matten and Moon

2008). As table 1 has shown, legislation involving CSR reporting varies among countries. A

number of companies in Europe (e.g. the UK, France, and the Netherlands) have passed laws

requiring companies to identify and disclose social and environmental information according to

specific guidelines. This legal obligation strongly influences the levels of disclosure, since

companies in this region will disclose much more CSR information than their counterparts

from regions that lack legislation (Kolk et al. 2001). In contrast to the European Union,

requirements for companies to disclose nonfinancial information are limited in the United

States (Kolk et al. 2001). What is more, legislation in Africa and the Middle East is entirely

absent. Since CSR disclosures tend to be most pervasive in Europe and, to a lesser degree, in

the United States and Asia-Pacific, we expect that companies provide relatively more CSR

information when they deal with stakeholders from Europe, the US or the Asia-Pacific region.

Applying political cost theory, airlines located in regions with stringent legislation on CSR

reporting are expected to report more extensively on the subject, resulting in increased quality

of their report. It is hypothesized that there is a significant systematic variation across

continents regarding the propensity to make CSR disclosures. The difference is expected to be

found when comparing airlines from the North-America, Europe and the Asia Pacific region to

their counterparts in Latin-America, Africa and the Middle East.

H2: Airlines in North-America, Europe and Asia-Pacific publish environmental rapports of

higher quality, compared to their counterparts in the rest of the world.

Moreover, airlines can have or feel the obligation to report on CSR performance when they are

member of an alliance. The alliances OneWorld, Skyteam and Star Alliance all drafted a

Corporate Social Responsibility Statement, setting out the commitments of all alliance-

members. Following the theory of political cost, it is therefore also expected that member-

airlines publish environmental reporting of higher quality.

H3: Alliance-membership increases airlines’ environmental disclosure quality.

Airline companies that wish to demonstrate their accountability and transparency do good by

involving an external party to provide assurance on the reported data. Lober et al (1997)

30

identified third-party verification as a trend in sustainability reporting. Verification of the

(integrated) report can play an important role in providing stakeholders with assurance that the

corporate sustainability report is accurate, complete and unbiased. Consequently, external

verification increases reliability and therefore helps improve comparability and quality. The

PwC-analysis, in which only 37% of corporate sustainability reports were independently

verified, concluded that verification remains atypical. However, since organizations such as

NGOs, engineering firms, and accounting firms are working hard to improve and expand their

sustainability assurance business, we expect to find a higher percentage in our, more recent,

sample of corporate sustainability reports. Moreover, we hypothesize that external verification

increases airlines’ environmental disclosure quality. In order to test this hypothesis, a

subsample will be created comprising of CSR and integrated reports alone. As companies

generally do not provide assurance on their website content, and financial audits covering the

sustainability elements of an annual report are rather recent and still exceptional, these rapports

are removed from the selection.

H4: Audited environmental disclosures are of better quality than unaudited environmental

disclosures.

3.2 Sample Following Cowper-Smith and Grosbois (2011), member airlines of the three major airline

alliances are selected for inclusion in this study: Star Alliance (18 members), OneWorld (11

members) and Skyteam (15 members ). The total of 44 members represent members from all

parts of the world and account for the majority of airline traffic. Following the analysis by PwC

(2011), companies from the Top 25 Airline Business are added to the sample. Moreover,

operators from the top 5 airlines for all regions (Africa, Asia-Pacific, Europe, Latin America,

Middle-East, Latin- and North-America) are included to ensure a solid coverage of all

geographies. Finally, the Top 5 low-cost carriers and the Top 5 cargo carriers are also added to

the sample to make sure those segments are covered as well. A sample including the 73 largest

and most influential actors in the air travel segment is created. Out of the 73 global and regional

airlines (see appendix table 1), 61 disclosed environmental information via the communication

channels proposed in chapter 2. Since the popularity of corporate websites as the preferred

avenue for communicating such information is increasing, all kinds of reports provided

31

proactively on the companies’ website (as of September 2012) are included in this research.

Not included are other sources of information such as press releases, leaflets, advertisements or

corporate videos. Out of the 61 airlines in our sample that communicated environmental

information, 6 used a language other than English. Concerning these 6 airlines, it was able to

identify what medium had been utilized to communicate the environmental information.

However, the reports were excluded from the content-specific analysis. When we discuss

specific reporting trends in this paper, we are generally referring to the 55 airlines in the sample

that published a report in English. In all but four cases20, this was the report covering 2011.

3.3 Methodology

The research for this thesis will be carried out using a mixed method approach. Both qualitative

and quantitative analysis are employed to answer the research question. A content analysis will

be performed for data collection. Previous literature suggests that content analysis provides

valid results for corporate social and environmental reporting research (Deegan and Gordon

1996, Gray et al 1995b, Guthrie and Farneti 2008). This method best suites the exploratory

nature of the research question and looks directly at communication, therefore getting to the

central aspect of what and how environmental aspects are communicated in reports. Hence, a

hand-collected set of specific CSR data is used, extracted from the reports through content

analysis. The level of information provided in the reports are translated into scores that are later

used to draw conclusions on. Independent sample t-tests are utilized in order to test the

hypotheses. However, as data available on this particular subject is limited, quantitative

statistical analysis is thwarted.

