Strong regulatory interventions and rapidly growing stakeholder expectations have moved the onus of winning the climate race to corporate organizations

Enoch Opare

<p><span style="font-weight: 400;">The recent IPCC report has been validated by the recent heatwaves across the UK, parts of Europe and America, not to mention the plethora of current flood and fire disaster references to corroborate the significant impact of climate change. Simply put, there is no politicking about the reality or truth of climate change although approaches to mitigating its challenges show otherwise.&nbsp;</span></p>
<p><span style="font-weight: 400;">While climate change and climate-induced disasters are no new phenomenon due to the verifiable history of their impact, the clarion call and urgency for climate change mitigation actions have been fueled by, for example, the proliferation of ESG-related initiatives and activities - investing, practices and disclosures. While there is no single approach to building a concerted effort to fight climate change, strong regulatory interventions (see, for example, EU CSRD) and rapidly growing stakeholder expectations have moved the onus of winning the climate race to corporate organizations, especially listed and large firms, to act as primary response agents to climate change. Thus, embedding sustainability or ESG related actions into the business models and practices of corporate organizations is being encouraged to be the &ldquo;business as usual&rdquo; practice for most enterprises.&nbsp;</span></p>
<h2><strong>ESG disclosure standards and ESG rating companies&nbsp;</strong></h2>
<p><span style="font-weight: 400;">To help organizations speak the same ESG language in terms of what is measured and how, and for easy interpretation by readers of annual and sustainability reports, the influx of disclosure frameworks and standards, which some have headed for harmonization, has been instrumental in the climate fight. In fact, there may be some complications or complexities in the definitions and measurements of materiality on whether it has to be inside-out, outside-in, or both, or whether it has to be single or double (I think the doubles have it). </span></p>
<p><span style="font-weight: 400;">However, the response from stakeholders to the framework and standards community has most often than not been very friendly. However, ESG rating companies acting as accountability performance watchdogs to help applaud or shame organizations for stakeholder benefits have been smeared in a lot of controversies lately. Topical amongst these controversies have bothered the methodologies employed by these rating agencies and for example, why Sin Stock companies like Philip Morris International and British American Tobacco will score higher and be deemed more ethical and environmentally friendly than a full electric company like Tesla (don&rsquo;t debate yet, just let it be).&nbsp;&nbsp;</span></p>
<p><span style="font-weight: 400;">Today, the controversies behind ESG ratings, the growing stakeholder confusion and polemics over which rating company is close to accuracy, organizations&rsquo; strive for good ESG ratings for investor confidence, ESG linked compensations for top corporate executives, CEO ESG-linked remunerations amongst others, have made the ESG tool for climate change seem feeble. The unbridled will by corporate executives (management) to do everything possible to look good on ESG ratings with others ignoring completely the authenticity of these ratings has now left us with two critical questions to answer. First, who in the corporate governance structure can stir effective ESG dialogue, education and supervisory functions? And second, if ESG ratings smeared in controversies have failed to motivate corporate organisation to improve their ESG performance, then what alternatives will?</span></p>
<h2><strong>The &ldquo;help button&rdquo; for agency problems&nbsp;</strong></h2>
<p><span style="font-weight: 400;">The agency theory raises the question about monitoring and control issues that arises from the conflict of interest between executive management and shareholders (Hossain et al., 1995). Within the context of this theory, the fiduciary duties assigned to management by shareholders to maximize the wealth of the latter while acknowledging the interest and power of the former typify the conflicts between these two parties (Barako et al., 2006). Managers, who deal directly with business activity, have a significant information advantage causing information asymmetry, whereas shareholders confront significant moral quandaries because they cannot accurately evaluate managers' decisions (Donnelly and Mulcahy, 2008). </span></p>
<p><span style="font-weight: 400;">To reduce this tension, including that of information asymmetry, the presence of the board of directors becomes an inevitable unit to diffuse this tension by offering impartial advisory and supervisory functions of monitoring, ensuring transparency, accountability and control to protect the interest of shareholders while doing same for management (Vitolla et al., 2020). These functions of the board of directors via &ldquo;a social contract&rdquo; also extends to other stakeholders who have a vested interest in the organization such as employees, customers, regulators, civil society organizations, suppliers and whatnot.&nbsp;</span></p>
<h2><strong>The board of directors and motivation sources&nbsp;&nbsp;</strong></h2>
<p><span style="font-weight: 400;">From the afore-argued, the board of directors becomes a strategic help button and lifeline to demand and ensure authentic ESG commitments from all and sundry in the organization based on their &ldquo;expected impartial will&rdquo; to promote and protect the realization of the &ldquo;E&rdquo; and &ldquo;S&rdquo; of ESG which answers the first question of our dilemma. Definitely, there should be a motivating factor, which some have alluded to boards&rsquo; conscience, independence and mindset to promote responsible business. </span></p>
<p><span style="font-weight: 400;">While these serve as the bedrock for board effectiveness on ESG decisions, proponents of ESG ratings as a critical motivating factor would have to rethink this approach as some boards are divided on the authenticity of these ratings. A board member of a listed company recently told me and I quote, </span></p>
<blockquote>
<p><em><span style="font-weight: 400;">&ldquo;Should we decide to use these ESG ratings as key milestone for our efforts, which do we go with because four different ESG rating firms have four different scores for us. Some scores are up, others are down. And guess what, on the matters of ratings we are always divided as a board&rdquo;</span></em><span style="font-weight: 400;">. </span></p>
</blockquote>
<p><span style="font-weight: 400;">While some directors may have an affinity for Bloomberg or S&amp;P based on their methodology, others are vehemently arguing for the adoption of scores from Refinitiv on the same methodology issues. Concerns of data manipulations and the very topical Sin Stock rating effect are making the ESG rating controversy worse, although I must admit that the contribution of these rating firms to the climate change fight cannot be underestimated. Recent research by Scientific Beta revealed that for example, </span></p>
<blockquote>
<p><em><span style="font-weight: 400;">&ldquo;ESG ratings have little to no relation to carbon intensity, even when considering only the environmental pillar of these ratings,&rdquo;</span></em><span style="font-weight: 400;"> (Johnson, 2023). From these, the reliance on ESG ratings as a motivating factor for ESG actions and performance may dwindle, which urgently calls for another strong motivating factor which is devoid of controversy and speaks for itself, viz, the climate migration knowledge effect.&nbsp;</span></p>
