RECENTLY, one of India’s largest airlines- Indigo—in order to showcase its efforts in sustainable aviation, issued an Environment Social Governance Report, i.e., an ESG Report—its first ever actually. One can critically observe that the issue of this report can be linked to the fact that Indigo is in the process of raising funds from QIP’S (Qualified Institutional Placement) amounting to Rs 3000 crores!
Hello QForum Readers… I would like to introduce myself. I am Vivek Arora – a CFA Level 2 candidate & working with an NBFC. My interest & enthusiasm towards finance are factors that led my path to pursue the CFA Program.
Today, I wish to throw some light on my observations & thoughts on ESG Reporting…I wouldn’t delve deep into it, but would like to highlight the important factors to update you on the matter. I would also like to draw some elements from our CFA curriculum & relate the same as I go along.
Coming back to QIPs….Indigo also aims to attract some Overseas Funds which want to invest in companies which are socially responsible. We can relate it with Transfer Coefficient as the investors who seek to invest in funds with social constraints are not able to fully transmit their skills and hence as a repercussion their Information Ratio also tends to decline.
Indigo is exploring the potential for using sustainable aviation fuel (SAF) and has signed a MOU with an SAF provider. This can be related to something that can be called as a rational move to solidify its image as someone who believes in ESG concept to lure and attract likeminded investors.
As this is the first report in the ESG field, they are the members of IATA (International Air Transportation Association) & are determined to be in the leading rank of airlines in this effort. We can associate it with regulation topic in economics as IATA is a SRB and it regulates its members.
Indigo has been undertaking steps in fleet modernisation by retiring airbus A320 CEO aircraft for more fuel efficient A320 Neo aircraft. We can say that it’s a precautionary step to avoid the additional supply costs– relate it with obsolete engines to be replaced when a government ruling comes (a perfect analogy with BS6 engines promoted by the government) . This will further improve the revenue of Indigo as it has targeted customer sentiment of “nature bachao abhyan”)
The airline has also mentioned that it has saved 4.67 lakh tonnes of ATF (Aviation Turbine Fuel) between 2014-15 to 2020-21.
As airlines are amongst the world’s largest carbon emitters, they have started taking steps to improve environmental impact– a move intended to appease both climate conscious consumers, regulators, and lenders. Banks are beginning to shun (avoid) high emitting industries–such as coal. There is a growing push to carbon intensive companies to make their operations greener. Additionally, government is also supporting greener initiatives– SIDBI coming to lend a helping hand for greener projects, a major push for government subsidy as well and a cleaner brand image.
Recently, American Airline Jetblue raised $550 million sustainable linked loan which was set by French bank BNP Paribas which is priced-based on ESG matters. We can link this with Green Bonds Concept jo premium par issue hota hai but usko observe karne ki costs zyada hoti hai plus isme green washing ka khatra zyada hai.
Conclusion: We can’t blindly trust ESG ratings as they are published based on the ESG data which is provided by the companies in their own format. Furthermore, it is voluntary to provide it & there are no regulatory standards to make its provision compulsory.
INVESTOR TAKE ON ESG INVESTING:
“Investors will increasingly favour aviation business/brands with high ESG ratings–signalling more resilience and creating long term business bets. ESG incentives in financing and investment present an opportunity for the aviation industry to shake off its reputation of green washing and to positively impact environmental sustainability over the long term”