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OPINION: Exploring ESG as a protective measure in the aviation industry

OPINION: The role of ESG as an aviation bulwark
ESG plays a role in aviation liabilities, especially when public perception is considered (Image credit: Svitlana/Adobe Stock)

The order of the day when it comes to corporate responsibility is the drive towards sustainability. With all eyes on aviation due to the ever-present safety concerns, the industry finds itself front and centre of global social requirements.

The ingrained anxieties of the past persist, and a mistake for an aircraft operator can be incomparably damaging when it comes to reputation. This is why having evidence and implementing the correct measures will assist in mitigating possible professional indemnity (PI) claims of errors and omissions.

Environmental, social and governance (ESG) is now critical in all aspects of aviation. Everyone involved has to consider sustainable practices. With new fuels coming in to support green transitions along with new technologies, combined with the need for the subsequent training and organisational requirements to deal with an increasingly turbulent aviation sector, it all adds up to necessitating ESG measures to support a potential future defence.

While this is an ambitious goal, it shouldn’t be considered a burden for firms to bear. At the heart of this journey are some very basic guideline measures that can lay the foundations for not just meeting ESG responsibilities but also enhancing one’s business reputation.

A culture of ESG supports reputation

A common underpinning of ensuring a positive reputation is creating a responsible culture across every level of an enterprise. Even being allegedly associated with an aircraft accident can negatively impact reputation. Therefore, it is vital to make safety a company’s core concern and implement safety-critical practices throughout all systems and controls.

While prevention is always preferrable, preparing for a potential claim is essential. In such cases, having evidence of safety-critical practices across the company can serve as a defence and a shield to protect a company’s reputation. Whilst it’s an obvious statement, it bears repeating that staff across a company should be sufficiently trained and understand their role.

However, it also requires managing client expectations and creating balanced contracts that accurately reflect industry standards and practices.

It is often the case that claims against aviation professionals have absolutely no merit. Usually, such claims are based on an expectation that was ultimately not reasonable – and not following industry practice.

Despite being refutable, however, it is still best to avoid them. Good contracting practices can help. When contracts are entered into, each party to the contract should know what’s expected of them and what services they expect to receive in return.

This is all part of effective communication relations, although these exist not just between companies and clients but also between management and staff. This is crucial, especially when companies operate globally.

Information silos within a company can also be problematic. A head office needs to be informed about branch adherence to central policies and procedures. This means communicating with leadership when changes are necessary to reflect local requirements.

This ensures the relevant protections are in place when, if push were to come to shove, there could be no identification of a breakdown of communications and cultural inadequacy. This is potentially a strong line of defence to a claim.

Internal policies and SOPs

While internal communication and good contracting practices serve as a bulwark when a PI claim is made, for aircraft managers, the spotlight often falls on its standard operation procedures (SOPs).

As a PI insurer, the International Transport Intermediaries Club (ITIC) frequently needs to assess whether these were sufficient to prevent this from occurring in the first place. ITIC inquires whether they were sufficient to help avoid the accident and mitigate the effects of any alleged negligence.

In the aftermath of an incident, aircraft operators — of whom a great many are aircraft managers — will examine the provisions of their SOPs in great detail. Where internal guidelines and SOPs are in place, they allow those looking after your defence to provide evidence that the appropriate systems and controls were in place.

ESG measures and public perception

ESG also plays a role in aviation liabilities, especially when public perception is considered.

However, it is important to differentiate here that aviation liability is a broad subject. In terms of the aviation industry’s legal liabilities, unless any of the provisions adopted under ESG measures become a statutory requirement, they are unlikely to affect the industry’s legal liabilities.

But their role is far more salient when we consider the public perception of general aviation, which can be seen as opaque and riddled with environmental concerns. ESG, when implemented effectively, can transform this perception.

It can hold companies accountable for the consequences of their actions and set standards against which they are measured. Adherence to ESG standards and practices ahead of time is not just a requirement but a powerful tool in developing and maintaining a company’s reputation.

One way of doing this is ensuring that staff are adequately trained. The ‘S’ in ESG also refers to standards in labour, health and safety and developing human capital.

The aviation sector is safety-critical, and passengers expect that when they board a plane, the aircraft and its operation will be safe. At the heart of this is well-trained cabin crew.

However, everyone involved in the aviation industry – from air charter brokers to CAMOs, and from aerospace designers to aircraft managers – has a role to ensure safe aircraft operation.

Accredited training programmes not only encourage safe aircraft operation but also encourage transparency and allow the company to demonstrate that they have met the prescribed standard.

They give the flying client, who are often unaware of the complexities of operating aircraft, a sound set of standards that can be used to make a more informed decision.

In the face of a PI claim, a company managing its public perception through the correct ESG measures is critical. While a problem can emanate from neglectful individuals’ acts, evidence of a well-trained response, should a claim occur, puts a company in a better position than if such evidence was not there.

Mitigating risks and managing PI claims

Future ESG reporting in aviation can mitigate risks and provide a clearer picture when analysing a business risk profile for PI insurance, which is needed when the policyholder is liable to a third party – typically a client – for damages they’ve incurred as a result of the policyholder’s negligent acts, errors or omissions.

Whilst ESG reporting is unlikely to be a direct factor in risk evaluation, a firm that can demonstrate good adherence to ESG principles is also likely to have high operating standards, a robust set of key performance indicators (KPIs), and good documenting and record-keeping processes. We look at each of these when analysing a company’s application for insurance.

One way of demonstrating an adherence to ESG is by managing environmental impacts head-on. This is arguably more so for general aviation, which is often viewed as the domain of a select few.

Environmental accountability will undoubtedly be woven into all future regulations applicable to aircraft operators. At present, many operators already exceed the existing ESG requirements.

Central to these regulations will be the use of sustainable aviation fuel (SAF) over traditional jet fuels. It will be essential that all aircraft management companies are confident in promoting its use to their clients.

When looking at insurance, specifically PI insurance, as a measure, it is important to provide more than just the policy. ITIC has long been involved in providing risk management advice and information sharing as part of the cover, even before claims are made.

The challenges of the future, such as sustainability and social responsibility, will be all-encompassing and PI insurers and the aviation industry will have to adapt accordingly.

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