</blockquote>
<h2><strong>Climate migration or climate induced migration&nbsp;&nbsp;</strong></h2>
<p><span style="font-weight: 400;">The domino effect of climate change is interconnected. A rise in temperature or sea levels for instance significantly affects food security, water and air quality, health and wellbeing, economic access, and career choices with its accompanying gender issues. In all of these, the immediate impact on climate-exposed victims whose livelihoods, societies and economies are destabilized, creating unlivable conditions, is naturally a force out with the option of climate-induced migration the only way out. Simply engaging one of these victims, especially the young people, whether they are living in developed economies and supporting their families back home, or the squashed aspirations of a new climate immigrant, will reveal the necessity of &ldquo;Environmental&rdquo; and &ldquo;Social&rdquo; in the ESG bout. This necessity is not the mere going beyond regulatory compliance or meeting stakeholder expectation enthusiasm, but a raw motivation to change the status quo. The picture of the wildfires at Rhodes Island and Corfu last month (June 2023), where you literally see tourists, not dwellers, fleeing for their lives because at least, they have a place they can call home, is the least seen torture climate migrants have fled from. If a board is motivated by such realities of climate induced migration where their guiding principles in pushing for ESG are borne not out of ESG ratings but by the former, the board of directors&rsquo; ESG lens projects beyond the short to the long term. Staying far away from the realities of climate change should not in any way make board members less concerns of its rippling effects on all facets of society.</span></p>
<h2><strong>Where to start and how to keep up the pace</strong></h2>
<h3><strong>Refresher briefings on climate induced migration&nbsp;</strong></h3>
<p><span style="font-weight: 400;">Providing refresher briefings on how climate induced migration knowledge can boost the ESG decision-making process is a good kick-off for the board of directors&rsquo; awareness which can be made available through the company secretary&rsquo;s (CoSec) office and its allied governance personnel. As the board of directors has financial and non-financial issues to discuss on the board agenda, it may seem that adding another topic to the already daunting and time-constrained meeting may be untenable. Sending these briefings as case studies, especially those that are tailored to the organizations&rsquo; material issues could be a turning point for ESG thinking at the board level. Depending on the organizational needs, these briefings can be sent out on a monthly or quarterly basis.</span></p>
<h3><strong>Board of directors&rsquo; engagement with management&nbsp;</strong></h3>
<p><span style="font-weight: 400;">While the board of directors has a clear understanding of climate migration as a key driver to ESG decision making process at the board level, acting as the change agents from the top, owing to their advisory and supervisory function, can alter management culture, thinking and approach to tackling ESG related concerns for the organization. Thus, motivation for ESG will not come from and be geared towards looking good on ESG rating platforms, but a corporate will to do what is ethically right while staying committed to the course of ESG regardless of what the ratings say.</span></p>
<h3><strong>Corporate townhall employee meetings&nbsp;</strong></h3>
<p><span style="font-weight: 400;">Traditionally, town-hall meetings have been great avenues for both in and out-house engagements for education and knowledge exchange. While this happens in person traditionally, the power of virtual meetings has made congregation easier. Town-hall meetings with employees led by board members who employees may have never seen in person or engaged online with before will be strategic in drumming home the education on how climate induced migration knowledge can be a game-changer in redefining commitment to ESG activities and actions.</span></p>
<p><span style="font-weight: 400;">Where ESG ratings have failed or may seem controversial in motivating board decisions on ESG, climate migration awareness and knowledge may be the right dose of energy to motivate the board of directors&rsquo; ESG decision making thinking and process.</span></p>
<h3><strong>References&nbsp;</strong></h3>
<p><span style="font-weight: 400;">Barako, D. G., Hancock, P., &amp; Izan, H. Y. (2006). Factors influencing voluntary corporate disclosure by Kenyan companies. Corporate Governance: An International Review, 14(2), 107&ndash; 125.</span></p>
<p><span style="font-weight: 400;">Donnelly, R. and Mulcahy, M., (2008) Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review, 16(5), pp.416-429.</span></p>
<p><span style="font-weight: 400;">Hossain, M., Perera, M.H.B. and Rahman, A.R., (1995) Voluntary disclosure in the annual reports of New Zealand companies. Journal of International Financial Management &amp; Accounting, 6(1), pp.69-87.</span></p>
<p><span style="font-weight: 400;">Institute for Economics and Peace &ndash;IEP (2020) Over one billion people at threat of being displaced by 2050 due to environmental change, conflict and civil unrest. Available at: </span><a href="https://www.economicsandpeace.org/wp-content/uploads/2020/09/Ecological-Threat-Register-Press-Release-27.08-FINAL.pdf"><span style="font-weight: 400;">https://www.economicsandpeace.org/wp-content/uploads/2020/09/Ecological-Threat-Register-Press-Release-27.08-FINAL.pdf</span></a><span style="font-weight: 400;"> [Accessed 28/07/2023]</span></p>
<p><span style="font-weight: 400;">Johnson, S. (2023) Companies with good ESG scores pollute as much as low-rated rivals. Available at: </span><a href="https://www.ft.com/content/b9582d62-cc6f-4b76-b0f9-5b37cf15dce4"><span style="font-weight: 400;">https://www.ft.com/content/b9582d62-cc6f-4b76-b0f9-5b37cf15dce4</span></a><span style="font-weight: 400;"> [Accessed 31/07/2023]</span></p>
<p><span style="font-weight: 400;">McAllister, S. (2023) There could be 1.2 billion climate refugees by 2050. Here&rsquo;s what you need to know. Available online: </span><a href="https://www.zurich.com/en/media/magazine/2022/there-could-be-1-2-billion-climate-refugees-by-2050-here-s-what-you-need-to-know"><span style="font-weight: 400;">https://www.zurich.com/en/media/magazine/2022/there-could-be-1-2-billion-climate-refugees-by-2050-here-s-what-you-need-to-know</span></a><span style="font-weight: 400;"> [Accessed 31/07/2023]</span></p>
<p><span style="font-weight: 400;">UNHCR (2016) Frequently asked questions on climate change and disaster displacement. Available online: </span><a href="https://www.unhcr.org/uk/news/stories/frequently-asked-questions-climate-change-and-disaster-displacement"><span style="font-weight: 400;">https://www.unhcr.org/uk/news/stories/frequently-asked-questions-climate-change-and-disaster-displacement</span></a><span style="font-weight: 400;"> [Accessed 31/07/2023]</span></p>
<p><span style="font-weight: 400;">Vitolla, F., Raimo, N. and Rubino, M., (2020) Board characteristics and integrated reporting quality: An agency theory perspective. Corporate Social Responsibility and Environmental Management, 27(2), pp.1152-1163.</span></p>
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<p><em>Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></p>
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Motivating boardroom ESG decisions: ESG ratings vs. climate migration

