Josephine V. Yam

Sustainability

A Case Study on Bombardier: Challenges and Opportunities To Sustainable Mobility

Josephine V. Yam, December 2011
This article will show that Bombardier, a global transportation company, currently faces a plethora of challenges that beset the global aerospace and rail industries. Nevertheless, it has effectively transformed those challenges into strategic opportunities for sustainability through its comprehensive corporate social responsibility programs. To continue achieving high levels of sustainability, Bombardier will need to pursue this sustainability consultant’s recommendations in respect of its aerospace and rail transportation businesses.

A. Global Challenges and Strategic Risks facing Aerospace and Rail Industries


International aerospace and rail companies, like Bombardier, are faced with global challenges including climate change, oil scarcity and the rising cost of energy, urbanization, population growth and demographic changes (Bombardier Annual Report, 2011). According to the World Bank, 50% of the world population is currently living in urban areas, a number that will reach 70% by year 2050. This will create major challenges in urban planning and traffic management to foster economic development (Bombardier Annual Report, 2011). As oil scarcity and rising fuel prices lead to a change in behaviours toward more efficient transportation modes, this will increase demand for green technologies such as rail transportation (Bombardier Transportation Sustainability Report, 2010).

In addition to global challenges, Bombardier faces several strategic risks that beset companies in the aerospace and rail transport industries.

First, there is general economic risk. This refers to the potential loss due to poor economic conditions, such as a macroeconomic downturn in key markets. The health of commercial airlines is relative to the state of the economy. In periods of weakened economic conditions, businesses limit their expenses and individuals reduce their discretionary spending. This negatively impacts traffic levels and detrimentally affects airline profitability because of the decreased demand for commercial aircraft (Bombardier Annual Report, 2011).

Second, there is the business environment risk. This refers to the risk of potential loss due to external risk factors, such as the financial condition of the aerospace and rail industries. The aerospace industry’s financial condition and viability, including airlines’ ability to secure financing, influence the demand for commercial aircraft. When economic or business conditions are depressed, potential buyers may delay or cancel the purchase of aerospace products and services. Likewise, the rail industry’s financial condition and viability may be severely affected by the challenging global economic and financial landscape. As governments respond to economic crises, high debt loads may arise from financial stimulus plans. Thus, publicly owned rail operators may have great difficulty in obtaining the necessary funding. A lack of funding may result in the postponement or cancellation of selected projects (Bombardier Annual Report, 2011).

Third, there is the risk of force majeure or natural disaster. This risk includes severe weather-related events that are aggravated by climate change, such as ice storms, flooding, tornadoes or other calamity. It is unpredictable and may have significant harmful results, such as personal injury or fatality, damage to ongoing projects, facilities or equipment, environmental damage, delays in the receipt of materials from its suppliers, delays in projects, and possible legal liability (Bombardier Annual Report, 2011).

Lastly, there are regulatory risks. Global transport companies are subject to numerous risks relating to various governments’ regulations relating to a plethora of matters including climate change. For example, the European Union (EU)’s Emissions Trading System (ETS), which will cover aerospace emissions starting January 2012, will introduce operational risk for compliance with new EU ETS submissions deadlines and regulations with penalties for default (Bombardier Transportation Sustainability Report, 2010).

B. Key Sustainability Challenge facing the Aerospace Industry


When the aviation industry consumes hydrocarbon-based fuel, it releases greenhouses gases (GHG), which contributes to global warming. To mitigate this adverse impact, it is imperative that the aviation industry takes action to reduce and ultimately eliminate such GHG emissions. According to the United Nations Intergovernmental Panel on Climate Change (IPCC), aviation contributes 2% to global CO2 emissions and 3% to total GHG emissions. Aviation growth is projected to be 5% to 6% per year. By 2050, the IPCC forecasts that aviation will contribute to 3% to global CO2 emissions and 5% to total GHG emissions (Bombardier GHG, 2011).

