The Role of Sustainability Statements in Investor Relations: An Analysis of the Annual Reports of Airline Companies

3. Methodology

Seven companies were also examined in terms of whether they carried out sustainability reporting. It was observed that China Southern Group only issues a social responsibility report and lacks a sustainability report. Additionally, this company’s annual reports do not address sustainability, and it was decided to eliminate this company from this study. The remaining six firms’ sustainability reporting records span a minimum of five years. Lufthansa Airlines (LH) has been publishing sustainability reports called ‘Balance’ since 2007. Since 2009, Southwest Airlines’ integrated report has included sustainability statements based on the GRI principles. International Airlines Group (IAG) has been publishing a sustainability report since 2011.

Regulations in countries are affecting the ESG information in the annual reports of these companies. Therefore, LH, listed on the German Stock Exchange; AF, listed on Euronext Paris in France; and IAG, listed on the London, UK, and Spain Stock Exchanges, as companies based in member countries, have to act in accordance with European Union directives.

Therefore, AC, listed on the Toronto Stock Exchange; WN, listed on the New York Stock Exchange; and TK, listed on the Borsa Istanbul, were encouraged but not required by their respective governments to make sustainability disclosures.

Since this study analyzed airline companies within the framework created by taking into account GRI standards, it also evaluated whether the companies took the GRI guide into consideration.

In this study, only the annual reports of the companies were analyzed. The sustainability reports are not included in this research. This is because annual reports, the best means by which businesses communicate with investors and other stakeholders in society, also function well for disseminating non-financial information to audiences who lack basic financial literacy. This study examined the language used in these reports, the reports’ cover pages, the accompanying visuals, the main titles, the CEO and Chairman’s statements, and how a company presented its sustainability vision and financial communication efforts. This study also sought answers to the following questions:

4. Results

The annual reports were examined primarily in terms of the language used. In all five of LH’s reports, both the CEO and the Chairman of the Supervisory Board employed the inclusive ‘we’ rhetoric extensively in their introduction letters to shareholders. On the other hand, the language that dominates the rest of the report is passive. Furthermore, the phrase “Transforming the Way We Connect People, Cultures, and Economics” appeared on the cover of LH’s 2020 report, and “We Grow, We Shape, We Lead” appeared in 2022.

In IAG’s reports, both the Chairman’s and CEO’s introduction letters and the entire reports use the ‘we’ rhetoric. The titles of the 2020 and 2022 reports are “Managing the Crisis, Transforming Our Business, Shaping Our Future” and “Connected by Our Purpose”, respectively. IAG also included links at the beginning of their reports to make them easier to read online, as well as guidance for accessing related documents. Across all the analyzed reports from AF, WN, and TK, the “we” language was found to be used regularly. The phrases “Together on This Journey” and “We will succeed together” appeared on TK’s covers in 2020 and 2021, respectively. AC did not utilize the ‘we’ rhetoric until 2022, except in the CEO introduction letters, and only started using it extensively in 2022.

When it comes to corporate storytelling, it was seen that only WN uses this approach substantially in annual reports. This includes stories from the company itself, as well as from its customers and employees from the first-person perspective. Moreover, it was revealed that TK had explained how it evolved from the past to the present as well as the steps involved in updating its technology, particularly in the 2018 report that included visuals to support its arguments.

When the reports were evaluated generally, it was revealed that WN’s reports have the quality of being the most readable, brief, and rich in visuals, as they were created as integrated reports. IAG, on the other hand, was successful in producing comprehensive but easily readable reports by using reader-friendly tips, simple language, and expressions reinforced by graphic narratives. TK’s report was also more readable, concise, and visually appealing than other reports.

Upon examining the annual report covers, it was found that the reports issued by LH, IAG, and TK all included statements regarding each company’s vision. Sustainability was highlighted through the phrases “Creating Sustainable Value” on the 2019 cover of LH’s report and “Leading Sustainable Aviation” on the 2019 cover of IAG’s report, among others. It was noted that there were no sustainability-related phrases on the covers of other companies.

