KPMG report looks at sustainability in the aerospace and defense industries

The Aerospace and Defense (A&D) industries are closely related and both are seeing significant growth in many parts of the world. Aviation has rebounded after the pandemic, while geopolitical tensions have led to a renewed focus on defense from many governments. Both industries, however, face sustainability challenges. Aviation contributes four percent to global warming to date, and this number is likely to increase. Moreover, the defense industry and global armed forces produce six percent of greenhouse gas (GHG) emissions. This number is also likely to rise due to increasing geopolitical conflicts and the need for preparedness. 

Today’s businesses face growing focus on sustainability from stakeholders, as well as increasing regulation from the EU and in other countries. Consequently, these two vital industries need to ensure that sustainability is embedded into their business model. It is in this context that KPMG has published its 2024 Global Sustainability and Defense report, which aims to assess the current approach in these industries and consider strategies to take sustainability forward. It is based on responses by over 100 senior executives from major A&D organizations and supply chain participants in 20 countries, territories and jurisdictions around the world. To gain deeper insights, interviews were also conducted with KPMG firms’ clients and subject matter specialists who shared their thoughts about the industry and its sustainability strategies.

When asked about their level of preparedness, 61% of those surveyed said they were still developing their strategies for sustainability, and were “somewhat ready” or “working on it” in terms of preparing for Environmental, Social and Governance (ESG) changes. Only 15% said they were “fully ready”. So strategy is very much a work in progress.

The A&D industries face a number of challenges in developing a sustainability strategy, particularly bearing in mind that the sectors are growing so rapidly. These difficulties are compounded by the size, complexity and interconnected structures of the A&D ecosystem. Our report looks at some ideas for addressing these challenges. 

A total of 47% cited collaboration as a top enabler in the development of new technologies to help achieve decarbonization goals, and a number of stakeholders can benefit by working together. Manufacturers can collaborate with one another to help share the burden of investment and risk while creating innovative solutions, identifying new markets, and achieving mutual growth. Supply chain participants can work with their own sub-contractors to help improve product quality, enhance logistical efficiencies, and ensure sustainable sourcing. Governments can develop regulations and offer incentives designed to balance the needs of commerce with the imperatives of sustainability. Industry associations can provide a venue and platform where organizations can collaborate, share information, and develop industry standards.

Managing supply chains is a critical element in developing a sustainability strategy. In our survey, 81 percent of respondents selected supplier due diligence, visibility, and transparency as actions that could enhance supply chain sustainability. Responsible sourcing was chosen by 74 percent of respondents. Because of the global nature of these supply chains, geopolitical uncertainties can reveal supply chain vulnerabilities. These risks need to be taken into account, and strategies developed to mitigate them- hence transparency is critical. 

Governments can support sustainability in the A&D sector, both through regulation and incentives. The survey responses suggested a general feeling that governments could do more. 67 percent of those surveyed thought that current tax policies and incentives are insufficient to support the A&D sector’s transition to sustainability globally. However, at the same time, participants showed a belief government is part of the solution. When the survey asked about the top enablers for decarbonization in their organization, 55 percent chose “government support” and 47 percent chose “government demand for the development of low-carbon solutions.”

Some governments have already taken steps to support the A&D sector in developing a sustainability strategy. For example, in the US, the Department of the Army has mandated having carbon-free electricity for its installations by 2030, net-zero emissions from army installations by 2045, and an increasingly electrified vehicle fleet, including developing electric tactical combat vehicles by 2050. In the UK, the government’s Sustainable Aviation Fuel (SAF) mandate specifies that 10 percent of all jet fuel in flights taking off from the UK will be sustainably sourced by 2030 and 22 percent by 2040. In terms of incentives, the US Sustainable Skies Act supports the use of SAF, while the UK Ministry of Defence is increasing the quantity of SAF it sources from World Fuel Services. 

New technology can be part of the solution. R&D innovation and technologies are recognized as key opportunities in supporting sustainability. Our report gives several examples of potential developments which could reduce the environmental impact of aviation. However, technology is not necessarily a silver bullet. While SAF is a promising alternative fuel, it will take many decades to achieve a meaningful level of supply. Our report explains that even by 2050, it is likely to cover only a third of global fleet energy needs. 

The Chief Sustainability Officer (CSO) is becoming a key figure. The CSO brings specific skills and expertise and drives the sustainability strategy.  Education of management and employees is critical, as is winning support for the strategy, because a company’s commitment to sustainability is often a reflection of the company as a whole. The CSO will help shape and promote the company’s values and ensure commitment at all levels. 

KPMG has won accolades related to sustainability consulting. It has been recognized as a global leader in the Verdantix Green Quadrant: ESG and Sustainability Consulting 2024. KPMG has also been named a global market leader by ALM Intelligence in their latest Pacesetter research, “ESG: Environmental, 2023-2024.”

At KPMG in Romania, we have considerable experience of supporting clients with developing sustainability strategies and with sustainability compliance. We have a dedicated sustainability team, with a wide range of skills. Our experts have detailed knowledge of the current regulatory environment as well as of the key elements of a sustainability strategy which stakeholders are looking for. We will be pleased to support your organization in its sustainability journey.