The two major pollutants produced by air transport are noise pollution and air pollution (Fenley, 2007). Noise pollution, which is emitted by aircraft engines, is an annoyance to society and is considered a serious threat to one’s enjoyment of property (Abeyratne, 2005). Air pollution, particularly aircraft engine emissions, relate to impacts at the local level concerning local air quality around the world’s airports. They also relate to impacts at the global level in respect of climate change (Abeyratne, 2005). Verily, aviation is growing in an unsustainable fashion due to absolute increases in environmental emissions (Geotz, 2004).

A significant sustainability issue is the EU ETS, which creates new aviation emission obligations for commercial and business aircraft operators in Europe beginning January 2012. The ETS will apply to both commercial and private operators flying into, within and flying out of the EU airspace. A cap on aviation emissions will be set at 97% for 2012, and 95% for 2013 to 2020, of CO2 emissions from 2004 to 2006 levels. Aviation companies can also buy carbon credits that are publicly traded to offset emissions not covered by their allowances. (Bombardier GHG, 2011).

Even if commercial aircraft engines are becoming more energy-efficient and less polluting, aviation’s GHG emissions are still growing because global airline traffic and air cargo revenues are rapidly increasing as well. This is the case even if there becomes a 5% -10% penetration of biofuels in the fuels used by the aviation industry by 2020. It must be noted that aviation’s GHG emissions are mostly released in the earth’s upper atmosphere, where the potential for causing climate change is most vulnerable (Bender, 2011).

C. Key Sustainability Challenges facing Rail Industries


When it comes to emissions and energy consumption, rail transportation is the world’s most sustainable model of mass transit. It generates less than 1% of global GHG emissions (Bombardier, 2010). With its low energy consumption and low emissions, including its positive contribution to reduce congestion and decrease travel times, rail is helping solve the inherent problems of urbanization and population growth (Bombardier Annual Report, 2011). In contrast to air transportation, high-speed rail achieves more fuel efficiency and less GHG emissions per seat-mile. For example, high-speed rail is about 500% more fuel-efficient than air transport (Bender, 2011). Thus, with a plethora of environmental challenges that rail transit can transform into sustainable opportunities, there arises an urgent need to develop and expand passenger rail infrastructure (Cameron, 2010).

In addition to climate change, the rail industry faces significant challenges, including resource scarcity, rising fossil fuel and raw material costs, and stricter GHG emissions (Bombardier, 2010). It should also address key sustainable transport objectives that the European Conference of Ministers of Transport identified as addressing sustainable development, such as landscape and biodiversity protection, noise reduction, air quality improvement and land-use minimization, which are set out in Attachment “A” hereof (May, 2007).

D. Bombardier Turns Challenges into Sustainability Opportunities


Bombardier has been extremely cognizant that these challenges must be strategically addressed with a “sustained approach to sustainability” (Clement, 2010) in order that it continue being a global leader in the aerospace and rail transportation industry as well as a global leader in sustainability. Thus, as part of its financial and risk management strategies, it has formulated a comprehensive sustainability governance framework in its businesses that are particularly focused on addressing climate change. This is because climate change was identified as an environmental and business issue that its stakeholders considered as most important as well as a sustainability risk that would have the greatest impact on the company (Bombardier Corporate Social Responsibility Overview, 2011).

Its comprehensive approach to corporate social responsibility reflects two inherently interconnected goals that have significant impacts on its financial performance. The first is meeting its stakeholders’ rising expectations to reduce Bombardier’s environment impact while delivering best-in-class transport products and services. The second is aggressively pursuing its business objectives. Thus, enhancing the energy-efficiency of its operations directly impacts its financial bottom-line. Likewise, improving its products’ environmental performance becomes a competitive advantage and an opportunity to reinforce its customer relations. Providing its employees with a safe workplace and development opportunities translates into deeper engagement, increased creativity and better productivity (Bombardier Corporate Social Responsibility Overview, 2006).

