This sector remains heavily exposed to controversies on corruption but witnesses a significant decrease in the number of companies involved in allegations of human rights related violations. The sector features a significant carbon footprint with an energy transition performance that remains weak, despite its high potential to drive the transition to a sustainable production and consumption system towards a circular economy.
The report provides Vigeo Eiris’ exclusive opinion on 44 companies belonging to the Aerospace and Defence sector. The report includes the sector’s strengths, innovations and best practice as well as controversies, vulnerabilities and key and emerging challenges such as human rights linked to arms proliferation, safety risks and circular economy. It analyses performance scores and advanced indicators on critical issues such as energy transition, business ethics, due diligence on environmental risks in the supply chain, human capital and human rights, governance, executive remuneration, transparency on taxes, integrity of lobbying practices, the level of sustainable products & services.
• The Aerospace and Defence sector includes 44 companies and is divided into four main subsectors: Aeronautics (civil and military); Land and Naval Defence; Space; and R&D and support services.
• Vigeo Eiris awarded an average overall score of 31.2/100 to companies in the Aerospace and Defence sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis.
• The sector ranks 19th out of Vigeo Eiris’ 39 sectors, which cover a total research universe of 4,500 companies. Previously, the sector ranked 17th.
• Sector CSR best performers are concentrated in Europe, with an average score of 36/100 whilst laggards appear to be mostly listed in Emerging Markets, with an average score of 22/100. The sector’s top performers – Safran, Thales, Airbus, BAE Systems, MTU Aero Engines – achieve an average score of 48.8/100. European companies demonstrate a more comprehensive approach to the integration of sustainability into their strategies and a high level of results disclosure.
• The Aerospace and Defence sector reporting rate is 63%, slightly above the universe average (58%). European companies remain the most communicative on their ESG policies, practices and performances, with an average reporting rate of 69%, while Emerging Market companies remain the least communicative, with an average reporting rate standing at 47%, although this represents a slight improvement for the region reporting rate compared to our previous analysis.
• Our level of assurance regarding the Aerospace and Defence companies’ ability to identify and mitigate their ESG risks is limited in relation to all assets at stake, with scores as follows: reputation (30/100), operational efficiency (33/100), human capital (30/100) and legal security (32/100).
• The willingness and capacity of the sector to tackle climate change and support the transition to a low-carbon economy remains weak (20/100). Two companies, Airbus and Bombardier, stand out, displaying a robust performance and efforts to adapt their business model and manage the risks and opportunities associated with the transition to a low-carbon economy.
• The sector faces 85 controversies, affecting 66% of the companies: 5% are involved in critical cases, 32% in high severity cases, and 23% in significant cases. The most recurrent controversies concern corruption, audit & internal controls and product safety.
• Addressing product safety related risks is paramount for the Aerospace and Defence sector. Nevertheless, companies’ average performance on Product Safety remains weak (24/100), with best performers, such as Airbus and Rolls-Royce, located in Europe. Furthermore, approximately 17% of the total sector’s controversies concern product safety incidents.
• The Aerospace and Defence is an innovation-driven sector which, through significant investments in R&D and a highly skilled workforce, acts as a catalyst for technological developments, to embrace related opportunities to cut costs and improve product’s efficiency. Nonetheless, approximately 55% of the sector display increasing trends of R&D investments but the sector’s capability to attract and retain its workforce appears to be weak (27/100).
• Given its products’ intrinsic controversial nature, the Aerospace and Defence sector is exposed to allegations of human rights violations, especially linked to arms’ proliferation. Companies continue to display an average limited performance (34/100) on the matter and only around 32% of companies appear to have at least a basic system in place to prevent complicity in human rights violations and ensure that their products are not sold to countries where they can fuel conflicts. However, the number of companies involved in related controversies has decreased by 50% over the past three years.
• The Aerospace and Defence sector’ characteristics such as the limited number of players and its complexity as well as its close relations with governments are factors that intensify the sector’s vulnerability to corruption. Although companies in the sector are still heavily involved in corruption cases, with 41% currently facing related controversies, only approximately 16% display proactive approaches to prevent corruption, resulting in an advanced performance on the issue. Instead, 61% of the sector’s companies do not appear to report adequately on how they ensure the transparency and integrity of their influence strategies and practices.
• Despite their significant environmental impacts, Aerospace and Defence companies could play a key role in accelerating the transition to a sustainable production and consumption system, embracing circular economy principles in their business models. The sector displays an average limited performance (40/100) in terms of environmental strategy but companies’ efforts to minimise environmental impacts from the use and disposal of products are overall weak (12/100), with only one company (Bombardier) achieving a robust performance on the matter.
Best performing areas:
o Audit & Internal Controls
o Board of Directors
Worst performing areas:
o Use ad Disposal of products
o Atmospheric Emissions
Top Performing Companies:
o Europe: Safran (55/100)
o North America: Bombardier (40/100)
o Asia Pacific: Singapore Technologies Engineering (33/100)
o Emerging Markets: Embraer (38/100)
Companies making best progress since 2017:
o Europe: Avon Rubber (+6)
o North America: Hexcel (+6)
o Asia Pacific: Singapore Technologies Engineering (+4)
o Emerging Markets: No progress
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