Responsibility

Icelandair launched its new company strategy in 2019. Becoming a leader in responsibility by 2025 is one of five strategic initiatives in the new strategy, and hence, responsibility is an integral part of the strategy that is currently being implemented. The strategy has an overall focus on profitability, sustainable growth and responsibility.

On this background, Icelandair developed a new sustainability strategy in 2019 taking a starting point in the UN Sustainable Development Goals (SDGs). The SDGS have become a universal language of governments, civil society and businesses to work towards a more sustainable future. As part of the process to define our strategic focus areas, we have conducted a large scale stakeholder dialogue, looked at benchmarks and trends, and identified Icelandairs positive and negative impacts on all targets and subtargets of the SDGs.

Based on involvement of all functions and business units in Icelandair, we have chosen four Global Goals as our strategic focus areas. The focus areas represent areas where we can create shared value.

Icelandair has set specific targets for several of the focus areas, while a few are still being explored to better understand our current baseline. Targets for these areas will follow in 2020.

For each focus area, Icelandair has formed a working group to ensure action. Read more about the actions taken in 2019 and planned for 2020 in each section of the report.

Icelandair has an ongoing dialogue and cooperation with a wide range of stakeholders through its business operations and customer engagement, which involves sustainability-related issues as well. We participate in a number of initiatives where we gain input for our overall strategy and approach to responsibility such as FESTA, the Icelandic Sustainability Network and the ‘25 by 25’ initiative with IATA and conferences such as the Equality Awards. Also, we participate in conferences, panel discussions and events focused on sustainability issues to listen to stakeholder perspectives and gain new information.

In 2019, we conducted a comprehensive responsibility-focused stakeholder dialogue based on ten in-depth discussions with individual key stakeholders such as NGOs, business partners, tourism industry and business associations. In addition, we conducted an online survey based on questionnaires for customers, employees and business partners. We have received inputs from almost 800 employees, 600 customers and 100 business partners, which has helped us understand the importance of sustainability overall as well as the importance of sustainability issues for Icelandair.

Icelandair has performed a materiality analysis to identify our key economic, environmental and social issues. As background for the materiality analysis, we have worked with an industry benchmark, a trend analysis, a sustainability risk assessment and a mapping of our significant positive and negative impact on the UN Sustainable Development Goals as well as the results of our stakeholder dialogue.

The wider team representing all business areas within Icelandair has in a workshop format then validated the most material issues for Icelandair. All issues are covered in this report.

Icelandair Group's responsiblity strategy is based on the Sustainable Development Goals. The four key goals that were chosen represent areas where the Company concluded that it can have a significant impact and create shared value.

Goal 5: Gender Equality with a special focus on sub-goal 5.5 to ensure full participation in leadership and decision-making. Here, Icelandair Group focuses on the gender ratio at the management level, and among our pilots, flight crew and technical staff to work toward a more equal representation.

Goal 8: Decent Work and Economic Growth with a special focus on Iceland and 8.3 to promote policies to support job creation and growing enterprises and 8.9 to promote beneficial and sustainable tourism. Here, Icelandair Group focused on understanding and increasing our positive economic contribution to the tourism sector in Iceland, and to the Icelandic economy as a whole as one of the country’s largest companies.

Goal 12: Responsible Production and Consumption with a special focus on our own operations 12.7 to promote sustainable procurement practises and on waste for 12.3 and 12.5 to halve global per capita food waste and substantially reduce waste generation. Here, Icelandair Group focused on promoting sustainable and responsible procurement practises for our different companies, and well as on working to reduce waste across our operations.

Goal 13: Climate Action with a special focus on our flight operations and land vehicles to ensure that we do all we can to limit our climate impact.

Icelandair presents its responsibility information in accordance with Global Reporting Initiatives (GRI) standards, core level. The sustainability information presented in the responsibility report for 2019 has not been assured by an external party.

This report addresses all the material aspects reflecting Icelandair’s significant economic, environmental and social impacts. Those matters were identified and evaluated on the basis of a materiality assessment that involved input from the company’s main stakeholders. It describes Icelandairs opportunities, risks and progress made in the field of responsibility during 2019.

Icelandair is in cooperation with Klappir – Green Solutions to track and follow the environmental aspects of Icelandair, to foster the data, ensure traceability, integrity, transparency, usefulness and reliability of the data set.

This report covers the global activities of Icelandair Group.

Icelandair Group is an environmentally-conscious company aiming to set the standard high for safe and responsible aviation, and it is dedicated to minimising the environmental impact of its operations. The Company recognises the influence that air travel has on the environment by addressing its responsibilities to reduce emissions, conserve natural resources, as well as optimise the use of sustainable energy and recyclable materials. Icelandair is certified to the highest level of the IEnvA environmental certification program from IATA, which requires demonstration of ongoing environmental performance improvements. Icelandair Hotels are certified to the ISO14001 environmental standard.