There is an urgent need to pay more attention to the growing use of plastics in the aerospace industry

Daniel F.

<p><span style="font-weight: 400;">The race to enhance aerodynamics' efficiency, cost-effectiveness and sustainability practices in the global aircraft manufacturing market has caused industry big players such as Airbus, Boeing, Embraer, Raytheon Technologies, Northrop Grumman, General Electric, Leonardo, Bombardier and others, to adopt material, design, and technological innovations not to only remain competitive but to play the leading role in the Net Zero duel. </span></p>
<p><span style="font-weight: 400;">This is no joke as a </span><a href="https://www.polarismarketresearch.com/industry-analysis/aircraft-manufacturing-market"><span style="font-weight: 400;">recent study by Polaris Market Research</span></a><span style="font-weight: 400;"> forecast the aircraft manufacturing market to be worth an estimated $626 billion in 2030 from its current estimate of $413 billion in 2021, with the aerospace plastics market projected to grow at a Compound Annual Growth Rate (CAGR) in the excess of 6.8% from 2021 to 2026. The projected increase in passenger traffic post-pandemic as forecasted by the International Air Transport Association (IATA), International Civil Aviation Organization (ICAO) and Airport Councils International (ACI) provides assurances of the booming days ahead for the manufacturing industry as they strive to meet new aircraft demands amidst manufacturing bottlenecks.</span></p>
<h2><strong>The game-changing effect of plastics on the aviation industry&nbsp;</strong></h2>
<p><span style="font-weight: 400;">The use of plastics in aircraft manufacturing dates back over 70 years. However, its application in the 1970s in a post-World War II world quadrupled as Airbus and Boeing began experimenting with the first </span><a href="https://mag.k-online.com/en/Plastics_in_Aviation"><span style="font-weight: 400;">carbon fiber reinforced plastic (CFRP) components</span></a><span style="font-weight: 400;">. This revolutionized the industry and continues to have a game-changing impact today as reinforced polymers have significantly altered how airframes are designed and built in civilian, commercial and freighter, and military aircraft. </span><a href="https://mag.k-online.com/en/Plastics_in_Aviation"><span style="font-weight: 400;">For example, the Boeing 787 Dreamliner entered service in 2011 as the first long-haul commercial aircraft made of 50% plastic while Airbus introduced the A350 a few years later with a 52% fibre-reinforced plastic (FRP) content.</span></a><span style="font-weight: 400;"> A wide variety of </span><a href="https://www.plastivision.org/blog/5-types-of-plastic-used-in-the-aerospace-industry/"><span style="font-weight: 400;">plastics</span></a><span style="font-weight: 400;"> (Polyetheretherketone</span><span style="font-weight: 400;"> </span><span style="font-weight: 400;">(PEEK), Polyphenylene Sulfide (PPS), Thermosetting Polyimide, Polyamide-imide</span><span style="font-weight: 400;"> </span><span style="font-weight: 400;">(PAI), Acrylonitrile butadiene styrene (ABS), Polychlorotrifluoroethylene</span><span style="font-weight: 400;"> </span><span style="font-weight: 400;">(PCTFE), Polymethyl methacrylate (PMMA), Polytetrafluoroethylene</span><span style="font-weight: 400;"> </span><span style="font-weight: 400;">(PTFE), etc.) are used in the manufacturing process from structural components, navigational functions, aircraft doors, aircraft engines, control panels and electrical electronics, air ducts, exterior panels, luggage storage compartments to interior wall panels amongst others. </span></p>
<p><span style="font-weight: 400;">The advantages of aircraft weight reduction, production speed, cost-efficiencies, fuel efficiency, corrosion, and chemical and impact resistance make plastics a desirable choice over metal and glass materials for manufacturing. Plastics are also used as ideal materials in the packaging and protection of aerospace equipment during handling and shipping which offers benefits including protection from shocks, erosion, vibrations, extreme temperatures and humidity. Moreover, plastics offer freedom in assembly, versatility, flexibility and </span><span style="font-weight: 400;">customizability</span><span style="font-weight: 400;"> of complex geometric designs and shapes.&nbsp;</span></p>
<p><span style="font-weight: 400;">These varied uses and benefits of plastics in the aircraft manufacturing ecosystem have created a massive aerospace plastic industry with leading industry players such as Victrex plc, Ensinger, SABIC, Solvay, BASF SE, Evonik and Industries AG developing different plastic products to solidify their competitive market position. Most importantly, the recent </span><a href="https://www.grandviewresearch.com/industry-analysis/aerospace-plastics-market"><span style="font-weight: 400;">Aerospace Plastics Market Report (2023)</span></a><span style="font-weight: 400;"> discloses an estimated market size value of $7.61 billion in 2023 with a projected value of $13.89 billion in 2030. </span></p>
<p><span style="font-weight: 400;">The expanding demand for plastics for various aerospace applications and functions is anticipated to propel the expansion of the aerospace plastics industry, which also explains why the oil and gas industries are diversifying into the plastic industry. While this expansion cannot be hindered, the argument for sustainable plastics usage in this industry cannot be undervalued as the whole supply and value chain of the manufacturing process makes use of plastics in one way or the other. Thus, the question of how aircraft manufacturers and aerospace plastic producers understand the fatigue limits of the plastics used in this industry, the strategy for &ldquo;sustainable disposal&rdquo; of plastics during the production of aircrafts, and the &ldquo;sustainable end of life management&rdquo; of plastics components from obsolete aircraft is a topical issue that needs more attention for the future of plastics in the aviation industry considering that most plastics used in aircraft manufacturing are currently not recyclable.&nbsp;&nbsp;</span></p>
<h2><strong>Management of plastics by aircraft manufacturing&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Currently, the aviation industry contracts the services of the Maintenance, Repair, and Overhaul (MRO) industry for a myriad of aerospace applications with companies in Southeast Asia dominating the field as a result of government policies such as duty-free imports and tax incentives that impact positively on MRO service delivery. Though such policies enhance the business of the MRO industry in reaching more airlines, it does not impact what they do with recovered aircraft components such as plastics nor does it impact how recycling companies in the aviation space operate in terms of end-of-life management of plastics. </span></p>
<p><span style="font-weight: 400;">Plastic composites are presently not recyclable and therefore MRO companies and recycling companies within the aviation industry result in old waste management practices such as incineration and landfilling which is not environmentally sustainable in the long run. Thus, most recovered plastics and leftover plastics during the production of aircrafts are barely reused as secondary unconsumed plastics in making new aircrafts, further compounding the issue of fast-depleting landfill space and the overreliance on fossil fuel for raw materials to produce fossil fuel-derived plastics. </span></p>