Following the approach used by Kolk (2008), airline companies are scrutinized for the

information published on their website, or their most recent corporate report, that dealt with

environmental sustainability issues. Taken into consideration are either integrated reports or, if

not available, CSR reports. If these are not available, the annual financial report is used for

analysis, if it contained information on sustainability. If no report of any kind is available,

corporate websites were visited to search for sustainability tabs presenting relevant information.

20 The most recent (environmental) reports of Aegean, American Airlines and Air China covered 2010. Ryanair last updated CSR-information in 2006.

32

Websites were visited to collect reports, and if this did not yield results, the companies were

contacted by mail. Information outside of the gathered reports or sustainability tabs, such as

press releases or advertisements, are not taken into consideration. Moreover, only reports

provided in English are analyzed.

In order to determine the quality of the reports, a CSR disclosure index is constructed,

influenced by the GRI and IATA’s strategy framework. CSR reports and annual reports thus

collected are examined in a qualitative manner in order to determine what CSR-initiatives have

been taken and to what level there exists reporting on specific initiatives. Following Cowper-

Smith and Grosbois (2011), the CSR topics are organized into a framework, divided into

various themes and initiatives. The reports will be evaluated and scored per environmental

indicator and per CSR initiative (see Appendix table 2). Since the GRI framework is widely

used around the world, indicators and themes were derived from the GRI evaluation guidelines.

Using GRI will improve the results’ validity, as the guidelines can be assumed to reflect CSR’s

‘real meaning’ (p10). Subsequently, environmental initiatives linked to the IATA four pillar

strategy have been added. A CSR disclosure index, or Scorecard, is constructed in order to test

the stated hypotheses. A report’s quality is evaluated on the basis of the total scores achieved

out of sixty-eight point. The Scorecard consists of 2 parts:

Part I Environmental Indicators and their Provision (max. 13 points)

This part of the scorecard measures the completeness of the reported indicators. We search for

relevant measures – and verify whether the measures that a reader would expect are disclosed.

On the one hand, we have reporting on what goes in. Examples from the scorecard include the

consumption of fuel, electricity and water. On the other hand, there should be reporting of what

goes out:, level of noise, quantity of (hazardous) waste and the emission of greenhouse gasses

(CO2, NOx, SO2 and CH4). Airlines receive 1 point per reported indicator and a total of 13 point

can be awarded in this part.

Part II: CSR initiatives within the environmental dimension and their adoption (max. 55 points)

The second part of the scorecard checks for initiatives taken by operators to limit their

environmental footprint. As mentioned before, initiatives were deducted from the IATA

strategy and include, for example, ‘reduce fuel consumption’ and ‘form partnerships with

NGO’s’. Per sustainability initiative described, 1 point will be given when an objective is stated

33

but not made concrete. The presence of an actual measurement or target indicates whether a

clear goal has been set. An additional point will be given when both a defined goal, specifying

the baseline or reduction amount/percentage, and a timeframe is provided. Two points for an

initiative is only awarded when airlines provide additional information concerning their

(aimed) achievement that is descriptive and verifiable. The magnitude or achievement of the

reduction goal is not considered. No points are awarded for an initiative when an airlines fails

to mention it in the report.

In order to mitigate content analysis’ known risk of subjectivity, a systematic and objective

approach was adopted to perform score the airlines in the sample.

The scorecard that is used to perform this research focuses on the completeness of corporate

sustainability reporting. It does not give an opinion on the sustainability performance of the

reporting organization, nor on the quality of the reported data. It does, however, provide insight

into the extent to which companies give details about the sustainability of their businesses.

34

Chapter 4: Results 4.1 Reflection on sample Of 73 selected companies, 61 (or 84%) reported on sustainability, in whatever form. This

considerably high level of environmental reporting is reflective of the industry’s high level of

environmental impact. As to the spread of the 61 environmental disclosures over the regions,

considering companies’ country of origin, slightly over 30% is European. A quarter (25%) of

the disclosures originated from the Asia-Pacific region, whilst North-American airlines account

for 18%, with the remainder coming from different emerging economies: Latin America, the

Middle East, and Africa (respectively 10%, 8% and 6%). This mirrors to some extent the

overall pattern of sustainability reporting, in which European companies have been most active,

currently closely followed by companies from the Asia-Pacific region, while their US

counterparts lag behind (KPMG 2005, Kolk 2008). Reports from North-America were

exclusively CSR reports, whilst African airlines use their annual report to communicate their

commitment to sustainability. Remarkably, all 4 integrated reports in this study originated from

the Asia Pacific region.

Africa

Asia Paci

fic

Europe

Middle East

North-A

merica

Latin-A

merica

0

5

10

15

20

25

No CSR reporting

CSR tab on website

CSR section in annual report

CSR report

Integrated report

35

Figure 3: Corporate sustainability reporting per geographical area

As the pie-chart (figure 4) shows, publishing a separate report is the most popular reporting

medium. The majority of airlines (38%) issued a separate CSR report. Although integrated

reporting is still in its infancy, 4 airlines (or 6%) managed to integrate CSR information into

their annual reports. 11 operators (or 15%) dedicated a separate section in their annual report to

the subject, whilst 19 (or 26%) used a tab on their website to communicate the CSR

commitments. Relatively few airlines, 11 out of 73 (or 15%), did not communicate on CSR

topics at all.

