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February 7, 2022updated 10 Mar 2022 7:10am

ESG in Aerospace, Defence, and Security (ADS): Macroeconomic trends

Although sustainability in defence might be expected to be relevant mostly to the industry rather than the end-user, it is becoming increasingly important for modern militaries to also adopt environmental, social, and governance (ESG) strategies. For instance, using renewable energy in deployed environments reduces the supply chain and increases resilience to supply shocks.

Listed below are the key macroeconomic trends impacting ESG performance, as identified by GlobalData.

Offset agreements 

Defence offsets are arrangements in which the purchasing government of the importing country obliges the supplying company of the exporting country to reinvest some proportion of the contract in the importing country.

In many countries, there is almost no due diligence on potential improper beneficiaries from the offsets. Nor is there monitoring of performance on offset contracts, audits of what was delivered compared to the pledges, or publication of offset results, benefits, or performance. This makes offsets an ideal playground for corruption.

The green restart

The Covid-19 pandemic has focused attention on the looming climate crisis and its potentially grave economic and political impacts. The restarting of the global economy following the pandemic was seen as an opportunity to develop a proactively green economy, though the reality of this is still be seen.

The commercial aerospace industry has long been the target of scrutiny, given its large carbon footprint. It is possible that, following the pandemic, more stringent measures will be enacted to mitigate the climate crisis. This will increase the demand for cleaner alternatives in the aviation industry and make development of such alternatives more urgent.

Single-source contracts

Single-source procurement occurs when contracts are awarded to a selected provider without competition. Historically, ministries and departments of defence have awarded a significant proportion of contracts without open competition on national security grounds, or because there is only one specialist supplier available.

Abstaining from the usual competitive bidding process presents risks surrounding accurate financial evaluation and corruption. While there can be good reasons for single sourcing, opportunities for corruption are significant.

This is an edited extract from the ESG – Top Trends by Sector – Thematic Research report produced by GlobalData Thematic Research.

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