Several focus areas of Bombardier’s Corporate Social Responsibility framework strongly echo this solid interconnection between sustainability and financial materiality (Bombardier, 2010). In the area of product responsibility, Bombardier has applied the lifecycle approach to product development to enhance energy efficiency and improve the overall environmental profile of its products in terms of emissions, noise and recyclability. Its investment in high speed trains continue to attract government investments because they are energy-flexible, land-use efficient, eco-friendly, reliable and fast. These trains are 3 to 10 times less CO2 intensive than other transportation options and yet, they meet the need for high capacity transportation, reduced highway congestion and lowered energy consumption (Bombardier, 2010). In the area of operational environmental management, Bombardier uses inputs such as raw materials and energy as efficiently as possible. It also minimizes or eliminates harmful effluents and air pollutants (Bombardier, 2010). In the area of supply chain management, Bombardier ensures the efficiency and viability of its suppliers by enhancing the sustainability of its product development and procurement processes, and promoting ethics, human rights and internationally recognized labour standards across its global supply chain. (Bombardier, 2010)

Indeed, Bombardier is determined to minimize the impact of its operations on the globe’s climate by achieving carbon-neutral operations by 2020. This can be achieved by driving down its global operations’ carbon footprint even further. Its energy and carbon management strategy is comprised of a three-pronged approach focused on improved energy efficiency, increased use of renewable energy sources and carbon offsetting, if necessary, due to the unavailability of renewable energy or for economic reasons (Bombardier, 2010). This reflects the fact that Bombardier views carbon risk management as increasingly affecting shareholder value, due to higher energy prices, restrictive GHG targets and increased losses due to severe and adverse weather events. Indeed, climate change has become the environmental issue that has the most potential to affect a company’s profitability and, in extreme cases, the actual existence of the company itself (Labatt & White, 2007).

In successfully executing its Corporate Social Responsibility strategies and programs, Bombardier has shown that it is a leader in global sustainability. One way this is evidenced is its membership on a recognized ‘‘best in class’’ sustainability index, such as the Dow Jones Sustainability Index (DJSI) (Robinson, 2011). This has bolstered its reputation and has protected its “social license to operate” (Robinson, 2011). In the context of the DJSI, being included in this index is very valuable for a firm and results in an increase in market value of almost 2.1%. The reasons for such market value increase are that investors use membership on the DJSI as a signal of higher expected returns for a firm and that the DJSI label helps the firm to attract new investors (Robinson, 2011). Indeed, one key benefits of being on the DJSI is it is recognized as a global standard that is used by a number of social responsible investing (SRI) funds that do not do their own screening for social responsibility (Robinson, 2011). By being included on the DJSI, companies such as Bombardier also become eligible for inclusion in other SRI funds. Given that the number of SRI investors is increasing, being identified as a sustainable company is seen as important for attracting investors. Companies view the DJSI label as an important mechanism in establishing a reputation for sustainability as industry leaders in best practices and superior environmental, social, and economic performance (Robinson, 2011).

Indeed, the value of the corporate brand or a reputation has never been greater. Reputation, which is considered a key corporate asset, is widely viewed as a major source of competitive advantage. Without a doubt, the financial importance of brand or reputation has increased. Reputation and the “social license to operate” have become important factors for sustainability analysis and engagement (Gorte, 2008).

E. Bombardier’s Sustainable Financial Tools to Green Mobility


Bombardier continues to be seriously committed to support and promote the aerospace industry’s commitment to reduce commercial and business aviation emissions. In 2009, the aviation industry established three global emission-related targets, namely a cap on aviation CO2 emissions starting in 2020, an average improvement in fuel efficiency of 1.5% -2% per year from 2009 to 2020, and a reduction in CO2 emissions of 50% relative to 2005 levels by 2050. To deliver on this commitment, Bombardier identified economic, market-based measures, such as carbon offsetting, as one of the four key drivers for achieving its GHG reduction targets. The other key drivers are technology, operations and infrastructure and alternative fuels as illustrated in Attachment “B” hereof (Bombardier GHG, 2011).

