Definition and Forms of Sustainability(683)
The notion of sustainability has become a core element for many organizations today. Sustainability is primarily geared toward environmentally friendly business activities. Essentially, Painter et al. (2019) hold that the concept refers to the creation of hybrid entities that balance social, economic, and environmental needs of a community. The adoption of such practices has become a necessity because of the consumers’ growing consciousness to the adverse impacts of companies’ activities on the environment. Accordingly, sustainable business practices have become a moral proposition in society. Entities that do not adopt such principles are likely to receive a backlash from the consumers. Nonetheless, it is critical to note that firms do not adopt sustainable business models merely for the sake of social responsibility. The model also has implications on the financial performance of companies (Al Shehhi et al., 2013). This outcome arises because the practices offer a competitive advantage to the firms under consideration.
In this exercise, an assessment of the concept of sustainability in business will occur from the perspective of the United Arab Emirates (UAE). The case company is the Etihad Aviation Group. The firm runs Etihad Airways, UAE’s flag carrier. An examination of its sustainable business practices will take place. Further, an analysis of how the practices impact on its corporate performance will also occur. The rationale for selecting the company is that it has taken proactive measures in integrating sustainability practices in its operations.
Definition and Forms of Sustainability(683)
The concept of sustainability has raised significant scholarly attention. However, no universal definition exists. Nonetheless, it is possible to derive a definition from the major thematic elements of literature. Based on the perspectives offered by Al Shehhi et al. (2013), sustainability refers to the ability to meet the needs of the present generation without restricting the ability of future ones to attain theirs. Del Bado & Baldarelli (2017) evaluate the issue from the point of view of value. They suggest that sustainability refers to the ability of a firm to enhance the value they offer to its stakeholders, including customers, employees, and shareholders, as well as the natural environment. It is also possible to define the concept as the adoption of steps that would lead to the preservation of a valued resource in the community. Substantially, sustainability reflects the shared values of a society.
Therefore, from a business viewpoint, it refers to the adoption of practices that expand the scope of what corporate success means. In the past, only the economic pillar was considered an integral aspect of a firm’s success. For instance, profit and revenue growth were the major metrics necessary for evaluating a corporate’s success. However, in the new paradigm, the notion of business success has been expanded to include both social and environmental goals, as opposed to the economic objective alone. As an illustration, today, an entity whose profits grow exponentially, but its carbon footprint rises will not meet the threshold of a successful corporate. Instead, it is likely to receive a backlash from both environmentally conscious consumers and government regulators.
Numerous forms of sustainability exist, namely, social, economic, human, and environmental sustainability. The initial one refers to initiatives that seek to promote social values like equality. Economic sustainability points to the financial imperatives of a firm like profit, revenue, and sales. The rationale for this pillar is that a financially sustainable organization is more likely to invest in the other pillars when compared to one that faces difficulties as a going concern. This notion arises because adopting sustainable business practices is a resource-intensive process.
Human sustainability refers to business activities that preserve and enhance the existing human capital. Therefore, for a corporate to achieve this standard, it should invest in elements of their employees’ health, education, and a safe working environment. Finally, environmental sustainability showcases the need to integrate practices that conserve the environment. This pillar will form the basis of this assessment, especially as it concerns Etihad Airways. However, it is important to note that none of the pillars is mutually inclusive. Therefore, an organization cannot focus on one to the exclusion of others, as such a step would reduce its positive effects on a corporation’s bottom line.
Etihad Airways and Its Sustainability Initiatives(1144)
Etihad Airways operates in an industry that has come under intense scrutiny because of its relatively high carbon emissions. The aviation industry is responsible for 2% of global emissions. Failure to adopt urgent containment measures would lead to a doubling of pollution by 2030 (Etihad Aviation Group, 2020). Consequently, for the company, the core aspect of sustainability is the environment.
The airline’s sustainability initiatives occur within the context of numerous initiatives like the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The UAE, where Etihad is domiciled, is one of the convention’s signatories. This occurrence implies that the airline must also adopt the measures contained in the proposal. They include becoming carbon neutral by 2020 and reducing emissions by half by 2050 based on the 2005 emission levels.
Apart from the regulatory frameworks, the company has also taken a proactive approach. It has committed to invest in reducing their emissions. Its initiatives cover all aspects of flight operations from ground handling to routing. Further, even auxiliary services like inflight catering are covered. Below is an overview of the measures adopted by the airline to achieve environmental sustainability.