When the annual report covers were examined visually, it was noticed that three reports did not use any visuals, while 18 of the 30 reports featured employee photos, three passenger photos, and ten airplane photos on the cover. Four pictures show either an aircraft with employees or passengers and employees together. Employee photos are featured on every report cover issued by WN, which highlights the value it provides to its employees in a very noticeable way. Four of TK’s reports have photographs of its employees on the cover page; LH has three, AC and AF have two, and IAG has one.

The volume of space that companies dedicated to the topic of sustainability in their annual reports, as well as whether and how they have used the subject as a title, were all examined. The ratio of the relevant pages to the whole annual report was also revealed.

Upon reviewing the reports from other companies, it was made clear that only IAG addressed the matter as a whole under the title of “Sustainability” and that they have continued this practice to this day. LH chose to refer to its statements on this matter as the “Combined Non-Financial Report”, modifying this title to “Combined Non-Financial Declarations” in 2020, and included a summary of all its statements under this heading. AF, on the other hand, conveyed its sustainability studies under the title of “Flight Plan” in 2019. Furthermore, the titles “Innovation & Sustainability”, “Customer & Product”, and “People & Organization” were included in this research since they contain important remarks about sustainability. Therefore, the number of sustainability-related pages of AF’s 2019 report is more than the previous and following years. AF employed a “Sustainability” title in its other four reports. As a result, the analysis for the years when AF used this title only includes the statements made in this heading.

In its reports, AC provided statements on “Citizens of the World”, “Sustainability and Social Impact”, and “Towards a Sustainable Future”. In 2022, it gathered these statements under the heading of “Corporate Strategy”. In contrast, TK dispersed its sustainability explanations throughout a significant portion of its report; sections titled “Corporate Development”, “Quality and Social Responsibility”, “Human Resources”, and “Corporate Governance” stood out and were included in the analysis, taking into account the most relevant pages. Especially in TK’s 2018 report, the number of pages is higher than in other years due to the distribution of relevant pages under various topics. As TK and AC’s reports lack a sustainability-related title and do not clearly address the issue under a topic heading in comparison to other reports, word scanning was conducted to look through their reports. Topics that mentioned sustainability at least five times were identified and included in the analysis.

When the pages were proportioned, the ratio of sustainability pages to the whole annual report rose from 7% in 2018 to 9% in 2022. In particular, because WN adopted an integrated reporting approach, the subject of sustainability was visible throughout the report. Furthermore, LH and IAG have risen above the average by allocating over 10% of their reports to sustainability statements. AC, AF, and TK’s discussion of sustainability under many headings has led to an increase in the number of pages. Despite this, the page rates in the reports of these companies remained below 10%.

Both the chairman and the CEO wrote messages in IAG’s annual reports. The essays authored by the Chairman are titled “A Business Model Built for Sustainable Growth” in the 2018 report and “Building on Our Commitment to Sustainable Growth” in the 2019 edition. The CEO’s writing in the 2021 report includes the phrase “Connecting People, Creating Sustainable Value”, and the subtitle includes the phrase “Sustainable Value Creation”. At IAG, social sustainability issues cover a variety of subjects, ranging from social responsibility to human rights and from customers to human resources. Compared to leaders from other companies, IAG executives have given environmental concerns much greater attention. Climate change, cutting carbon emissions, and energy efficiency are the topics they concentrate on the most on the subject of environmental sustainability. The leaders not only explained their goals about the environment but also the concrete steps they have taken.

Like IAG, both the CEO and Chairman of LH have published introduction letters. The managers avoided using titles in their articles but instead concentrated on topics such as customer service, social activities, and female employee rate among social issues. In terms of economic sustainability, they prioritized shareholder earnings and economic growth. The environmental explanations have been limited to outlining the actions that need to be taken to reduce pollution in the environment and carbon emissions. The AC manager, on the other hand, referred to sustainability as a subheading in his 2021 essay. In terms of management issues, the recognition of awards and a vision for sustainable growth were emphasized, while social issues were primarily employee and customer relations. Environmental explanations were related to carbon emission.