To this end, Bombardier has established its Carbon Offset Program. It is in partnership with ClimateCare, a leading offset provider that funds and manages projects to reduce greenhouse gases on behalf of individuals and companies. Bombardier’s program provides a fast, efficient and affordable way for its customers and operators to offset the emissions of the Bombardier aircrafts that they fly. By participating in the program, its customers can make their business aircraft carbon neutral by investing money that correlates with the amount of their emissions. ClimateCare uses the money invested in the program to fund a worldwide project portfolio that focuses on renewable energy, energy efficiency and methane capture (Bombardier Carbon Offset Program, Climate Care, 2011).

As discussed earlier, the EU’s ETS will create new aviation emission obligations for commercial and business aircraft operators in Europe beginning January 2012. In this regard, Bombardier is actively participating in the global approach being coordinated by the International Civil Aviation Organization with the EU. It is also complying with EU ETS requirements in anticipation of its inclusion in the ETS in January 2012. More importantly, it is gearing itself up to actively engage in the market-based, global cap-and-trade system of the ETS as another sustainable financial tool it can use to cost-effectively achieve its GHG reduction targets (Bombardier GHG, 2011).

In respect of its rail transport business, Bombardier is aware that while the transport sector is largely exempted from GHG emissions trading, electricity generation is not. This matter must be principally addressed as electricity is one of the rail industry’s most important energy sources. Thus, Bombardier is considering various sustainable financial tools including carbon offsets that it may engage in so as to achieve a carbon-neutral profile for its global rail transport business, in addition to exploring clean, renewable sources of electricity production (Bombardier Corporate Social Responsibility Overview, 2011).

F. Recommendations to Achieve Sustainable Mobility


Without doubt, Bombardier has successfully transformed the global strategic and sustainability challenges it faces into valuable opportunities to be a leader in the aerospace and rail industries as well as a leader in global sustainability.

Yet, Bombardier’s journey to achieve comprehensive sustainable mobility is far from over. There is still so much it can do to achieve even greater sustainability. In this regard, this sustainability consultant puts forward the following three recommendations:

1. Bombardier should continue working on superior product development by exploring working on cutting-edge technology and tightening product standards so that its aerospace and rail products produces less emissions (Abeyratne, 2005). Thus, in order to further limit the environmental impact of its products, Bombardier will need to continue to research and work on innovative transportation solutions relating to the following:

a) Use of alternative fuels – Bombardier needs to continue supporting collaborative research initiatives in cleaner alternative fuels. It will need to actively participate in product innovation research to actively explore biodiesel alternatives.

b) Use of environmentally preferable materials – Bombardier needs to carefully select the materials and substances that are used in its new transport products to minimize their environmental impacts throughout the entire lifecycle. This is because raw materials play an important role in the overall environmental impact of a product during manufacturing and assembly.

c) Effectively addressing end-of-life challenges – Bombardier needs to make effective end-of-life solutions for its products as a top priority. This includes matters relating to the materials recycling, incineration with energy recovery and disposal of hazardous waste that its product manufacturing and assembly processes produce (Bombardier, 2010).

However, when Bombardier designs new products, improves existing products and services and invests in and develops new technologies, there are risks that it takes when doing so. Why? This is because such initiatives require significant capital investments. Principally, Bombardier makes a significant commitment to research and development (R&D), which may or may not be successful. Its significant capital investment is detrimentally impacted if Bombardier invests in products that are not accepted in the marketplace, if customer demands or preferences change, if new products are not brought to market in a timely manner and become obsolete (Bombardier, 2010).

Given the nature of its businesses, Bombardier is also subject to stringent certification and approval requirements, which can vary by country and can delay the certification of its products. Non-compliance with current or future regulatory requirements imposed by regulatory authorities could result in the service interruption of its products, fewer sales, reduction in inventory values or impairment of capitalized development costs (Bombardier, 2010).