Integrated reportCSR reportCSR section in annual reportCSR tab on websiteNo CSR reporting

Type of report Occurrence (#) Percentage (%) Average score on quality (pts)

Integrated report 4 5,5 25,0

Separate CSR report 27 37,0 30,4

CSR-Section in annual report 11 15,0 7,9

Sustainability-tab on website 19 26,0 8,2

No information 12 16,5 (0)

Total 73 0 19,0

Figure 4: The format of reports

Table 2: Format and quality of reporting

The average score on quality denotes how many points, out of 68, were granted on average.

From table 2 it is evident that separate CSR reports generally score highest on quality, followed

by integrated reports (30.4 and 25 points, respectively). Dedicated CSR-sections in the annual

36

statement score particularly low, as well as the sustainability tab (7.9 en 8.2 points,

respectively). However, it cannot be concluded that one type of report is necessarily better than

another. For example, All Nippon Airways published an integrated report that scored very high

at 54 points. In contrary, Aegean’s separate CSR report scored 11 points on the scale of 68,

which is considerably low compared to the average overall score of 19 points (scores of zero

excluded).

The average score covering all reports is relatively low at 19 points, especially considering that

68 points could have been ‘earned’. The low average score is caused mainly by the fact that

there is still a lack of quantification in most reporting. Although most airlines report on their

environmental policies, information relating to actual environmental activity or performance

was poorly disclosed. There are several possible explanations for this lack of quantification in

the reporting of environmental issues. For one, it is likely that the airlines do not yet have a

system in place for accurately collecting or measuring the appropriate environmental data,

since environmental reporting is still relatively new. Moreover, the voluntary nature of the

whole environmental reporting process could be a factor.

From the CSR and integrated reports, 46% were audited (see figure 5). The majority of the

verification is carried out by accounting firms (75%), with the remainder being performed by

certification bodies (17%) and consultants (8%).

9

21

14

Audit by accounting firmAudit by certification bodyAudit by consultancy firmNo audit

Figure 5: Audit providers

37

4.2 Descriptive statisticsFor the content analysis, 55 reports of whatever form containing data on a company’s

environmental indicators and commitments have been analyzed. On the basis of the GRI

framework’s core indicators and the four pillars proposed by IATA, content analysis was

applied to detect the content of CSR information provided by 55 of the largest airline

companies in the world. The hypotheses put forward in the third chapter and the results of the

research will now be discussed.

H1: Using the GRI-framework for sustainability reporting increases airlines’ environmental

disclosure quality.

In our sample, well over half (or 63%) of the separate sustainability reports followed the

guidelines proposed by the G3 Guidelines proposed by GRI. This is consistent with previous

research, which found that around 60% used the GRI reporting framework (PwC 2011). The

remaining reports make no mention of any guidelines used. Moreover, 2 out of the 4 integrated

reports followed GRI guidelines. The GRI-framework is not being followed for sections in

annual reports and website content. This is not surprising, given that the information generally

presented in the annual report and on the company website is rather brief and shallow. It is

evident that the GRI framework is well-known, at least by those airlines that publish stand-

alone reports.

The results concerning the effect of GRI on the report-quality are presented in table 3 below.

The quality of separate CSR reports and CSR-sections in the annual statements increases in the

case of GRI-guidelines being applied. The quality-results presented for the integrated reports

are against earlier expectations. The Non-GRI reports score much better, on average. This was

in part caused by the report of All Nippon Airways, scoring 54 points without applying GRI

guide lines. As the results are based on only 4 observations, any conclusions drawn concerning

integrated reporting and GRI will remain weak. Looking at the entire sample, the average score

in the case of GRI lies higher (29,4 points against 13,3 points).

38

Occurrence (#) Percentage(%) Average score

on quality (pts)

Integrated report GRI 2 50 17,5

Non-GRI 2 50 32,5

Separate CSR report GRI 14 64 32,4

Non-GRI 8 36 27,0

CSR-section in the annual report GRI 1 9 11,0

Non-GRI 10 91 7,7

Sustainability-tab on website GRI (0) (0) (0)

Non-GRI 18 100 8,2

Total GRI 17 31 29,4

Non-GRI 38 69 13,3

Table 3: Use of GRI

Since GRI is hardly used for sections in annual reports and website content, these type or

reports were extracted from the sample to increase the validity of results from the independent

sample t-test. The subsample consists of separate CSR reports (22) and integrated reports (4).

Mean Standard deviation N

GRI reports 30.5 12.882 16

Non-GRI reports 28.1 11.90 10

Independent sample t-test (equal variances assumed), t(24)= 0.46, p(1) >.05

Table 4: GRI and quality

Evident from table 4 is that the standard deviation is too large for the test to have much power.

