Understand the Possible Impact of Sustainability on the Financial Performance
The main goal for businesses is to make profits through the delivery of goods and services. As a result, most organizations choose value added strategies that would help in increasing finances and profits. Some of these measures adopted include sustainable business practices and sound financial management strategies. Sustainable business initiatives could consist of exercises such as corporate social responsibility that integrates economic, social, and ecological aspects (Reverte et al., 2016). These factors enable the firm to meet its needs without compromising future goals. Financial management plays a significant role in organizing, planning, and controlling financial activities, especially the utilization of available funds. Financial management is essential in an organization because it helps in creating an understanding of how the available resources should be distributed.
The report aims to examine the role of sustainability on a firm’s financial performance. This research will review a company’s sustainable report disclosure and how the said values impact financial performance. Emirates Airlines will be assessed in this paper. Factors considered include the sustainable efforts that include social and environmental preservation efforts. Financial performance will be evaluated using operating costs, revenue raised, the number of passengers, and profitability.
Definition and Forms of Sustainability in relation to Financial Management
Experienced managers and firms try to maximize profits by balancing between the resources available and investments with acceptable risk levels. Such sustainable investments enable the businesses to generate values for the shareholders while ensuring continuity of long-term operations. Zabolotnyy and Wasilewski (2019) defined financial sustainability as the viability, stability or security of a business. This definition highlights the ability of a firm to generate profit, increase the value of capital investments, and repay short- and long-term liabilities. The stability derived from financial stability ensures a company’s long-term sustainable development. Financial parameters such as creditworthiness, ability to finance operations and pay debt, and risk of bankruptcy are some of the measures used in determining the sustainability of a company. Therefore, the core issue of financial sustainability involves the ability of a firm to sustain its future.
Several factors influence sustainability in business. Al Ahbabi and Nobanee (2019) noted social, governance, environmental, and economic as the forms of sustainable business operations. Therefore, when the management links sustainable issues with financial management, there is a possibility of significantly reducing the risks involved in investments. Additionally, understanding aspects of sustainability helps financial advisors identify opportunities that would influence business growth. For instance, Lassala et al. (2017) argued that corporate social responsibilities impacts financial performance in companies because of the efficient use of existing assets as well as facilitating access to funds and decreasing financial costs. Additionally, Lassala et al. (2017) indicated many investors’ decisions are influenced by sustainable practices in business. Therefore, responsible practices may give companies a competitive advantage in the market that leads to increased economic benefits.
UAE Firm that Engages in Sustainability-Related Activities
This report is on Emirates, a global airline based in Dubai, UAE. The Emirates group collaborates with other services providers to offer quality cargo delivery, catering and travel services to the clients. The company has established an environmental policy that describes its commitment to minimizing the environmental impacts of operations across business activities. The policy describes ways in which the business focuses on reducing wastage of water, utilizing available energy and other resources efficiently. For instance, Emirates (n.d.) indicated the blankets used on the economy class are made from 10% recycled plastic bottles, and each sheet takes about 28 bottles. The use of recycled bottle helps in reducing the environmental pollution. Additionally, the airline has invested in renewable energy, which included fitting 2,990 solar photovoltaic panels on the car park roof in Dubai, which saves around 800 tons of carbon dioxide waste per year (Emirates, n.d.). These strategies are essential in safeguarding environment and reducing financial expenses.
Additionally, the Emirates engage in social activities aimed at helping vulnerable groups. Pease (2018) wrote that the company launched the Emirates Airline Foundation focused on delivering food, healthcare, housing, and education for disadvantaged children within its operating network. For example, over 50,000 patients in Bangladesh have benefited since 2014 from the Emirates Friendship Hospital Ship. The airline has also invested in sports sponsorship ranging from rugby, tennis, football, motorsports, and cricket. For example, Emirates was the Official Worldwide Partner of the Rugby World Cup 2019. These activities help to improve public interests while also creating a strong corporate brand. It also helps in connecting with the customers and reaching new clients because market awareness. For instance, the company developed a strong presence in Europe through sports sponsorship of football clubs such as Arsenal, Real Madrid, Paris Saint-Germain, and AC Milan, among others.