2. Bombardier should continue identifying operational measures that will reduce fuel consumption, which results in fewer emissions (Abeyratne, 2005). Rather than waiting for a final global agreement from regulators, Bombardier should continue seizing the opportunity to take more of a leadership role to make difficult decisions by designing and implementing energy efficiency standards and emission reduction strategies that will positively impact its operations around the globe (Clement, 2010).

While it is admittedly quite difficult to invest time, money and effort to move forward without regulatory certainty, its efforts to go ahead and pursue energy efficiency standards and emission reduction strategies will pay off in the long run as it will gain a “first- mover advantage” in the sustainability arena.

3. Bombardier should continue exploring the possible use of market-based measures. These include voluntary measures, emissions trading and emissions-related levies, such as charges and taxes (Abeyratne, 2005). Many global corporations are forging ahead with innovative and collaborative ways to reduce their GHG emissions despite scant clear direction on global emissions targets emerging from the United Nations Framework Convention on Climate Change (UNFCCC) Conference meeting in Copenhagen in December 2010 and in Durban in December 2011. Thus, instead of waiting for a final global agreement to arise from the UNFCCC mechanism, Bombardier should strategically engage in the EU ETS when it commences in January 2012 as well as further enhance its own ClientCare Carbon Offset Program with its customers. These sustainable financial tools will enable Bombardier to effectively manage, mitigate, eliminate or transfer at the lowest cost the various risks it faces that arise from the global challenges that confront its worldwide transport businesses (Clement, 2010).

Again, with the global regulatory uncertainty environment on climate change that still exists, in addition to having no global price on carbon, it may be quite difficult for Bombardier to go ahead and use sustainable financial mechanisms that may be recognized in one jurisdiction but not in another. The risk in pursuing this strategy is, with the patchwork of varying climate regulations or even non-regulation around the world, the carbon-related financial assets that it produces, purchases or otherwise obtains may prove to be illiquid and non-transferable from one jurisdiction to another. Again, these strategic market-based strategies will likely pay off in the long run as Bombardier will gain a “first- mover advantage” in the carbon finance market.

Indeed, within the next decade, Bombardier should get seriously involved in the strategic mapping of the whole global transportation sector. It should be an active participant in the efforts to put together the whole transportation sector. Such efforts include the creation of a complementary network of rail, roads and air within a country, among countries or within geographic regions. They also include envisioning inter-city high speed rails that will free up the aviation industry to make longer, more profitable flights. Likewise, they include connecting the rail network with airports will allow for travelers to smoothly transition between modes of transportation (Cameron, 2010).

In conclusion, while Bombardier has been proactive in transforming the global challenges it faces into strategic opportunities to achieve sustainability, there are still numerous opportunities it can seize to continue being the “best-in-class” in sustainability in the aerospace and rail transportation business. By adopting this sustainability consultant’s recommendations, Bombardier will likely continue its journey of achieving the three pillars of true sustainability, namely, increased shareholder value, stronger environmental protection and enhanced quality of life for its employees, customers and the communities in which it operates.

As UNFCCC Executive Secretary eloquently said, “It is no longer enough for business to ask governments for clarity. Enlightened business can and must offer solutions to these questions if it wishes to benefit itself and the world in the inevitable low-emissions economies of the future (Clement, 2010).

ATTACHMENT “A”
Transport Objectives and Their Contributions to Sustainability
Source: (May, 2007)

European Conference of Ministers of Transport (ECMT) - The 2000 ECMT report on sustainable transport policy identifies key sustainable transport objectives in relation to the principal Sustainability Legs that they support.