The bigger the standard deviation, the more unreliable the mean. A standard deviation of 12.8

such as reported in Table 4, in combination with a mean of 30.5, indicates that there is a high

chance that the mean is not representative. The results from the t-test demonstrate that the

difference in quality between GRI and non-GRI reports is not significant. Thus, the first

hypothesis is rejected. Using GRI does not significantly influence the overall quality of the

report.

39

Taking into consideration that GRI focuses on environmental indicators, and less on initiatives,

the t-test was re-performed using only the scores to the first part of the scorecard. Thus, the

report-quality is now represented by the achieved scores on the initiatives. See table 5 for

results.

Mean Standard deviation N

GRI reports 7.56 3.93 16

Non-GRI reports 4.20 3.46 10

Independent sample t-test (equal variances assumed), t(24)= 2.13, p(1) <.025

Table 5: GRI and indicator quality

The average scores on the indicators are 7.6 (GRI) and 4.2 (non-GRI), out of 13. The difference

in indicator-quality is found to be significant. Airline companies that follow the GRI guidelines

for environmental disclosure, report more extensively on the indicators than companies that do

not follow GRI. Although the first hypothesis was rejected, this finding presents some nuance

to our judgement.

An outcome worth mentioning is that only 27% of the sampled airlines scored 6 or more out of

13 in the GRI section. This indicates that there is much room for improvement. Moreover,

considering the voluntary and flexible nature of CSR reporting, it might suggest the need for a

reporting guideline that is less voluntary.

H3: Alliance-membership increases airlines’ environmental disclosure quality.

Out of the sample, 39 airlines have joined one of the passenger aviation alliances: OneWorld

(8), Star Alliance (19) or Skyteam (12). Further, world’s largest airfreight carriers (4) and low

cost carriers (3) were grouped together in the overview. Analyzing the average scores (see table

6), airfreight carriers clearly report more thorough on their environmental performance (25.8

pts) than any other of the groupings. Surprisingly, low cost carriers (20,3) rank high as the 3 rd

40

on average21. Concerning the alliances; members, independent on which one of 3 alliances they

joined, score higher on average than non-members.

Alliance / Top Report count

(#)

Average score on quality (pts)

Top 5 Cargo 4 25,8

OneWorld 8 20,4

Top 5 Low Cost

Carriers

3 20,3

Skyteam 12 17,5

Star Alliance 19 17,2

None 9 15,6

Total 55 18,2

Table 6: Quality by Alliance/Top

For the independent sample t-test, the sample was divided into 2 groups: alliance members, and

non-alliance members (including the cargo and low-cost airlines).

Mean Standard deviation N

Alliance members 17,92 12.882 39

Non-alliance members 19,06 11.90 16

21 This may be explained by considering their considerably high fuel efficiency; high load factor, high seating density and minimal baggage allowance. Moreover, low-cost carriers also operate from smaller “point-to-point” regional airports, which allow shorter waiting and taxi times.

41

Independent sample t-test (equal variances assumed), t(24)= -0.18, p(1) >.05

Table 7: Quality and Alliance-membership

Results from table 7 show that alliance-members score lower, on average, on reporting quality

than non-members. The difference is found to insignificant, but it is against earlier

expectations. Hypothesis 3 is rejected.

Results may have been influenced by the non-member cargo airlines (4), scoring particularly

high. The cargo airlines perform different flight operations and their disclosure address other

groups of stakeholders. As such, their environmental reporting may not be representative of

that of other airlines and this research should not have included cargo-airlines in the sample.

H4: Audited environmental disclosures are of better quality than unaudited environmental

disclosures.

In order to test this hypothesis, a subsample was created comprising of only CSR and integrated

reports. Although an external audit is not required, almost half (or 46%) of the 26 companies in

the adjusted sample have resorted to external verification of their report: verification is no

longer atypical. Of those companies that seek such assurance, only a few mention a reason.

Motivations that are given include that of enhancing credibility, continuous improvement and

responsibility/duty.

Mean Standard deviation N

Audited reports 32.42 12.92 12

Unaudited reports 27.14 11.71 14

Independent sample t-test (equal variances assumed), t(24)= 1.05, p(1 >.05

Table 8 Quality and External verification

Audited reports are generally of higher quality: they score 32.4 on average, as opposed to

unaudited reports scoring substantially lower at 27.1 on average (see table 8). However, with an

42

average score of 32.4 points on a scale of 68, verification is no guarantee for a comprehensive

report.

It is obvious from table 9 that external verification, also referred to as third-party assurance, is

prevalent in Europe (4 out of 6 reports externally verified) and the Asia Pacific region (5 out of

8 reports externally verified). Particularly American companies stand out for the lack of

verification; only 20% of North-American aircraft operators asked for an external judgment and

the one Latin-American report in the subsample contained no assurance statement.

Concluding from an independent sample t-test, the difference in quality between audited and

unaudited reports is not significant. Therefore H4 is rejected. Again, this may be attributed to

the large standard deviations compared to the mean. Additionally, the analysis is limited due to

the disappointingly small size of the subsample and limited availability of material, preventing

strong conclusions from being drawn.

