How the Relationship Between ESG, SDGs and Airport PPPs is Evolving (Part 1 of 2)

Jacques Follain

Paris

November 17, 2021

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Expectations on sustainable practices are increasing – from both consumers and investors. In this two-part report we examine how the relationship with Airport PPPs is changing as a result.

Achieving the 17 sustainable development goals (SDGs) of the 2030 Agenda for Sustainable Development adopted by the United Nations in 201, has, in recent years, become a priority for most major airports. As a consequence they have launched a number of significant actions to address these UN targets.

The COVID19 crisis accelerated these plans – perhaps more in the airport sector than in any other. The global need to integrate SDGs into the management of all airports has become priority, led by associations such as ACI World. Aside of global airport policy recommended by ACI, the various public obligations of each country when it comes to SDGs also play their part, as do constraints imposed in the financing of airport infrastructure.

However today, it is clear that Airport PPP (public-private partnership) frameworks take the obligations relating to SDGs into account in a very limited way.

This raises many questions, including how to finance the investments and expenses necessary when developing an approach geared towards SDGs.

From Recognition to Concrete Action on Sustainability

While most airports recognize the importance of sustainability and the benefits of putting these policies into action, only a few have decided to follow an approach covering all 17 SDGs in their policy.

It appears that the average airport and/or airport groups consider the 11 to 12 SDGs more applicable for them – with a core number of six SDGs at their heart. This is the typical outline that seems to be systematically followed.

The main goals being adopted by airports tend to be as follows, with the environment taking the lead:

  • SDG4: Quality Education (Social)
  • SDG6: Clean Water and Sanitation (Environmental)
  • SDG7: Affordable and Clean Energy (Environmental)
  • SDG11: Sustainable Cities and Communities (Environmental)
  • SDG13: Climate Action (Environmental)
  • SDG17: Partnership for the Goals (Governance).

ESG & SDG Challenges for Airport PPP

Manoeuvring though the requirements of both ESG (environmental, social and governance) together with the UN’s sustainable development goals can be tricky but it is important. These aspects are attracting growing attention in the sustainable infrastructure and PPP communities in general.

The field is evolving and so are is the terminology and the methodologies in reporting and benchmarking. In the particular case of airport PPPs, perspective is key but it is made complex by its specific ecosystem.

Airport PPPs usually have a set-up as shown in diagram below where, the equity investors or SPV (special purpose vehicle) shareholders are identified as a concessionaire or the operating company, whether it is the concessionaire itself, or not, which operates the airport(s).

Airport PPP

The airport PPP ecosystem is not as simple as it seems when it comes to SDGs due to the long-term nature of the contracts.

The lenders, and finally, the regulator and/or grantor of the concession, which represents the public body awarding the PPP, have to overcome the challenge of including SDGs in long-term contracts. This raises many questions including how will achieving SDGs be measured over time, and how will this be adapted during the concession given that some sustainable activities are not easily quantifiable.

Both investors and lenders also claim to pay attention to environmental, social and governance risks while investing in airport PPPs. They have sustainable investment strategies ranging from impact investment, negative screening, or thematic investments. These strategies are very often part of their corporate guidelines.

Their challenge is to ensure that their strategy, as regards ESGs, is aligned and materialized in the concession SPV so that they can fulfil their fiduciary duties and can also harvest better cost of capital and returns through ESG risk management.

[Next week, in Part 2 of this article, we examine the structuring of concession special purpose vehicles with respect to sustainability policy.]

[Main image: LF Wade International Airport in Bermuda whose redevelopment was honored with an award from the Canadian Council for Public-Private Partnerships. Image courtesy of Bermuda Skyport Corporation.]