Analysis of how Sustainability Activities Influence Emirates Financial Performance
Emirates benefit a lot from sports sponsorship because of the increased brand awareness and market penetration. According to Ambrose (2018), Emirates was not popular in England when they first signed the first sponsorship deal with Arsenal in 2004. Since then, Emirates has signed many contracts with many teams in Europe, effectively capturing the football fans. As a result, currently, 29% of the company’s revenue comes from Europe, making it the largest contributor. Additionally, the company highlighted that growth experienced in the American and Indian markets were due to increased customers’ confidence on the brand. Furthermore, the 2019-2020 financial reports indicated that the revenues grew by 2.4%, mainly because of the inflight catering business. Also, it indicated that 2018-19 the Emirates experienced low profit because of poor operating results in the UK travel business. The disruption in Europe serves as evidence that Emirates relies much on the region. The increased market presence in Europe grew because Emirates focused on sports sponsorship marketing strategy in a region where football is popular. For example, Carp (2019) noted that sports sponsorship deal Emirates has with Arsenal generated 78% recognition amongst the 3000 fans who participated in the survey. The collaboration has helped Emirates Airline create awareness about its values to millions of fans in Europe, who subsequently use their services.
The Emirates Airlines investment focuses on reducing operating costs and improving customers experience through the providing of high-quality products and services. For instance, Diaa (2017) noted that despite high oil prices and increased competition, Emirates net profits for the first half of the financial year 2017-18 increased by 111%. The rise in profits increased because the number of passengers in that period rose by 4% to 29.2 million (Diaa, 2017). Also, the airline reported a reduction in operating costs and increased profits for the 2019-2020 financial year. This healthy profit margins experienced by the company occurred despite many challenges affecting air travel, especially the Covid-19 pandemic. Turak (2020) observed that Emirates Airline reported a 21% profit growth to $287.5 million. In the same period, the airline carried about 56.2 million passengers. The rise in passengers helped in boosting profit margins. As a result, the Emirates was named as the fourth-largest airline in relations to the passenger and freight ton-miles flow (Turak, 2020). The generated profits are directly linked to Emirates’ increased sustainable activities.
The environmental sustainability activities have enabled the airline to decrease the operating costs effectively. According to Emirates (n.d.), the facilities in Dubai Airport and London offices managed to save on over 3,820 MWh electricity from its efforts in installing energy-saving light bulbs and solar panels. Renewable energy efforts also help in safeguarding the environment against global warming effects. The reuse and recycle activities enabled the airline to save the company incurring the cost of acquiring over 50 new seats as it recycled from retiring Airbus A340-500 (Emirates, n.d.). The airline also managed to introduce fuel-efficient vehicles operating within the airport in Dubai, thus effectively reducing emissions.
The Fly Emirates also focuses on improving customer experiences through giveaways and other rewards. For instance, as part of keeping the customers happy, on March 20, 2017, the international day, Emirates gave their clients and employees surprises (Guruprasad et al., 2019). The airline upgraded customers to business class, which gave them the opportunity to enjoy the flights. Further, the employees were given a free service ticket on any destination on the Emirates route network. Additionally, the employees took pictures and were encouraged to post on their Instagram accounts, thus boosting airline’s social media presence. Such posts from employees and football clubs enabled Emirates to become the first airline to achieve over one million organic followers on Instagram (Anderson, 2016). The social media and giveaways are some of the ways Emirates share interesting aspects of their operations as well as inspiring content that can persuade clients to use their airline. These activities enabled the cargo and passengers to increase over the past six years, and it collected over 90 billion Arab Emirates Dirham from 2017 (Guruprasad et al., 2019). As a result, the airline can afford to give competitive prices that can attract even more clients.
Conclusion
In conclusion, Emirates engages in sustainable business practices that have led to significant improvements in financial performance. One of the main Emirates’ marketing strategy is the use of sports sponsorship, which is part of social sustainability approaches. These sports deals enabled Emirates to penetrate the European market, who are now the largest revenue contributor. Many football fans around the world know about the fly Emirates because of many contracts it signed with famous football clubs. As part of environmental sustainability practices, Emirates has invested in renewable energy and recycling policies that led to substantial savings as it led to decreased operating costs.
The report also noted that Emirates offers incentives to its employees and competitive offers to the customers. As indicated in the study, the increased offers, such as promoting the customers to business class, was a good gesture that encouraged others to consider using the airline. Furthermore, giving employees multiple benefits and rewards for better performance has enabled them to offer quality services that have enabled Emirates to be ranked as the most valuable brand name in the airlines’ industry. These employees also provide differentiated and distinctive services that value all clients.
References
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