Table 9 External Verification by geographical location

H2: Airlines in North-America, Europe and Asia-Pacific publish environmental rapports of

higher quality, compared to their counterparts in the rest of the world.

North-American or US companies are most explicit in their description of environmental

indicators and initiatives (average score of 27,8, see table 10). Airline operators from the Asia

Pacific region and Europe are also relatively specific about their environmental action (average

scores of 21.2 and 16.2, respectively). The Middle East follows, scoring 12.4 on average.

43

Continent Report count (#) Externally verified (#) Externally verified (%)

Asia Pacific 8 5 62,5

Europe 6 4 66,7

North-

America

10 2 20,0

Middle-East 1 1 100,0

Latin-America 1 0 0

Africa 0 0 0

Total 26 12 46,2

Compared to their counterparts, African and South-American companies provide very little

information on environmental issues (scoring 9.5 and 3.0, respectively): none of the companies

from those areas reported quantitatively on the core-indicators fuel consumption, emissions,

water or waste. Although no further statistical analysis was performed on the average scores, it

is evident from the table that great differences in quality of environmental reporting exist

among continents. Airlines in the US, Europe and Asia-Pacific publish environmental rapports

that are on average of higher quality than their counterparts from other regions. Hence, the third

hypothesis is accepted.

Table 10 : Quality by geographical location

The analysis presented in this thesis enabled us to conclude the following: Policies in place

today concerning the reporting of environmental data differ substantially among regions.

Report quality, on average, is higher in regions that are under legislation. Companies from

North America and the Asia-Pacific region disclose considerably more information on

environmental aspects. Considering the stringent legislation in place, this is consistent with the

political cost theory, proposing that companies under regulation have strong incentives to

reduce their political costs through CSR disclosures. European reports are abundant in number,

but lag behind in quality. The majority of reports from the Middle-East and Latin-America

score even lower – reflecting the lack of depth, quantification and rigor in the reporting.

44

Continent Report Count (#) Average score on quality

(pts)

North-America 11 27,8

Asia Pacific 14 21,2

Europe 19 16,2

Middle-East 5 12,4

South-America 2 9,5

Africa 4 3,0

Total 55 18,2

Overall, companies in these regions fail to sufficiently use criteria or referents to guarantee

their claims about their corporate behavior.

Seemingly, governments’ role is key in the debate on sustainability, as they have the ability to

influence report quality though regulation. These findings are important, suggesting that

governments could play a role in assisting airlines to take CSR reporting to the next level.

The big four accountancy firms continue to dominate the CR assurance market with 75 percent

of the verification statements. Verification is no longer atypical, but doesn’t guarantee a

comprehensive report. However, generally speaking, the audited reports in our sample are of

higher quality than unaudited ones. The same goes for alliance-members: their reports score

higher than reports published by non-members.

The issues of reliability and validity in this research are concurrent with those addressed in

other research methods. The reliability of content analysis research refers to its stability. This

issue was, in part, covered by performing all analysis’ myself, guarantying consistent re-

coding. Concerning the validity of the data, the main problem is the that drawing conclusion on

the analysis is challenging. This issue was addressed by keeping away from strong and explicit

conclusions, keeping in mind the nature and generalizability of conclusions.

Only one of the hypotheses has been accepted. The limited availability of data (small N) and

diverse scores on quality (large standard deviation) have thwarted the analysis. Based on this

work, however, other researchers might come up with a better technique in which the standard

deviation of report quality is smaller. Thus, I find the developed technique important enough to

be shared even though few significant differences were found.

45

Chapter 5: Conclusion

5.1 ConclusionsThe indisputable environmental impact of air travel gets a lot of attention in the media as well

as in the policy debates. The aviation sector as a whole working hard to develop new

technologies in order to allow aviation to serve as a more sustainable industry. Airline

companies are, themselves, focused on the environmental impact of their operations. These

emerging technologies, that answer to complex issues, pose challenges as well as opportunities

to the aviation industry. Airlines are increasingly measuring, reporting and managing their

carbon footprint. Moreover, the inclusion of airlines flying to and from Europe in the EU

Emissions Trading System has fired extra interest in emissions data.

Previous research shows that corporate social and environmental disclosure has grown

considerably over the last 20 years. It encompasses both the voluntary and mandatory

disclosure made by companies regarding issues that are important to a wide range of

stakeholders, thus covering more than pure economic concerns. The past two decades have

seen a steady evolution of corporate social, environmental and ethical reporting, with

sustainability reporting undergoing particularly significant developments (ACCA 2012).

Reporting ultimately serves as the platform for action. A near 85% of airlines in our sample

reported on sustainability, in whatever form or language. Compared to previous studies that

investigated sustainability reporting by airline operators, this 84% is a remarkable increase. The

analysis of CSR-data presented shows that the scope and level of environmental efforts varies

tenfold across the industry. Whilst there is evidence of increasing sophistication in the

development of environmental disclosure, the maturity or reporting content and style varies

considerably. The results of the analysis corroborate the conclusion that the quality of

environmental reporting within the aviation sector is still low. Reasons proposed to explain this

include the considerable ‘newness’ of the whole environmental reporting phenomenon and the

flexibility/voluntary nature of CSR reporting. Despite overall scores being low, there is

evidence of a development towards a more detailed and concrete reporting, leading to improved

quality and relevance of information. With this progress, it can also be concluded that

46

comparability between companies has improved; comparability over time improves due to a

wide-spread use of the GRI guidelines, that have helped improve the quality in setting standard.