<p><span style="font-weight: 400;">Even though recycling is touted as one of the best options for plastic waste management, </span><a href="https://doi.org/10.1016/B978-0-12-396459-5.00013-1"><span style="font-weight: 400;">research</span></a><span style="font-weight: 400;"> shows that volatile gases which kill plant structures and wildlife when inhaled are released during the recycling process. This also contributes to greenhouse gas emissions and acid rain affecting the terrestrial and aquatic environment (biodiversity loss) in diverse ways especially those residing close to recycling plants. Aircrafts that are left in huge graveyards for aging and retired aircrafts are exposed to environmental conditions results in the the fragmentation of the plastic parts in aircrafts, contributing to microplastic pollution. The ensuing paragraphs, therefore, highlight some recommendations the aviation industry could adopt to engender the sustainable use of plastics in the aircraft manufacturing and servicing industry.</span></p>
<h2><strong>Green investment in alternatives</strong></h2>
<p><span style="font-weight: 400;">While </span><a href="https://www.assemblymag.com/articles/94125-the-growing-role-of-plastics-in-aerospace-assembly"><span style="font-weight: 400;">plastics</span></a><span style="font-weight: 400;"> are a </span><a href="https://www.mobilityengineeringtech.com/component/content/article/adt/pub/features/articles/32727"><span style="font-weight: 400;">burgeoning component in aerospace manufacturing</span></a><span style="font-weight: 400;">, aviation manufacturers should avert their actions to investing in green aerospace technologies that maximize plastic use and eliminate or limit plastic waste during aircraft manufacturing. Plastics still present a lot of </span><a href="https://www.thomasnet.com/insights/the-benefits-of-using-plastic-parts-in-aerospace-applications/"><span style="font-weight: 400;">limitations</span></a><span style="font-weight: 400;"> in this sector such as deformity issues, fatigue limits, and brittleness (generating microplastics) during the extended service life of aircrafts. Investing in research to develop alternatives that are resistant to these issues is key to ensuring safety. </span></p>
<p><span style="font-weight: 400;">Additionally, investing in procuring plastic alternatives that have the ability to be recycled with little to no emissions during their end-of-life stage is also crucial. Plastic producers for the aviation industry could also test non-fossil fuel-derived plastics to limit overreliance on fossil fuel-derived plastics. Research and development among industry players should also be encouraged to allow co-learning and collaboration in the field to prevent the use of plastic resins that do not currently have an end-of-life management plan. Investment should also focus on advancing technologies that can effectively manage plastics that are currently used in aircraft manufacturing which would contribute to reducing the plastic footprint of the aviation industry.</span></p>
<h2><strong>Develop and fully implement international sustainability criteria for plastic use in aircraft manufacturing</strong></h2>
<p><span style="font-weight: 400;">The ongoing negotiation of the global plastic treaty is considering the development of international sustainability criteria to harmonize plastics use towards sustainability. Aircraft manufacturers, their associated original equipment manufacturers (OEMs), relevant stakeholders such as (IATA and ICAO) and </span><a href="https://www.mordorintelligence.com/industry-reports/aerospace-plastics-market"><span style="font-weight: 400;">aerospace plastic market leaders</span></a><span style="font-weight: 400;"> (including Paco Plastics Inc., 3P Performance Plastics products, Loar Group Inc., Ensinger GmbH, Toray Industries, Inc.,) could work together to develop international sustainability criteria for plastics used by aerospace OEMs patterned after the proposed international sustainability criteria for plastics being considered for the global plastic treaty. </span></p>
<p><span style="font-weight: 400;">Adopting such an approach could be a similar procedure to harmonize plastics that are used in the aircraft manufacturing space and therefore limiting the complexity of the plastic waste stream that is generated. As plastics have more than </span><a href="https://pubs.acs.org/doi/full/10.1021/acs.est.1c00976?source=cen"><span style="font-weight: 400;">10,000 chemical additives, processing aids, and monomers with over 2000 recognized as being potentially hazardous</span></a><span style="font-weight: 400;">, the criteria could specify inter alia the additives to be used; types of plastic resins to be used for plastic used in aircraft manufacturing; labeling; circularity measures; its end-user application; flame, smoke, and toxicity (FST) standards; annual plastic sustainability report, the management of plastic residue (including macro, micro and nano-plastics) in the production stage, end-of-life management such as pyrolysis as </span><a href="https://insights.globalspec.com/article/12596/thermoplastic-composites-for-aerospace-applications"><span style="font-weight: 400;">thermoplastics composites are increasingly being used in aerospace applications compared to thermoset composites</span></a><span style="font-weight: 400;">; and bioremediation.</span></p>
<h2><strong>Adhering to existing international treaties and environmental management systems&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Since plastics are primarily made of chemicals and carbon, it is imperative that the aerospace plastic industry adheres to the tenets of existing treaties that regulate chemicals and some aspects of plastics (for example, plastic trade) such as the </span><a href="http://www.basel.int/tabid/8335"><span style="font-weight: 400;">Basel, Rotterdam, and Stockholm (BRS) Conventions</span></a><span style="font-weight: 400;">. Others associated with human health, safety, and the environment include inter alia </span><a href="https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12000:0::NO:::"><span style="font-weight: 400;">International Labour Organisation (ILO) Conventions</span></a><span style="font-weight: 400;"> such as the Chemicals Conventions, Benzene Convention, Occupational Safety and Health Convention, and the Promotional Framework for Occupational Safety and Health Convention. </span></p>
<p><span style="font-weight: 400;">Additionally, environmental management systems such as </span><a href="https://www.iso.org/standard/60857.html"><span style="font-weight: 400;">ISO 14001</span></a><span style="font-weight: 400;"> which covers pollution prevention and compliance could also be adopted.</span></p>
<h2><strong>Governmental policies&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Domestic legislation has already been used in banning some single-use plastics in many countries such as Bangladesh, Kenya, the United Kingdom, Rwanda, and France. The use of domestic legislation to ban or restrict the use of plastics with no end-of-life management option could also be considered. Economic measures such as taxes and incentive-based solutions could be used as a two-edged sword &ndash; in encouraging or reprimanding companies manufacturing plastic for the aviation manufacturing industry and aviation manufacturers themselves to up their game as far as using sustainable plastics is concerned.&nbsp;</span></p>
<h2><strong>Concluding remarks&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Plastics undoubtedly have contributed to enhancing the daily lives of people through their basic applications across various economic sectors. However, their physicochemical composition has negatively impacted human health and the environment. Adopting the aforementioned measures could serve as a step in the right direction for the aviation (plastic) manufacturing industry to minimize plastic pollution and by extension their plastic footprint towards a more sustainable use of plastics.</span></p>
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<p><em>Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></p>
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The use of sustainable plastics in aviation (I/II): do aircraft manufacturers have a strategy for disposal and reuse?

