Corporate Sustainability Reporting Directive in Aviation

EU member states had until July 6, 2024 to transpose the CSRD into national laws. Ireland has now implemented the legislation, however not all EU member states have formally transposed the CSRD into national law.

It is also worth noting than some EU member states have opted for ‘gold-plating’ in the transposition. In such cases, we have seen modification of the CSRD requirements when transposing into national legislation, such as disclosure timelines, applicability requirements, or additional disclosure requirements.

For the aviation sector, we suggest you begin with a scoping review, to help you determine your reporting obligations at an entity, group, or on an artificial consolidation basis. Artificial consolidation is a transitional measure available until January 2030, which permits an in-scope EU subsidiary to prepare a “consolidated sustainability report” including all in-scope EU subsidiaries which share a common non-EU parent.

We expect this to be of particular relevance to the aviation sector in Ireland and across Europe, where many parent companies are located outside the EU, but with EU-subsidiaries. Those early-reporters are considering artificial consolidation as an opportunity to pilot CSRD disclosures, before full group-wide adoption. 

Once scoping has been confirmed, the next step is to undertake a Double Materiality Assessment (DMA). The purpose of the DMA is to understand and publish the material sustainability impacts, risks, and opportunities (IROs) of relevance to the organisation and its value chain.

A DMA involves evaluating sustainability topics from two dimensions:

1. Impact Materiality which are the impacts that an organisation has on ESG topics (inside-out); and
2. Financial Materiality which are the risks and opportunities arising from sustainability matters that could have an impact on the financial performance of the organisation (outside-in).

The DMA should be undertaken in line with the guidance set out in the final European Financial Reporting Advisory Group Implementation Guidance documents (dated May 2024). The results of the DMA process will inform your material IROs, and therefore narrow the focus of your efforts on the material qualitative and quantitative disclosures for publication in the Sustainability Statement.

Not all European Sustainability Reporting Standards (ESRS) topical standards will be relevant to the aviation sector. In the absence of ESRS sectoral standards which are not due to published until 2026, the Sustainability Accounting Standards Board (SASB) Industry Standards for the aviation sector are a useful reference point to inform the DMA process.

Material topics of relevance to the aviation sector could include, but not limited to:

It is important these topics are supplemented with wider considerations for the organisational context, value chain considerations, sectoral considerations with reference to peer reporting, and engagement with affected stakeholders (internal and external) to inform and assess material IROs. 

Once you have understood what is material, an assessment to determine your ability to meet the disclosure obligations of the CSRD is typically the next stage in the CSRD compliance journey for the aviation sector. If you are already reporting on sustainability performance, a disclosure gap-assessment is a useful next step.

If sustainability reporting is not undertaken, a deep dive review of the qualitative and quantitative data points available within the organisation to meet the material CSRD disclosures, would be a valuable exercise. This will really help to highlight the areas that will require the greatest level of resourcing and actions needed to close the gaps.

A clear roadmap for achieving CSRD compliance which sets out the relevant actions to address the gaps, is imperative. 

One of the key success factors we have observed, is getting governance right from the outset. To be CSRD compliant requires extensive cross-organisational collaboration drawing on resources from sustainability, finance, accounting, operations, human resources, legal and procurement, amongst others.

CSRD compliance won’t be achieved off the side of the desk, and it’s important that the sustainability resources are not tied up in reporting, and instead take on a more advisory role in relation to CSRD, and a strategic focus on executing on sustainability initiatives to improve performance and achieve ESG targets.

Some of the key targets we’re seeing across the sector include increasing fuel efficiency, optimising route designs, and using alternative and sustainable fuels.

Our experience working with many organisations across all sectors, has highlighted that there are additional “no-regret” actions that companies can take now to prepare for CSRD. These include, but are not limited to:

• EU Taxonomy (EUT) – The EUT was created to address greenwashing, and it requires the publication of: (i) proportion of turnover derived from EUT activities; and (ii) proportion of capital expenditure and operating expenditure associated with EUT activities. To do this, you must undertake a thorough assessment of whether your “sustainable economic activities”, contribute to one of six environmental objectives (including climate change mitigation and adaptation, water and marine resources, circular economy, pollution and biodiversity). This also extends to an assessment of “do no significant harm” which ensures that these activities do not adversely impact environmental objectives, while respecting human rights and labour standards. Organisations are strongly encouraged to prepare for EUT disclosures alongside CSRD preparations as it can be a lengthy process to understand and assess the relevant activities.
• Climate and biodiversity transition plans – If material, the CSRD has specific obligations for the development and disclosure of climate and biodiversity transition plans. These transition plans must outline how the organisation will evolve its business model and strategy to achieve net zero emissions by 2050 and limit global warming to 1.5 °C in line with the Paris Agreement. It is also worth noting, that the Corporate Sustainability Due Diligence Directive has similar requirements to implement a climate transition plan and should be undertaken in tandem to ensure alignment. These are bespoke plans that will likely require inputs from climate and biodiversity subject matter experience, and therefore should not be delayed.