The management of Etihad Airways decided to improve the operational efficiency of its aircraft. Therefore, it adopted a strategy that entails the acquisition of new aeroplanes. Newer aircraft are more efficient, especially low fuel consumption and reduced demand for maintenance. For instance, in 2014, the airline began operating the Boeing 787-9 Dreamliner whose lightweight leads to the use of less fuel (Etihad Aviation Group, 2020). Moreover, the company has incorporated the Etihad Greenliner Program. It entails the allocation of resources for research and development toward aviation technologies that improve efficiency; thus, leading to lower carbon emissions. Under this program, Etihad has partnered with Boeing. For instance, the airline’s planes serve as testing and data collection facilities for the aircraft manufacturer.
An aircraft’s burning of fuel is one most substantial source of carbon emissions in the aviation sector. Accordingly, Etihad Airways has taken part in research on how to reduce the use of fossil fuels, and instead, shift to the use of biofuels. Consequently, in collaboration with its partners like Khalifa University and General Electric (GE), it has formed the Sustainable Bioenergy Research Consortium (SBRC) (Etihad Aviation Group, 2020). The consortium has developed synthetic fuels for use in some of Etihad’s airplanes. The fuels are made from recyclable materials; hence, reducing the carbon footprint of the company.
The company has also taken steps to reduce consumption of single-use plastics on its flights. In 2019, it trialled a flight without any single-use plastic commodities onboard. While it faces considerable challenges regarding eliminating the use of such material, it has committed to reducing them by 80% by 2022 (Etihad Aviation Group, 2020). Additionally, the company is also at the forefront of collecting real-time data from its airplanes for research on how to improve operational efficiency.
How Etihad’s Sustainability Efforts Affect Corporate Performance(2074)
Sustainability initiatives have implication not only for the environment but also for the corporate outlook of an organization. Camilleri (2017) contends that businesses should not perceive investing in sustainable initiatives as simply a cost. Instead, they should view it as an opportunity to innovate and obtain a competitive advantage.
One of the primary benefits that Etihad Airways can obtain from such initiatives is the improvement of its brand equity. A study done by Khandelwal et al. (2019) illustrates that there is a growing awareness of the need to conserve the environment. Consumers have become more sensitive to the carbon footprints that they create. Consequently, Khandelwal et al. (2019) note that many of them have begun taking proactive measures to reduce the emissions associated with their activities, including air travel.
Therefore, investing in environmental sustainability projects serves as a form of green marketing for a business. It helps to align its operations with the values of its consumers. The consequence of this occurrence is that it increases the brand equity of a company. It is difficult to quantify the value of brand equity that Etihad Airways derives from its sustainability initiatives. Nonetheless, failure to adopt such measures could have devastating effects on its financial bottom line. For instance, the International Finance Corporation [IFC] (2011), estimated that in 2010, following the Gulf of Mexico oil spill, the petroleum company, BP, lost an estimated $32 million a day in the value of its brand. Therefore, it is evident that the initiative has financial implications.
Notably, implementing a sustainable business model is an expensive undertaking. Therefore, Etihad Airways must realize that its initiatives will require financial resources. Currently, most of the sustainability activities it seeks to apply, like the use of synthetic fuels, are costly to undertake because they do not occur in large scale proportions. Accordingly, these costs are likely to increase the company’s expenditure, a factor that may reduce its profitability.
One of the sustainability initiatives of the airline entails the acquisition of new aircraft. Such aircraft are more efficient to operate; hence, leave a lower carbon footprint. However, the initial acquisition price of the planes is considerably high. For example, in its 2020 sustainability report, it notes that the price of a Dreamline, Boeing’s most fuel-efficient jet, is US$244 million (Etihad Aviation Group, 2020). The high cost of the aircraft may restrict the company’s ability to derive profits from its environmental sustainability initiatives. This situation is more likely considering that presently, it is challenging to adjust ticket prices to reflect the premium value of ecological conservation. The inability to raise ticket prices occurs because of the intense competition in the air industry; yet, it is a low margin business. As an illustration, Etihad Airways has in the recent past posted consistent year-on-year losses. For instance, in the year 2018, the company made a US$ 1.28 billion loss (Etihad Airways, 2019). While the loss is not linked directly to its sustainability activities, they had the effect of raising its expenditure.
Nevertheless, the management should approach the issue as an opportunity. For example, Etihad Airways can take advantage of its green credentials to improve its access to finance. The company’s management has already exploited its environmentally-friendly tag. According to its 2020 sustainability report, the management has been able to secure funding from the market because of its commitment to the United Nation’s (UN) Sustainable Development Goals (Etihad Aviation Group, 2020). Such funding is crucial, especially considering that the airline industry is a resource-intensive business.