The tactical functions of compensation and rewards can also be extended to the sustainability discourse and strategy of an organization. 

<p><span style="font-weight: 400;">Several studies both from academic research papers and corporate reports have evidenced the integral and inevitable role played by compensation and rewards in employee recruitment, retention, satisfaction, motivation and productivity (Rojikinnor et al., 2022; Ben-Gal et al., 2022; Sija, 2022; Putra and Mujiati, 2022; HRReporter, 2021). The advertisement of job roles across all industries today have evolved from the traditional profiling of the positions with attached salaries to a comprehensive presentation of the whole remuneration or benefits package. Generally, companies define their competitive offers with proxies such as enhanced pension, private health and employee discount schemes, annual pay reviews, profit-related pay and training and progression opportunities. The place of perks has also evolved over the past decade or two as part of the rewards schemes operated by companies.</span></p>
<h2><strong>Core stakeholder audience&nbsp;</strong></h2>
<p><span style="font-weight: 400;">The HR function concerned with compensation and rewards is always brainstorming for creative and innovative ideas to model their benefits scheme as a strategic selling point to employees as an assurance of competitive compensation for their talents, skills and commitment, to investors as an affirmation of a well-motivated pool of talented employees working towards shareholders&rsquo; wealth maximization and to customers as a pledge of a conducive working environment for an excellent customer experience and service delivery. That's not all, however - the tactical functions of compensation and rewards can also be extended to the sustainability discourse and strategy of an organization.&nbsp;</span></p>
<h2><strong>Employees&rsquo; sustainable lifestyle&nbsp;&nbsp;</strong></h2>
<p><span style="font-weight: 400;">While companies are striving to improve their sustainability practices and outcomes, especially with Scope 3 emissions measurement and reduction, the subject of employees&rsquo; sustainable lifestyle has generally focused on carbon footprint reduction in areas such as the type of transportation used for commuting, food and waste disposal. </span></p>
<p><span style="font-weight: 400;">Largely, organizations&rsquo; supportive sustainability-funded schemes have focused on initiatives such as employee discounts for electric bike purchases, incentives for bus users and whatnot, but this article argues that employee compensation and rewards schemes as a whole can be redesigned in an innovative way where existing resources and channels can be used to improve employees&rsquo; sustainable living and behaviour.&nbsp;</span></p>
<h2><strong>Insights from Deloitte Customer Sustainability Report</strong></h2>
<p><span style="font-weight: 400;">A recent survey by Deloitte on how consumers are embracing sustainability revealed that pro-recycling behaviour, reduced food wastage and limited use of single-use plastics were amongst the top sustainability efforts (Deloitte SCB Report, 2022). However, on the main barriers to adopting a more sustainable lifestyle, the top five responses were, &ldquo;Its too expensive&rdquo;, &ldquo;I&rsquo;m not interested&rdquo;, &ldquo;I don&rsquo;t have enough information&rdquo;, &ldquo;I don&rsquo;t believe it makes a difference&rdquo; and &ldquo;it&rsquo;s too complicated/difficult to do&rdquo; respectively. If employees are proxied as customers and vice versa, then these responses highlight two critical issues of employee spending power and sustainability education. This is where reimagining compensation and reward becomes strategic.</span></p>
<h2><strong>Conducting a materiality assessment&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Conducting a materiality assessment on what entails the needs and barriers to employees&rsquo; sustainable lifestyle can be the first and major step to developing a matrix that can help an organization in designing, prioritizing and embedding sustainability education and incentives in the compensation and rewards policy and scheme of your organization. Thus, compensation and rewards then become the ignition and incentive to drive information sharing, individual-tailored education and improving employees&rsquo; purchasing power and choices. Thus, gift cards and vouchers given out through rewards and compensation will be tailored to shops and platforms that meet the sustainable lifestyle needs of employees.&nbsp;</span></p>
