Putting ‘S’ into the Air Travel Supply Chain
The widespread corporate focus on ESG is nothing new. The ‘E’ (Environmental) is well established and sustainability is strongly embedded. The ‘G’ (Governance) is also a given, however ‘S’ (Social) is still gaining traction. While equally important, the social factors are often less visible within a company’s day-to-day operations. At the recent Ideas Exchange event hosted by FCM Meetings & Events, we asked Sarah Built, Etihad Airways General Manager for Australia & New Zealand, to discuss the airlines ‘S’ journey, especially in the supply chain.
Etihad has a dedicated and robust code of business conduct in the supply chain, which shapes the procurement principles. All Etihad employees are trained and commit to adhering to these principles and it’s required that suppliers adhere to them too. This code guides them every day and it's very important that whoever they work with shares those social values and principles.
“Every aspect of our supply chain needs to interlink with our whole ESG strategy. Anyone we do business with, and that might represent Etihad in any way, we're technically liable for. So, we make sure that our partners undergo appropriate due diligence and that they adhere to our code of ethical purchasing and supply.” Sarah explained.
Making conscious choices
Every choice Etihad makes in the supply chain space reflects the ESG practices - and then translates those principles into everyday operations. One of the big areas Etihad has focused on is choosing local suppliers. Obviously in a global company, you're going to have suppliers all over the world, however they maintain the importance of visibility in their supply chain. It's not always easy, because you can have principles that you want your suppliers to adhere to, but how do you actually monitor it? Can you see it? Where is the transparency?
“One of the remits of Etihad as an airline is to contribute to the economic development of the United Arab Emirates (UAE). So, it’s very important to us that we have as many local suppliers as possible. The UAE as a nation is little more than 52 years old, so it isn’t always possible for everything to be supplied locally. But we've done a lot of work to find local suppliers and to develop relationships with local businesses that have similar goals and principles.”
In 2020, Etihad developed a programme called Al Watani, where local UAE suppliers and international businesses that have a local presence can register to be a certified Etihad supplier. They must undergo a programme before being awarded a local content partner certificate for two years. “So, in procurement our policy is to choose local, transparent suppliers whenever possible.”
Mandating the social
The majority of companies want to do the right thing, but what happens if your supplier’s supply chain is not always particularly visible? That’s why company governance is an essential part of ESG. It's very important that companies don't just say the right things, but they also need to be measured on them too.
Etihad makes a point of focussing on local suppliers, because when you do, you have more transparency and visibility. You don’t have to travel to the other side of the world to find what is going on. “For example, an important part of vetting your supply chain needs to include looking for any evidence of issues such as modern slavery, especially in countries where it may be more prominent. You must take a big picture view and always have robust social policies around choosing suppliers.” Sarah shared.
Following the money trail
Procuring finance is yet another area where Etihad is embedding ESG policies, underpinned by an environmental, socioeconomic and ethical focus. “As a company, it’s not just about addressing the more visible and consumer focused areas of your business. Authenticity means making a commitment to look at every part of the business in line with your corporate ethics and Etihad has also successfully linked the raising of capital to ESG targets.”
In 2020, Etihad was the first airline in the world to launch a sustainability-linked Sukuk, which is a type of financial fundraising certificate. This followed the first aviation financing linked to the United Nations Sustainable Development Goals by Etihad in December 2019. The airline backed this commitment with a strict set of KPIs and agreed to penalties and incentives of up to USD5.5 million if they didn't abide by the principles of the financing package. It’s just another example of trying to do the right thing by both people and the planet – and making themselves accountable.
“Ultimately, the social strategy that goes on behind the scenes at Etihad is just as important as the more visible initiatives – such as changes that we have made to reduce our environmental impact. It’s about making robust, company-wide policies and decisions that permeate the entire organisation and are embedded in our DNA.”