Using the GRI reporting requirements and IATA proposals for benchmarking, this thesis

primarily aimed at evaluating the quality of environmental reporting within the aviation sector.

In order to achieve this objective, the theoretical rationale for voluntary (environmental)

disclosure was explored. It was explained that a high quality of environmental reporting was

particularly necessary to manage the negative stakeholder perception of the industry. And,

following from previous literature, proper communication is key to responding to stakeholders’

demands.

Following the accepted GRI guidelines helps construct credible, straightforward and relevant

disclosures, thus increasing report quality. The framework supports companies in their

reporting process, increasing quality of the outcomes. The fact that GRI is gaining territory as

leading standard setter predicts that the quality and level of disclosures will keep improving.

Moreover, comparability will improve as more airlines report according to the proposed

framework. The reliability of environmental disclosures has improved by both the strengthened

verifiability due to more coherent and solid reporting.

As we have seen, policies in place today concerning the reporting of environmental data differ

substantially among regions. Much of today’s non-financial reporting is driven by regulatory

requirements. The aviation industry is witnessing an increase in regulations and reporting

requirements. In particular, the inclusion of airlines flying to and from Europe in the EU

Emissions Trading System has forced the publication of emissions data. Report quality, on

average, is higher in regions that are under legislation. Governments’ role is key in the debate

on sustainability, as they have the ability to influence report quality though regulation. Taking

this a step further - this could be fertile ground for government and industry working together

in partnership to confront future environmental challenges. The currently flexible and voluntary

nature of the GRI framework for sustainability reporting may have to become less flexible and

voluntary, possible supported by sharpened legislation, in order for them to become

internationally accepted. This will help firms in collecting and measuring the appropriate

information.

Overall, the reliability of the reports published by the airline sector seem to have improved and

there seems to be a continual increasing development towards meeting stakeholder requests.

47

This is in part caused by the 1) increase in airlines seeking assurance, 2) progress of

verifiability due to the increase use of concrete and standardized reporting and 3) the

enhancement of the external assurance market. The big four accountancy firms continue to

dominate the CR assurance market with 75 percent of the verification statements. Verification

is no longer atypical, but doesn’t guarantee a comprehensive report. Audited reports have not

proven to be of significantly higher quality. The same goes for alliance-members: their reports

generally score higher on average than reports published by non-members, but the difference is

not significant.

Companies from North America and the Asia-Pacific region disclose considerably more

information on environmental CSR aspects. Considering the stringent legislation in place, this

is consistent with the political cost theory, proposing that companies under regulation have

strong incentives to reduce their political costs through CSR disclosures. European reports lag

behind in quality, but are abundant in number. The majority of reports from the Middle-East

and Latin-America studied in this paper lack depth, quantification and rigor. Overall, these

companies fail to sufficiently use criteria or referents to guarantee their claims about their

corporate behavior.

Right now, starting at the top, the world’s largest airlines are taking the lead. But there is still

room for improvement. A minority of companies, mainly those in Africa, seem to transmit a

view of CSR in their report that is limited to actions of patronage or sponsoring and the

creation of foundations. “Ethiopian celebrated Christmas with orphans” reads the Ethiopian’s

CSR-newsletter. This is in pale contrast to KLM currently operating scheduled flights with

aircrafts fueled by bio-jets.

5.2 LimitationsAlthough the evidence obtained in this research suggests a poor quality of environmental

reporting within the airline industry, more tests should be performed in order to reach a more

definitive conclusion. More in-depth analysis on the average scores as per continent could have

been helpful to draw stronger conclusions. Moreover, the research evaluated environmental

reports for one year only. Undertaking a multi-year evaluation will allow for a reliable trend to

be established.

48

As with any research method, there are limitations to using content analysis. This particular

analysis was especially limited by availability of material, limiting inferences to be drawn.

Sample size, and insufficient sustainability reporting by airlines, tend to invalidate my

conclusions. The sample contains only 73 out of an estimated 4,000 airline companies in the

whole world. Included are all alliance-members and operators that belong to some sort of ‘top

list’. It therefore represents only those airline companies that are biggest and have the most

capital. Thus, the results cannot be extended to smaller firms. I believe that these companies

represent the cutting-edge – and indicate the trends – of the aviation business world, but it

would be desirable to repeat this analysis with a larger sample that includes more aircraft

operators of different sizes and types.

Another limitation to the research method employed is the inability to assess causality. Causal

relationships can be identified from the results, however, relationships and correlation between

variables cannot be proven.