<h2><strong>Redesigning/rethinking compensation and rewards&nbsp;</strong></h2>
<p><span style="font-weight: 400;">This does not require expanding the budget or looking into other sources of finance but specifically realigning the focus of existing rewards to consider sustainable activities and products. For example, instead of giving Amazon and Love to Shop gift vouchers to employees to shop on these platforms, HR can look at a broader view of targeting and including companies that are comprehensively using and producing sustainable products. Where perks amount to $100, HR could give $120 for employees who will love to purchase from stores that use solely sustainably sourced products for fashion, furniture to kitchen wares, and the list is endless. For platforms such as Tentree where a product bought is used to plant ten trees, HR rewards could align their scheme to focus on providing gift vouchers to encourage employees to use and spend perks on these sites. </span></p>
<p><span style="font-weight: 400;">Employee discount schemes could also be a way of mapping rewards to sustainability-focused brands, most especially with startups that are innovatively redefining the sustainable products manufacturing landscape. This is not to even mention the benefits this will bring to the startup ecosystem. This scheme could also be used to attract and incentivize talents, investors, employees and customers who would want to work and be associated with a brand that supports employee sustainable lifestyle.&nbsp;&nbsp;&nbsp;</span></p>
<p><span style="font-weight: 400;">Companies redesigning or rethinking their compensation and reward schemes to encourage employee perks and discount spending on sustainable products will not only be killing two birds with a stone through sustainability advocacy and refocusing employees spending in the area of sustainable living or lifestyle but will also enhance their organizations&rsquo; sustainability outcomes while developing a robust employee base well versed in what sustainable lifestyle looks like.&nbsp;&nbsp;</span></p>
<h4><strong>References&nbsp;</strong></h4>
<p><span style="font-weight: 400;">Deloitte SCB Report (2022) Deloitte Sustainability and Consumer Behaviour - How consumers are embracing sustainability. Available online at: </span><a href="https://www2.deloitte.com/uk/en/pages/consumer-business/articles/sustainable-consumer.html"><span style="font-weight: 400;">https://www2.deloitte.com/uk/en/pages/consumer-business/articles/sustainable-consumer.html</span></a><span style="font-weight: 400;"> [Accessed 07/05/2023]</span></p>
<p><span style="font-weight: 400;">Rojikinnor, R., Gani, A.J.A., Saleh, C. and Amin, F., (2022) The role of compensation as a determinant of performance and employee work satisfaction: a study at the PT Bank Rakyat Indonesia (Persero) Tbk. Journal of Economic and Administrative Sciences.</span></p>
<p><span style="font-weight: 400;">Ben-Gal, H.C., Forma, I.A. and Singer, G., (2022) A flexible employee recruitment and compensation model: A bi-level optimization approach. Computers &amp; Industrial Engineering, 165, p.107916.</span></p>
<p><span style="font-weight: 400;">Sija, A., (2022) Determinants of employee retention in private healthcare. European Journal of Human Resource Management Studies, 5(4).</span></p>
<p><span style="font-weight: 400;">Putra, I.N.S.K. and Mujiati, N.W., (2022) The effect of compensation, work environment, and work motivation on employee productivity. European Journal of Business and Management Research, 7(2), pp.212-215.</span></p>
<p><span style="font-weight: 400;">HRReporter (2021) How compensation and benefits can motivate employees. Available online at: </span><a href="https://www.hrreporter.com/focus-areas/compensation-and-benefits/how-compensation-and-benefits-can-motivate-employees/358978"><span style="font-weight: 400;">https://www.hrreporter.com/focus-areas/compensation-and-benefits/how-compensation-and-benefits-can-motivate-employees/358978</span></a><span style="font-weight: 400;"> [Accessed 07/05/2023]</span></p>
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<p><em>Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></p>
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Rethinking compensation and rewards to advance employees’ sustainable lifestyle – HR, are you there?

Companies leveling to remain fit for the future of work have had to embed digitalization and sustainability in their work processes, which has invariably informed the labor force seeking opportunities in these industries to proactively position their skills in such a way that makes them fit for the future of work.