When AF was examined, it was discovered that in the first four years of reporting, environmental statements were made only once, and environmental policy was cited so frequently that it was assessed according to 16 codes following the CEO change in 2022. In addition, one of the subtitles in 2022 was “Frontrunner in Sustainable Aviation”. While employee satisfaction and social benefit issues were highlighted in regard to social issues, emphasis was placed on the awards received by a company concerning managerial issues.

TK, on the other hand, made very little mention of environmental issues, and it was found that this company’s CEO concentrated more on management issues, such as company size, new products, new technology, and infrastructure investments. The inauguration of Istanbul Airport in Turkey became the focal point of all of the CEO’s writings, serving as a positive move for the company. There was no introduction letter in WN’s reports released between 2018 and 2020; instead, the CEO of the company made one-sentence remarks under the title “A Word from Gary”. The new CEO, who was appointed in 2021, issued remarks highlighting the value that the company attaches to employees and customers, as well as the company’s vision. He kept his introduction letters short.

When the sustainability statements in annual reports are compared to the statements of senior management, a significant parallelism can be seen in terms of social sustainability. Managerial statements have a weight of 64%, whereas the weight of report statements is 64.3%. Even though IAG’s managers have lifted the average and are very environmentally conscious, overall, the managers’ statements addressing environmental issues make up 17%, whilst 32.3% of the reports’ statements mention these issues. While businesses take part in environmental initiatives, the executives have not given these concerns much attention in their writings. While the leaders preferred making more remarks about economic themes (19%), only 3.5% of the pages in company reports that focused on sustainability highlighted these issues.

The themes of social, environmental, and economic sustainability in the sustainability-related parts of the annual reports were also examined. Social sustainability disclosures were divided into themes such as governance issues, product responsibility, human rights, human resources development, and community. Environmental disclosures were also separated into two parts: natural environment and energy consumption. There was no division regarding economic sustainability.

When we look at the corporations individually, we can observe that AC makes the most statements about the natural environment (21%), governance (19.6%), and human resources (18.5%). AF made the most remarks on the natural environment (27.4%), followed by governance (19.6%) and product responsibility (15.8%). IAG’s remarks focused primarily on the natural environment (28.9%) and governance (28.2%), with only 12.2% addressing human resources. The natural environment ranked highest in regard to LH (19.8%), followed by product responsibility (19.6) and governance (19.2%). Most of the statements of WN were about human resources (22.2%), followed by governance (19.2%) and energy consumption (15.3%). In TK’s statements, governance accounted for the largest amount, at 29.1%, with the natural environment coming in second at 17.2%, followed by product responsibility at 16.3%. Among all the statements, governance issues had the highest rate, 22.6%, and were ranked in the top three for all companies, followed by the natural environment with 21.7% and human resources development with 15.5%. Human rights, community contribution, and economic sustainability statements did not rank among the top three for any company.

Lastly, the research addressed the types of explanations given by each company for topics placed under the themes of social, environmental, and economic sustainability. To this end, the subjects that accounted for at least 1% of the total codes were taken into consideration.

On the other hand, IAG and WN have not made any statements regarding “Information related to new products”. While there was no explanation regarding “Investing in energy projects” in AC’s report, AF did not mention the issues of “Employee compensation, welfare or donation”, and TK is the only company among all companies that does not address the issue of “Contribution of separate body to CSR activities”.

AF primarily addressed cutting emissions, and it also touched on corporate policies for sustainable development and customer services. Additionally, AF often releases information about new goods and makes statements about energy-use efficiency. In its 2022 report, AF made the following statement: “We believe that the best way to reduce emissions is to continue investing in fuel efficient aircraft. In 2022, we have committed to EUR 4.5 billion investment in new aircraft. Over the next seven years, we will replace the total Boeing 737 fleet with the Airbus A320 Neo family. On average, the new A321 Neo emits 20 percent less CO₂ emissions compared to the current fleet and these aircraft are 50 percent quieter. In addition, the Boeing 747 freighters will be replaced by Airbus 350F freighters. The Airbus 350F is expected to emit over 40 percent”. We regularly encountered such statements, wherein the most-coded themes were put together.