A more pressing limitation, however, is that this thesis is focused on disclosures, not on a

company’s overall CSR performance. It is largely focused on the question of whether

companies report - not what they report. Companies’ environmental performances may be bad,

but they make abundant CSR disclosures. This thesis did not aim to provide a critique of the

facts explored in the disclosures or on the industry’s important role in the environmental

sustainability debate. However, the fact remains that it captures only part of the bigger

sustainability picture. Although beyond the scope of this particular work, it might be the time to

be less occupied with the number of companies that release a report and more occupied with

the truthfulness of its content.

5.3 Suggestions for further research

This exploratory study can be a starting point for further in-depth analyses into sustainability. A

useful direction of further research in this area would also be to identify common

characteristics of the airlines that are relatively advanced in the reporting of CSR initiatives.

Factors such as their geographical location (being more exact than the continent) and respective

national regulations or standards could be thoroughly analyzed in order to better understand the

motivations and rationale behind CSR adoption (or the lack of it). More in-depth analysis could

49

be performed on the difference in quality between the continents. Further research could also

study the influential role of governments and standard setters. Finally, a multi-year evaluation

of environmental reporting by the airline industry could uncover interesting trends.

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Appendix 1: Sample

Company Name Alliance Continent1 Egyptair Star Alliance Africa2 Ethiopian Airlines Star Alliance Africa3 Kenya Airways Skyteam Africa4 Royal Air Maroc Top 5 Region Africa5 South African Airways Star Alliance Africa6 Aeroflot Skyteam Asia Pacific7 Air China Star Alliance Asia Pacific8 Air New Zealand Star Alliance Asia Pacific9 All Nipon Airways Group Star Alliance Asia Pacific10 Asiana Airlines Star Alliance Asia Pacific11 Cathay Pacific OneWorld Asia Pacific12 China Airlines Skyteam Asia Pacific13 China Eastern Airlines Skyteam Asia Pacific14 China Southern Airlines Skyteam Asia Pacific15 Japan Airlines Corporation OneWorld Asia Pacific16 Korean Airlines Skyteam Asia Pacific17 Malaysia Airlines Top 5 Region Asia Pacific18 Nippon Cargo Airlines Top 5 Cargo Asia Pacific19 Qantas OneWorld Asia Pacific20 S7 Airlines OneWorld Asia Pacific21 Singapore Airlines Group Star Alliance Asia Pacific22 Thai Airways Star Alliance Asia Pacific23 Vietnam Airlines Skyteam Asia Pacific24 Virgin Australia Top 5 Region Asia Pacific25 Adria Airways Star Alliance Europe26 Aegean Star Alliance Europe27 Air Berlin OneWorld Europe28 Air Europa Skyteam Europe29 Air France KLM Skyteam Europe30 Alitalia Skyteam Europe31 Austrian Star Alliance Europe32 Brussels Airlines Star Alliance Europe33 CargoLux Top 5 Cargo Europe34 Croatia Airlines Star Alliance Europe35 Czech Airlines Skyteam Europe36 EasyJet Top 5 Low Cost Carrier Europe37 Finnair OneWorld Europe

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38 International Airlines Group OneWorld Europe39 LOT Polish Airlines Star Alliance Europe40 Lufthansa Group Star Alliance Europe41 Ryanair Top 5 Low Cost Carrier Europe42 SAS Group Star Alliance Europe43 TAP Portugal Star Alliance Europe44 TAROM Skyteam Europe45 Turkish Airlines Star Alliance Europe46 El Al Isreal Top 5 Region Middle East47 Emirates Top 5 Region Middle East48 Ethihad Airways Top 5 Region Middle East49 Iraqi Airways Top 5 Region Middle East50 Qatar Airways Airline business top 25 Middle East51 Royal Jordanian OneWorld Middle East52 Saudi Arabian Airlines Top 5 Region Middle East53 Delta Air Lines Skyteam North America54 Aeromexico Skyteam North-America55 Air Canada Star Alliance North-America56 AirTran Airways Top 5 Low Cost Carrier North-America57 Alaska Air Group Top 5 Region North-America58 American Airlines OneWorld North-America59 Atlas Air Top 5 Cargo North-America60 ExpressJet Top 5 Region North-America61 FedEx Top 5 Cargo North-America62 Frontier Top 5 Region North-America63 JetBlue Airways Corporation Top 5 Region North-America64 SkyWest Top 5 Region North-America65 Southwest Airlines Top 5 Low cost Carrier North-America66 United Airlines Star Alliance North-America67 UPS Top 5 Cargo North-America68 US Airways Star Alliance North-America69 Aerolíneas Argentinas Skyteam Latin-America70 AviancaTaca Top 5 Region Latin-America71 GOL Transportes Aereos Top 5 Region Latin-America72 LAN Airlines OneWorld Latin-America73 TAM Airlines Star Alliance Latin-America

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Appendix 2: The Scorecard

Company name: …………………………………………………………… Type of Report: ……………………………………………………………………….

Alliance: ……………………………………………………………………... Year: …………………….……………………………………………………………………

Country: ……………………………………………………………………… GRI: …………….……………………………………………………………………………..Continent: ……………………………………………………………………. Auditor : …………………………………………………………………………………...