<p><span style="font-weight: 400;">The world of work is rapidly evolving. The global hunt for talent has seen a spike in recent years as both local and international companies are actively attracting and retaining the best hearts, minds and hands for their corporate mission and vision. Not just for the aforementioned purpose, but talent recruitment has also become critical for companies aiming to remain competitive and dynamic in their respective industries of operation. Countries like the US, UK, Canada and Australia, for example, have visa routes such as the Global Talent Visa as strategic interventions to recruit talents to occupy roles supporting their national transformation agendas.&nbsp;</span></p>
<p><span style="font-weight: 400;">The pressure and the complexity of the Human Resource (HR) function currently, especially post-pandemic, has been more serious than ever as HR professionals are recruiting and retaining with the future in mind. They are not only looking at those who can merely fill in the positions but candidates who can evolve out of their job profiles to meet the dynamism of the challenging market environment. While the conversation of recruitment and retention strategies for talents is still an ongoing debate (Islam et al., 2022), the risk of automation which was feared in the first instance as the push button for labor redundancy has not fully materialized as the human element in the production process has shown some sort of resilience in the wake of this call (Arntz et. al., 2016; PwC, 2017). Companies leveling to remain fit for the future of work have had to embed digitalization and sustainability in their work processes, which has invariably informed the labor force seeking opportunities in these industries to proactively position their skills in such a way that makes them fit for the future of work.&nbsp;</span></p>
<h2><strong>Future skills&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Owing to companies&rsquo; foresight about the future of work, there have been several studies across diverse industries seeking to address the big question of what future skills need to be acquired by candidates to make them fit for the future of work (Goulart et al., 2022). Aside from the technical skills required of the industry, initial results showed some common denominators such as people skills (emotional intelligence, active listening, attention span, leadership, negotiation), and digital and technological skills (familiarity with data analytics, AI, metaverse, and user experience). </span></p>
<p><span style="font-weight: 400;">These are gradually moving from desirable to essential future skills for the future of work. A recent survey report and campaign on Future Skills led by Professor Steven Spier of Kingston University London revealed that key attributes, such as problem-solving or process skills, critical thinking, communication, digital, analytical, adaptability, resilience, creativity, relationship building and initiative taking skills, are among the core skills most valued by employers (Future Skills Report, 2022). These have signaled the incorporation of these skills both in the formal and informal teaching and learning process.&nbsp;</span></p>
<h2><strong>Education for sustainable development </strong><span style="font-weight: 400;">&nbsp;</span></h2>
<p><span style="font-weight: 400;">The strength of the digital education and competency development wave from the past three decades has presently been taken over by sustainability and ESG-related education. Professionals identifying with and as ESG analysts and experts have grown exponentially to the extent that the concept of &ldquo;competence washing&rdquo; is posing a significant risk to sustainable development. </span></p>
<p><span style="font-weight: 400;">The command of this wave is causing people who do not possess these skills, yet do not want to be left out, to somewhat create an artificial association to their online profiles. To combat this, some Higher Education Institutions (HEIs) have taken the lead to embed Education for Sustainable Development (ESG) contents into the teaching curriculum through an interdisciplinary approach to equip students and graduates with the skills, knowledge and values needed to address the UN-SDGs and other global challenges relating to climate change and unsustainable resources use.&nbsp;</span></p>
<h2><strong>Climate proficiency (CPro)</strong></h2>
<p><span style="font-weight: 400;">There is overwhelming evidence of the impact of climate change on every facet of human life. Climate Proficiency (CPro), a coinage by the author, is defined as the possession and application of climate change-related knowledge, skills and values as it applies to a working environment or industry. CPro of existing and potential employees makes business sense for an organization in several ways. </span></p>
<p><span style="font-weight: 400;">First, the substantial amount of time and money spent on sustainability-related education and training of staff will be a thing of the past for forward-looking organizations, thereby saving them some good pennies. Second, in order to gain a competitive advantage over their peers, companies would want to generate and leverage internal knowledge, skills and practices of their human capital to gain ownership of climate initiatives and reduce reliance on outsourced ESG strategy and experts. Third, a company with CPro employees is able, through scenario analysis to quickly in a dynamic way, predict the material issues that may potentially affect their businesses in an ever-changing market environment, giving them an overnight advantage over their peers. Fourth, it initiates and sustains an inclusive and responsible approach to climate strategy development and implementation in an organization where employees are confident to communicate their organization's climate activities to stakeholders easily. Thus, existing and potential employees who want to stay relevant must consider CPro an imperative future skill to acquire.</span></p>
<p><span style="font-weight: 400;">The HR function is now recruiting and retaining talents for the future of work through the present portfolios advertised and CPro will arguably be one of the essential and not desirable skills which will be in high demand as well as a key criterion on the person specifications description. It becomes vital then that while developing your technical skills for whichever industry, job seekers or existing employees in order to fit into the future of work must develop their CPro.&nbsp;</span></p>
<p><span style="font-weight: 400;"><em>Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></span></p>
<p><span style="font-size: 14pt;"><strong>References&nbsp;</strong></span></p>
<p><span style="font-weight: 400; font-size: 14pt;">Islam, M.A., Mendy, J., Haque, A.A. and Rahman, M., (2022) Green human resource management practices and millennial employees' retention in small and medium enterprises: The moderating impact of creativity climate from a developing country perspective. Business Strategy &amp; Development, 5(4), pp.335-349.</span></p>
<p><span style="font-weight: 400; font-size: 14pt;">Arntz, M., Gregory, T., Zierahn, U., 2016. The risk of automation for jobs in OECD countries: A comparative analysis. Tech. Rep. 189, OECD Social, Employment and Migration Working Papers</span></p>
<p><span style="font-weight: 400; font-size: 14pt;">PwC, 2017. Consumer spending prospects and the impact of automation on jobs. UK Economic Outlook, March.</span></p>
<p><span style="font-weight: 400; font-size: 14pt;">Goulart, V.G., Liboni, L.B. and Cezarino, L.O., (2022) Balancing skills in the digital transformation era: The future of jobs and the role of higher education. Industry and Higher Education, 36(2), pp.118-127.</span></p>
<p><span style="font-size: 14pt;"><span style="font-weight: 400;">Future Skills Report (2022) Future Skills League Table 2022. Kingston University London. Available at: </span><a href="https://www.kingston.ac.uk/documents/user-upload/kingston-university-d2606ad3a3d-future-skills-report-2022-final.pdf"><span style="font-weight: 400;">https://www.kingston.ac.uk/documents/user-upload/kingston-university-d2606ad3a3d-future-skills-report-2022-final.pdf</span></a><span style="font-weight: 400;"> [Accessed 27/04/2023]</span></span></p>

Climate proficiency - an inevitable employability and future skill 

Companies’ commitment to Net Zero should focus on developing internal structures, investment protocols, and culture that embeds core carbon reduction values and processes.