IAG made the most statements about climate change and reducing gas emissions, followed by corporate policies and stakeholder collaboration. Out of all the companies, IAG is the airline that has taken the most steps and expressed the most opinions regarding climate change and decarbonization. Under the topic of stakeholder collaboration, relations with suppliers and sustainability issues in product supply were often discussed in detail. Recycling and pollution reduction, investment in energy policies, and sustainable fuels were also observed to be at the top of IAG’s agenda. Under the heading of reducing pollution, the noise pollution issue was also covered.

LH made numerous statements about customer service and customer satisfaction, and its disclosures on corporate sustainability vision and environmental issues were also the top-ranking issues of all the topics covered. LH, which is a company with various initiatives on recycling, made the following statement in its 2019 report to explain the steps that it had taken: “The measures of the Smart Plastic Reduction project cover a current annual volume of around 370 million individual items. The plan is to reduce these items by 2021 by including various players in the supply chain and service providers such as manufacturers, catering partners, cabin crew, and waste-disposal companies”. Among the HRD policies, the emphasis on attractiveness as an employer attracts the most attention. Numerous statements were also made about human trafficking, modern slavery, and sexual harassment. These statements were assessed under the heading “other human rights related disclosure”.

Customer service and facilities, corporate policy and strategy for sustainable development, energy use efficiency, and attempts to reduce greenhouse gas emissions were the most disclosed categories in WN’s annual reports, as they were in other companies. WN made the most statements about HRD plans and policies. Using the term “people” instead of employees or customers and often emphasizing the focus on people as a philosophy, WN mentioned its HRD policy in its 2020 report, issuing the following statement: “Our People Department’s priorities include (but are not limited to): attracting, developing, and retaining a diverse, talented workforce; providing opportunities for learning, development, career growth, and movement within the Company; evaluating compensation and benefits, and rewarding performance; investing in physical, emotional, mental, and financial health and well-being of Employees…”

5. Conclusions

Annual reports, which are among the most important and prioritized products of investor relations, are among the most effective tools for delivering both financial and non-financial information to investors. This study examined 30 reports from the six airline companies whose shares were made available to the public between 2018 and 2022. The sustainability messages found in these reports were analyzed in terms of their impact on investor relations.

An overall analysis of the reports reveals that companies mostly use the “we” rhetoric to communicate with stakeholders clearly and understandably. When compared to reports from other companies, the integrated report from WN, as well as the reports from IAG and TK, stand out as being both visually appealing and brief. Examining the report covers reveals that WN and TK have a vision that recognizes the value of employees in terms of sustainability. They prioritize placing photos of their staff on their report covers.

The theme ‘sustainability’ is only seen in IAG and AF reports. LH mentions the topic under the heading of a Non-Financial Report, while other firms include it under different topics. Pages devoted to sustainability in the annual reports grew in importance from 7% in 2018 to 9% in 2022. Because WN adopted an integrated reporting approach, the subject of sustainability was present throughout the report. Furthermore, LH and IAG have risen above the average by allocating over 10% of their reports to sustainability statements.

Examining the introduction letters—which begin with headings like “A Letter from the CEO” or “A Message from the President” and are the sections of the annual reports that readers read the most—we find that company managers give sustainability a lot of consideration. The social sustainability statements have a 64% weight since senior managers specifically address managerial issues. After social issues, managers place the most emphasis on economic matters; managers outside of IAG give environmental sustainability very little attention.

Over the years, all companies have increased the number of pages about sustainability and their sustainability disclosures by a significant amount. The statements provided by the previously mentioned companies were identified by 1186 codes in 2018. This number increased towards 2022 and reached 2109 codes. The companies with the highest share in the codes are LH, WN, and IAG. Looking at which companies make more statements under a given main theme in their annual reports, we find that social sustainability statements—which include management issues—have a weigh of 64.3%, followed by environmental sustainability statements, which come in at 32.3%, and economic statements, which remain at 3.5%.

