ESG Risk Radar Highlights As identified in our ESG Risk Radar, main ESG risk factors for the airlines industry are government stakes and influence, labour disruption, poor capital allocation, disease/public health and safety, short-haul travel bias, model substitution, and climate change.

Stocks/potential industry catalysts: Emissions Reduction The airline sector is closely hinged to environmental and social risks (such as climate change and public health), in addition to commitments to IATA climate targets. The potential for tightening emissions caps is a major ongoing challenge as the airline industry seeks to halve net aviation CO2 emissions by 2050, relative to 2005 levels.

Stocks/potential industry catalysts: Government Involvement We estimate increasing government influence through various restructuring plans, amidst liquidity stress due to COVID-19. We expect rising regulatory risks in the medium term, which may manifest through increased interventions on environmental issues (eg, strategic country commitments to carbon reduction initiatives). Government entities also own material stakes in some airline providers, such as China's big three airlines and Singapore Airlines (SIA).

Asian airlines: An ESG Risk Group 3 Sector In our view, the Asian airline sector belongs in our ESG Risk Group 3. We see Singapore Airlines, Cathay Pacific, AirAsia and Cebu Air as well positioned from a relative ESG perspective as these airlines have been focused on addressing key risks over the years.

Overall, we see SIA as likely to be best positioned, given its more active role in implementing various ESG-related initiatives, coupled with the strategic goal of its main shareholder Temasek to achieve net-zero carbon emissions by 2050 (see Figure 12).