<p><span style="font-weight: 400;">The creation of a common marketplace, universal policies, practices, and frameworks have become integral in coordinating efforts, setting standards, raising awareness, and funding projects and programmes aimed at fighting and finding solutions to global issues and crises. The race to Net Zero and the global decarbonisation strategy has not been an exception to this as climate disclosure index (see. TCFD etc), standard setters (see. GRI, ISSB, etc), nature-based solutions, and carbon offset markets are playing critical roles to accelerating efforts to combat the climate crisis.&nbsp;</span></p>
<p><span style="font-weight: 400;">The carbon offset market is a marketplace where companies voluntarily purchase carbon credits to offset their carbon footprints on the environment. The rationale for this emanates from reasons including accelerating global action towards carbon reduction, companies not knowing where to kick start their climate strategy, and lacking the expertise and resources to combat their climate impact, to augment their ambitious climate goals of carbon reduction. These purchases over the years have been used to fund nature-based carbon removal technologies and other climate-based interventions as a proxy function by the market for companies. Evidence suggests a considerable impact of the offset market in carbon reduction with the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) estimating that carbon credit demand could reach a valuation of about $50 billion by 2030.&nbsp;</span></p>
<p><span style="font-weight: 400;">That notwithstanding, the carbon market has been marred by some controversies, including the recent Verra investigative outcome, which revealed that more than 90% of its verified carbon standard for rainforest carbon offsets sold did not match the levels of carbon reduction guarantees. Others have argued that offsets reduce incentives for companies to be responsible and actively work at reducing their carbon emissions, while bigger corporations use this platform to pay their way out by displacing or shirking their duties as responsible corporate citizenships. Whatever the position is, the novelty of the carbon offset market and its impact on climate change is incontestable. In negating the latter opposing argument, the presence of a carbon offset market, irrespective of its impact or controversy, must not be applied as a proxy to companies&rsquo; ownership of their internal contribution to carbon reduction and negation. Corporate organizations, in developing and reiterating their commitment to their organization&rsquo;s carbon reduction strategy, must aspire towards a forward-looking and inside-out rather than an outside-in approach to decarbonisation. Thus, companies aiming at building a reputation that communicates their climate stance and commitment to their stakeholder community must resort to the carbon offset market as the last option on their carbon reduction checklist and rather develop internal structures and practice to support carbon reduction actions. Apart from the grand theoretical ambitions on paper, companies can consider these practical steps in their decarbonisation roadmap.&nbsp;</span></p>
<h2><strong>Pro-Environmental Behaviour (PEB)&nbsp;&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Pro-environmental behaviour promotion is one of the easiest and most inclusive ways of getting the whole employee community active in adopting behaviours and practices geared towards reducing their individual impact on the environment. Behaviours range from energy conservation awareness, labeling of waste bins to encourage waste separation for recycling, cycling to work schemes, and posting sustainability signage and messages, amongst others. As basic and traditional as this may sound, owing to its over popularity in almost every company today, encouraging employee-to-employee accountability and conversation is critical to developing a climate-conscious culture in the organization, which serves as a bedrock for creativity and inclusion.</span></p>
<h2><strong>Net-Zero Human Resource (HR) Strategy&nbsp;&nbsp;</strong></h2>
<p><span style="font-weight: 400;">To deal with the skills, expertise and experience gap which constrain companies from developing and accelerating their carbon reduction strategies, the HR function becomes imperative in recruitment by way of attracting and retaining talents. Using the resource dependency theory, for example, the HR function can show some dynamism in attracting versatile employees who possess knowledge of climate-related matters as an essential and not just a desirable skill. Climate-related knowledge and proficiency will underline the constituent of the in-demand and future skill of work tomorrow and companies proactively considering this will be at the forefront and have a competitive advantage in the market. The HR function can also encourage voluntary learning and incentivise employees who would want to job-rotate and develop their competencies, receive external mentorship and attend programmes that would enrich their learning experience for the benefit of the company.&nbsp;</span></p>
<h2><strong>Climate-based Spending vs. Investment&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Climate-based spending instead of climate-based investment has been the bane of greenwashing, woke washing, and bluewashing. Industry and stakeholder pressure currently are pushing companies under duress to be accountable for their carbon emissions. While the posture of spending seeks to meet the short-term goal and make an out-of-pressure impression to the stakeholder community, an investment approach affords the companies the structured and systematic approach of measuring their carbon footprint to inform the investment decision and approach for the companies' carbon emissions reduction and management. Regardless of how slow the investment approach may seem, the yields and progress are more visible, verifiable, and long-term than the approach to spending.&nbsp;</span></p>
<h2><strong>Scope 3 Emissions Reduction Strategy&nbsp;</strong></h2>
<p><span style="font-weight: 400;">Carbon reduction or mitigation strategy without disclosure for Scope 3 emissions which accounts for over 90% of indirect emissions, is just scratching the surface of the issue. As this disclosure scope accounts for business activities related to the companies&rsquo; operations, organizations can develop a net-zero procurement and supply chain strategy that enshrines supplier net-zero policy and practices assessment, environmental performance, and emissions disclosure as part of their supplier selection and evaluation protocol in their operational processes. This will ensure that companies build a collective strategy and synergy with their business stakeholders in delivering their carbon reduction ambition and goals.</span></p>
<p><span style="font-weight: 400;">The place of the carbon offset market in the decarbonisation agenda cannot be overemphasized as I personally subscribe to it as providing a basket for corporate financing of carbon reduction-related activities, projects, technologies, and compensation schemes, especially for affected zones in developing countries. Companies&rsquo; commitment to Net Zero should not focus on building a huge part of their strategy on carbon offset purchases as the prime option but rather develop internal structures, investment protocols, and culture within the organization that embeds core carbon reduction values and processes in their operations.</span></p>
<p><span style="font-weight: 400;"><em>Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.</em></span></p>

Enoch Opare Mintah

Enoch Opare Mintah

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