Part 1: Environmental Indicators and their Provision

Theme Indicator Provided PointsConsumptionsRaw materials Fuel ᴑ Yes ᴑ No 0 / 1Energy Water

Electricity Other energies

ᴑ Yes ᴑ Noᴑ Yes ᴑ Noᴑ Yes ᴑ No

0 / 1 0 / 1 0 / 1

Emissions- Greenhouse gasses CO2 (or CO2/pkm) ᴑ Yes ᴑ No 0 / 1

NOx ᴑ Yes ᴑ No 0 / 1 SO2

CH4

ᴑ Yes ᴑ Noᴑ Yes ᴑ No

0 / 1 0 / 1

- In-flight fuel jettison Occurrences of fuel jettison (Number) ᴑ Yes ᴑ No 0 / 1 Fuel jettisoned (Tonnes) ᴑ Yes ᴑ No 0 / 1

Noise Noice impact Global noise energy indicator ᴑ Yes ᴑ No 0 / 1

(58)

Theme Indicator Provided PointsWaste

Quantity of non-hazardous industrial waste ᴑ Yes ᴑ No 0 / 1 Quantity of hazardous industrial waste ᴑ Yes ᴑ No 0 / 1

Total ….. / (13)Part 2: CSR initiatives within the environment dimension and their adoption

Theme Goal Initiatives Quantification PointsEmissions & Air pollution

Reduce fuel consumption ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Introduce new fuel efficient aircraft ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Reduce total aircraft weight ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Optimize operational procedures and/or air traffic management ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Engine washing ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Install winglets ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Conduct/support testing of alternative fuels ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Form partnerships with NGOs ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Use of simulators for flight training

ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Introduce environmentally friendly ground vehicles ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Consult with local businesses on local (air) pollution ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Total ..... (/ 22)

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Theme Goal Initiatives Quantification Points

Waste & Biodiversity Reduce use of paper ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Evaluate biodegradable materials ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Reduce and/or recycle waste ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Test alternative deicing ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Tree-planting initiative ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Economic usage and proper handling of chemical substances ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Total ..... (/ 12)

Energy & Water Reduce energy use in offices/facilities ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Use green/renewable energy ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Reduce water consumption ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Reduce and/or treat discharge from maintenance facilities ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Total ..... (/ 8)

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Theme Goal Initiatives Quantification Points

Noise Test new operational procedures (continuous descent and so on) ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Introduce quieter aircraft ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Conform with ICAO Chapter 3 or Chapter 4 noise level ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Reduce night landings/takeoffs ᴑ Yes ᴑ No ᴑ Yes ᴑ No 0 / 1 / 2

Total ..... (/ 8)

Other Sponsor environmental organizations ᴑ Yes ᴑ No 0 / 1

Contribute to scientific research projects ᴑ Yes ᴑ No 0 / 1

Obtain ISO 14001 or forthcoming certification for EMS ᴑ Yes ᴑ No 0 / 1

Consideration of EU ETS ᴑ Yes ᴑ No 0 / 1

Carbon-offsetting program ᴑ Yes ᴑ No 0 / 1

Total ..... (/ 5)

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Total ……. (/68)

62

Appendix 3: Scores per airline

Company Name Score on GRI-indicators

Score on IATA-initiatives

Total Report Quality Score

1 Kenya Airways 0 1 12 Egyptair 0 2 23 Ethiopian Airlines 0 6 64 South African Airways 0 3 35 China Southern Airlines 6 16 226 Asiana Airlines 4 23 277 Cathay Pacific 9 28 378 Korean Airlines 9 30 399 Qantas 3 9 1210 Virgin Australia 9 14 2311 Japan Airlines Corporation 0 15 1512 China Airlines 2 17 1913 Air New Zealand 0 7 714 Nippon Cargo Airlines 0 13 1315 Singapore Airlines Group 0 11 1116 All Nipon Airways Group 11 43 5417 Air China 3 8 1118 Aeroflot 3 4 719 SAS Group 12 32 4420 CargoLux 4 13 1721 Air France KLM 13 42 5522 Finnair 10 24 3423 Aegean 0 11 1124 Lufthansa Group 7 29 3625 Air Berlin 1 9 1026 Czech Airlines 2 3 527 Adria Airways 1 9 1028 EasyJet 1 11 1229 Air Europa 0 4 430 Alitalia 0 3 331 TAROM 0 8 832 Brussels Airlines 0 14 1433 Croatia Airlines 0 7 734 LOT Polish Airlines 0 1 135 TAP Portugal 0 5 536 Ryanair 0 13 13

(63)

37 International Airlines Group 1 18 19

38 Emirates 12 21 3339 El Al Isreal 0 8 840 Royal Jordanian 0 7 741 Ethihad Airways 0 1 142 Qatar Airways 0 13 1343 Southwest Airlines 9 27 3644 UPS 11 38 4945 Delta Air Lines 8 23 3146 JetBlue Airways

Corporation 2 16 1847 American Airlines 4 25 2948 Air Canada 3 19 2249 United Airlines 6 24 3050 US Airways 1 24 2551 FedEx 4 20 2452 Alaska Air Group 6 28 3453 Frontier 0 8 854 Aeromexico 0 16 1655 AviancaTaca 2 1 3

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