One of the activities that Etihad Airways undertakes in its sustainable business model is the collection of real-time data from its flight and ground operations. The collection of statistics is vital for the corporate performance of an entity. This outcome is plausible because it provides the management with a complete overview of a company’s operations, and how they relate to critical success factors like profit and environmental conservation. For instance, the data collection drive has enabled the company to map the most efficient routes for its airplanes while taking into consideration external factors like weather conditions. Consequently, choosing the most efficient route helps to reduce fuel consumption. Such efficiencies are critical from a financial perspective because they help to reduce the cost outlay of the firm, especially considering that fuel forms the largest proportion of variable costs for an airline. Therefore, in the long run, the sustainability strategies would help the airline to lower its costs of operations.
Part of its sustainable initiatives includes investing in research and development, primarily through the SBRC initiative. From a financial planning perspective, the investment made in research is prudent. This circumstance arises because investing in research has several tax advantages. The government, as a means of incentivizing institutions to engage in research, offers tax breaks based on expenditures on R&D. Therefore, Etihad Airways can claim tax refunds or pay lower taxes because of this initiative. A lower tax burden improves the financial outlook of the company.
Assessing the actual impact of sustainable business practices from Etihad’s perspective is difficult. The challenge arises because it is not a publicly listed firm; hence, making it hard to assess the financial implications of the initiatives. Additionally, the company has, in the recent past, been making losses, a factor that paints a negative outlook on the investment. However, poor financial performance cannot be attributed to its investment in a sustainable business model alone. In future, the initiatives have created a suitable foundation on which the company can thrive.
Conclusion(2338)
Sustainability has become an emerging issue in business. The need to adopt sustainable business practices arises from the realization that a corporate is not merely a money-making venture. For an entity to remain a going concern, it must also live up to the expectations and ideals of the community. Currently, one of the values that define society is the growing awareness of the need to protect the environment. Accordingly, the environment is an essential pillar of sustainability that firms must address if they are to remain in line with their customers’ value propositions. However, investing in environmental sustainability is not merely for appeasing clients and regulators; it also has corporate implications. Despite the initial high cost of a sustainable business model, in the long run, it delivers significant cost savings to a business. Additionally, it also increases the brand equity of an organization, a factor that serves as a form of free marketing for the entity.
For the case of Etihad Airways, its management and employees have been at the forefront of implementing a sustainable business model, especially as it concerns the environmental pillar. Some of the initiatives taken include the acquisition of a younger fleet of aircraft and experimenting on synthetic fuels. These activities are yet to post a financial return for the company. Instead, they have led to an increase in expenditure. However, in the long term, they have set up the organization for success.
References
Alshehhi, A., Nobanee, H., & Khare, N. (2018). The Impact of Sustainability Practices on Corporate Financial Performance: Literature Trends and Future Research Potential. Sustainability, 10(2), 494. doi:10.3390/su10020494
Camilleri, M. A. (2017). Corporate sustainability and responsibility: creating value for business, society and the environment. Asian Journal of Sustainability and Social Responsibility, 2(1), 59–74. doi:10.1186/s41180-017-0016-5
Del Baldo, M., & Baldarelli, M.-G. (2017). Renewing and improving the business model toward sustainability in theory and practice. International Journal of Corporate Social Responsibility, 2(1), 1-13. doi:10.1186/s40991-017-0014-z
Etihad Aviation Group (2020). Towards sustainable aviation: A perspective from the Etihad Aviation Group.
Etihad Airways. (2018). Etihad Airways Improves Core Performance in 2018 as Transformation Continues. Etihad Global. https://www.etihad.com/en/about-us/etihad-news/archive/2019/etihad-airways-improves-core-performance-in-2018-as-transformation-continues/
International Finance Corporation [IFC] (2012). The Business Case for Sustainability. https://www.cbd.int/financial/mainstream/ifc-businesscase.pdf
Khandelwal, U., Kulshreshtha, K., & Tripathi, V. (2019). Importance of Consumer-based Green Brand Equity: Empirical Evidence. Paradigm, 23(1), 83-97. doi:10.1177/0971890719844428
Painter, M., Hibbert, S., & Cooper, T. (2018). The Development of Responsible and Sustainable Business Practice: Value, Mind-Sets, Business-Models. Journal of Business Ethics, 3(3), 1-7. doi:10.1007/s10551-018-3958-3