When the sustainability statements in annual reports are compared to the statements of senior management, significant parallelism is seen in terms of social sustainability. On the other hand, it was noted that environmental sustainability explanations are more prevalent on the sustainability pages of reports, even if CEOs and managers typically give more room to economic issues related to sustainability. Upon examining the social, environmental, and economic sustainability themes that companies discuss the most in their annual reports, it was noted that governance issues rank highest at 22.6%, followed by the natural environment at 21.7% and human resources development at 15.5%.

Upon examining which subjects were most frequently discussed under this company’s sustainability themes, it was found that AC made the most statements regarding customer service and facilities (6.93%), initiatives for reducing greenhouse gas emissions (5.42%), corporate awards and recognition (4.91%), HRD plans and policies (4.41%), and investing in a waste recycling/treatment plant (4.41%). Initiatives for reducing greenhouse gas emissions (11.29%), corporate policy and strategy for sustainable development (6.30%), customer service and facilities (6.16%), energy use efficiency (4.84%), and information related to new products (3.96%) were the topics that AF explained the most.

Issues concerning climate change (8.25%), initiatives for reducing greenhouse gas emissions (6.75%), corporate policy and strategy for sustainable development (6.24%), stakeholder engagement/view exchange programs (5.10%), and corporate sustainability visions/missions/goals/objectives (4.85%) were the most frequently addressed topics by IAG. LH’s reports focused the most on customer service and facilities (9.53%), initiatives for reducing greenhouse gas emissions (5.31%), corporate sustainability visions/missions/goals/objectives (4.39%), investing in a waste-recycling/treatment plant (4.33%), and corporate policy and strategy for sustainable development (3.79%).

Customer service and facilities (5.18%), corporate policy and strategy for sustainable development (4.45%), energy use efficiency (4.45%), initiatives for reducing greenhouse gas emissions (3.88%), and HRD plans and policies (3.52%) were the most common subjects identified in WN’s reports. In its reports, TK prioritized customer service and facilities (7.71%), corporate awards and recognition (7.17%), CSR/sustainability performance disclosure (5.75%), corporate policy and strategy for sustainable development (5.10%), and initiatives for reducing greenhouse gas emissions (5.10%).

The COVID-19 pandemic has had devastating effects on airline companies because of declines in revenue and the travel restrictions. In their reports, the companies emphasized the restrictions and reducing capacity due to the pandemic. Except for TK and WN, companies reduced the number of employees by 20% during this period.

On the other hand, companies have managed to take positive steps regarding sustainability, such as by developing new touchless airport services; focusing on safety, public health, and well-being issues; developing a telework policy for employees; and investing in new-generation aircraft for reducing gas emissions during pandemic.

Based on the aforementioned findings, airline companies primarily discussed their sustainability goals and visions about management, customer relations, human resources policies, their efforts to combat emissions—one of the challenges associated with operating an airline—and projects aimed at reducing energy consumption in sustainability statements provided in their annual reports.

In this study, it is clearly shown that companies attach more importance to sustainability disclosures gradually in order to impress investors. In addition, by taking into account the headings in the GRI guides, it is noticeable that companies are trying to document that they have taken concrete steps on social sustainability issues such as human rights and employee welfare.

When we look at their statements in general, it is possible to say that they aim to impress their investors by trying to portray themselves as airline companies that care about their customers and employees, try to reduce their carbon footprint, and invest in environmentally friendly technologies.

While companies try to send such messages to their investors, it is worth investigating how these efforts are perceived by investors.

To examine the factors that affect investors’ decisions, surveys can be conducted to determine the ranking and weight of sustainability in addition to a company’s financial performance to reveal what investors understand regarding sustainability to determine which types of sustainability studies (social, environmental, etc.) affect their investment decisions.

Moreover, all sustainability items (carbon emissions, number of female employees, waste management, customer services, etc.) can be used in these studies to measure investors’ awareness and reveal their expectations of companies.

Future studies could examine sustainability targets both in annual reports and in other statements made by a company (via press releases, web pages, etc.). Issues such as whether the targets declared in annual reports were achieved on the promised date, and to what extent, and whether the unrealized targets were due to a company can be analyzed.