MDE 1523 QUALITY MANAGEMENT AND TECHNIQUES

MDE 1523 QUALITY MANAGEMENT AND TECHNIQUESQUALITY OF ENVIRONMENTAL IN THE AIRLINE INDUSTRYMAT AZLANMDE 131138

Table of Contents

1. Introduction12. Aviation and the Environment23. Defining Corporate Social Responsibility53.1 Economic sustainability53.2 Social responsibility53.3 Environmental protection63.4 Communicating CSR63.4.1 Media for reporting CSR63.4.2 A sustainability reporting framework83.5 CSR reporting and the airline industry133.6 Environmental initiatives in the airline industry144. Conclusion18References21

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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. 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. Especially intergovernmental bodies, Non-Government Organizations (NGOs) and the general public encourage firms to behave socially responsible. 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.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 information on their environmental performance to reduce the possible political costs arising from their despised activities (Deegan and Gordon 1996, Meek et al. 1995). 2. Aviation and the Environment

The focus within this thesis lies upon the airline industry. The continuous growth of the aviation industry, the global importance of the industrys operations and its environmental impact 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 industrys 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 sectors 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 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) 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 respectively. 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. 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 Administration of China (CAAC) stated that airlines were not allowed to pay the EU charge, increase freight costs or add other fees. 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.

3. 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 managers 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. 3.1 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 organizations activities and the effect of these outcomes on a broad range of stakeholders.3.2 Social responsibility 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 companys 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. 3.3 Environmental protectionThis 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, and water), outputs (waste, effluents, emissions) and the mode of impact an organization has on its environment. Organizational energy use can be split into direct and indirect energy. Direct energy is energy that was consumed by the companys 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. 3.4 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 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. 3.4.1 Media for reporting CSRSustainability 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 realize. Taking a look at the Corporate Value Chain (Scope 3) Accounting and Reporting Standard of the Greenhouse Gas Protocol reads that the GHG accounting and reporting of emission inventory shall be based on the following principles: relevance, completeness, consistency, transparency, and accuracy. 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 companys policy on sustainability issues, describes the problems it encounters and presents CSR performance. Systematic sustainability reporting gives comparable data, with agreed disclosures and metrics. 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 companys 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% 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 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. 3.4.2 A sustainability reporting frameworkCSR 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 (Mrquez 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 AccountAbilitys 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 socialsustainability. It pioneered the worlds 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 processes. 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 performance. 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 cornerstones 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, NGOs, consultants, auditing companies and associations. The diversity in parties involved in the development of the guidelines is a key in the creation of a support base for the proposed guidelines. Although GRI is not free from criticism, 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%. A first draft of the fourth generation of GRIs 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. G4s 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 GRIs 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 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 companys 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 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 notgrades, donot 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 organizations 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

EUROPE

Denmark 2009The countrys 1,100 largest listed companies are required to include use of natural resources and overall CSR performance in their annual report.

France2009Listed 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.

Germany2004Companies are required to report annually on key financial and non-financial indicators that materially affect the company.

Greece2006An analysis of environmental and social aspects necessary for an understanding of the companys development, performance or position should be included in the directors reports.

Italy2007material environmental, social and governance (ESG) factors are to to be included in annual corporate reporting.

The Netherlands1999Companies are required to publish information on their environmental performance and environmental management system.

Sweden2007State-owned companies are required to publish sustainability reports in accordance with GRI guidelines.

United Kingdom2010Listed 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-PACIFIC

Australia2001Listed companies are required to disclose violations of environmental legislation in their annual report.

China2008Listed companies are required to disclose more information about their environmental record.

India2008The board of directors reports must contain information on conservation of energy.

Indonesia2007Companies involved in operations that affect natural resources are obligated to create, implement, and disclose CSR programs.

Japan2005Specified 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 2007Listed companies are required to publish CSR information on a "comply or explain" basis.

LATIN-AMERICA

Argentina2008Local and international companies with >300 employees are required to generate annual sustainability reports in accordance with GRI guidelines.

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

NORTH-AMERICA

Canada1999Listed companies are required to provide information on specific pollutant emissions.

United States2010Large emitters of GHG are to report data on their GHG emissions.

AFRICA

South-Africa2009Listed companies are required to publish an integrated report.

Table 1: Overview of CSR disclosure requirements3.5 CSR reporting and the airline industryStakeholder 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. 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). 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 industries. 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). 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. 3.6 Environmental initiatives in the airline industryThe aviation community airlines, airport operators, aircraft manufacturers and policymakers has shown various environmental initiatives, allowing it to serve as a more sustainable industry. The International Air Transport Association (IATA) has established a four pillar strategy to achieve sustainable aviation. The strategy is described in IATAs report A global approach to reducing aviation emissions (2009). The strategys 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.

Figure 2: The 4 pillar strategy proposed by IATARevolutionary 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 NGOs 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 washing removes surface contaminants and lowers the engines operating temperature, which extends engine life and reduces its fuel consumption.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 cost. 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 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 IATAs 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 aircrafts 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 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 Organization (ICAO), also referred to as the ICAO Chapter 4 requirements.

4. Conclusion

The 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 comparability between companies has improved; comparability over time improves due to a wide-spread use of the GRI guidelines, which 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 todays 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 seems to have improved and there seems to be a continual increasing development towards meeting stakeholder requests. 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 doesnt 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 worlds 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 Ethiopians CSR-newsletter. This is in pale contrast to KLM currently operating scheduled flights with aircrafts fueled by bio-jets.

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