ATTACHMENT “B”
Commercial Aviation Emission Targets
Source: (Bombardier GHG, 2011)

Bombardier – Corporate Social Responsibility (http://csr.bombardier.com/en) at this link:
http://csr.bombardier.com/en/products/greenhouse-gas-emissions/aerospace/emission-targets (accessed on December 11, 2011)

References


  • Abeyratne, R. (2005). Air Transport and Politics of Sustainability. Environmental Policy and Law, 35(3), 114-121.
  • Bender, A. (2011). Air Transportation: An Environmental Paradox. Environmental Practice, 13 (1), 58-59.
  • Bombardier Annual Report. (2011). Accessed on November 27, 2011 at this link: http://csr.bombardier.com/pdf/report/BI-Bombardier_Annual_Report_FY2010-11.pdf
  • Bombardier Corporate Social Responsibility Overview. (2011). Connecting the Dots: Moving Forward Responsibly. Accessed on November 27, 2011 at this link:
  • http://csr.bombardier.com/pdf/report/2011_CSR_Overview.pdf
  • Bombardier Annual Report for 2010-2011. (2011). Accessed on December 3, 2011 at this link:
  • http://csr.bombardier.com/pdf/report/BI-Bombardier_Annual_Report_FY2010-11.pdf
  • Bombardier Transportation Sustainability Report. Shaping the Future of Mobility. (2010). Accessed on December 3, 2011 at this link: http://csr.bombardier.com/en/media-centre/reports-and-publications/transportation
  • Bombardier Transportation Sustainability Report. Shaping the Future of Mobility. (2006). Accessed on December 3, 2011 at this link: http://csr.bombardier.com/en/media-centre/reports-and-publications/transportation
  • Bombardier Greenhouse Gas Emissions. (2011). Accessed on December 9, 2011 at this link:
  • http://csr.bombardier.com/en/products/greenhouse-gas-emissions
  • Bombardier Carbon Offset Program, Climate Care. (2011). Accessed on December 10, 2011 at this link: https://customer.aero.bombardier.com/webd/bag/BBAD/Custsupp/techinfo/CICOpenDocuments.nsf/vwWebPage/carbon_offset_program
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Josephine V. Yam
Josephine is CEO & Co-Founder of B3 Canada, a mission-driven organization in Canada dedicated to building breakthrough boards through innovative board matching services for businesses, professionals and nonprofits.

Josephine is a highly accomplished lawyer-social entrepreneur with significant years of professional legal, policy, leadership and entrepreneurial experiences in the private, public and nonprofit sectors in Canada and internationally. She has been admitted to practice law in New York (USA), Alberta (Canada), Ontario (Canada) and the Philippines. She has also been interviewed on international television such as CNN and CNBC and featured in the international news magazine Newsweek.

Josephine recently graduated from Stanford University's Executive Program for Non-Profit Leaders. She also completed her Master of Laws (LLM) degree at the University of Calgary, Faculty of Law. Complimenting her advanced education at Harvard Law School and the University of Toronto, Josephine currently serves as one of the Energy Futures Lab Fellows of The Natural Step Canada.

Before founding B3 Canada, Josephine was the Executive Director of the Environmental Law Centre of Alberta and Lead Advisor for Corporate Consulting at the Pembina Institute. As Board Member of Immigrant Services Calgary, a large registered charity, Josephine served as Corporate Secretary, member of the Executive Committee, Board Development & Nominating Committee, Audit & Finance Committee and CEO Evaluation Committee. In the public sector, Josephine served as Senior Legal Counsel with the Government of Alberta’s Ministry of Justice and Ministry of Energy. In the private sector, Josephine worked with the international law firm Baker & McKenzie in its Hong Kong, Manila and Toronto offices, the Asian Development Bank and Procter & Gamble.

With her significant legal and senior management experiences in the private, public and nonprofit sectors in Canada and internationally, Josephine deeply understands that cross-sector collaboration in social innovation is crucial to achieving positive change in the world. This is what drives her deep commitment to advance B3 Canada’s mission of strengthening the board leadership capacity of Canada’s nonprofit sector as a force for good in society.

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