Sustainable business growth requires the Company to address its environmental impact, both globally and locally. As part of this effort, Icelandair Group participates in the work of various environmental working groups, such as with IATA, Airlines for Europe (A4E) and the Environmental Committee of the Icelandic Travel Industry Association. Icelandair Group participates in the incentive project of Responsible Tourism in Iceland along with over 300 companies, with the purpose of maintaining Iceland’s status as an optimal future destination for tourists by supporting sustainability for future generations.

Icelandair Group’s environmental impact is not limited to its flight operations. It also involves ground facilities, offices, vehicles and maintenance areas. The company’s Environmental Policy describes approaches to protect and preserve the environment. All the Company’s employees are responsible for compliance with the policy. Management at all the Company's subsidiaries and entities have adopted guidelines and procedures to comply with the Company's Environmental Policy.

Icelandair adheres to the goals IATA has set to address the global challenge of climate change and monitors accordingly fuel efficiency and CO2 emissions from flight and ground operations. To achieve the goals Icelandair has set goals for reducing emissions to 2025.

Icelandair Group has grown tremendously over the past years. The increase in the number of passengers and amount of cargo, the constant growth of the route network, as well as the expansion of the Company’s fleet are all factors that affect and increase the total emissions from the Company. In addition, the Company’s emissions also include ground facilities, offices, vehicles and maintenance areas.

To counteract the increased emissions, Icelandair Group is constantly pursuing improvements within its operations, both on the ground and in the air.

In recent years, many changes have been made to Icelandair’s operations to reduce CO2 emissions. These include implementation of winglets on aircrafts, operational manoeuvres during descent and landing and an active fuel monitoring program as well as training of pilots. Those actions have shown visible results in increased fuel efficiency and therefore reduced emissions. However, the suspension of the Boeing 737-MAX aircraft, which are more fuel-efficient than Icelandair’s current fleet, impacts the results for fuel burn per 100 revenue passenger kilometres (RPK) and fuel burn per operational tonne kilometre (OTK) in 2019.

The emissions from Ground vehicles in 2019 are 1,659 tCO2e. This is the baseline data, we aim to reduce CO2 emissions by 40% before 2025. This number includes data from around 130 cars, vehicles and equipment directly linked to the airport. It does not include company cars.

The Company’s goal is to maximise the use of renewable energy in all aspects of its operations where it is possible to use alternatives, and actively observe progress in the development of alternative aviation fuels.

Icelandair participates in programs that explore development of alternative fuels and electric airplanes, NISA and NEA.

NISA is an active Nordic association working to promote and develop a more sustainable aviation industry, with a specific focus on alternative sustainable fuels for the aviation sector.

NEA (The Nordic Network for Electric Aviation) is a platform where Nordic actors come together to accelerate the introduction of electric aviation in the Nordic countries.

Since the beginning of 2012 all airlines offering European destinations have been required to comply with the EU Emissions Trading Scheme (ETS), which commits them to raise their carbon permits in proportion to their emissions of carbon. To address the increase in emission as of 2020 the International Civil Aviation Organization (ICAO) has decided to implement the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Icelandair is participating in CORSIA by monitoring emissions, starting in 2020.

Icelandair Group's goal is to minimise waste and increase recycling in all operations where restrictions by laws and regulations do not restrict waste separation.

Total amount of waste generated by Icelandair Group was around 2,450 tonnes 2019, very similar to previous years. The geographical location of operations and the legal environment must be considered as in some cases these factors may restrict waste separation, as cabin waste is subject to national waste management controls that are strict to protect agricultural sectors. That means that all cabin waste that has come in contact with or is made from animal products must be incinerated. Approximately 9% of all waste was incinerated in 2019.

One environmental initiative of many at Icelandair according to the new Company strategy is stop giving away plastic bottles for all passengers on our North American routes, saving about 20 tons of plastic every year. More examples are traditional plastic cutlery and plastic stirrers have been replaced with an environmentally friendly option. Similarly, plastic wrappers have been removed from blankets offered to passengers. In addition, a decision has been made to switch to more environmentally friendly cups and to start recycling on board in the coming months. This is only a small part of the many projects that Icelandair is currently working on with regards to the environment, and we will continue on this journey.

Icelandair Group has initiated various projects to improve waste recycling within the Company with good success. As can be seen 76% of waste from GSE is recycled, that is mostly used oils and metal parts. Waste from the hangar in Keflavík includes very much timber and metals and 52% of waste goes into recycling streams.

Aircraft noise sometimes called aircraft noise pollution is a significant part of the environmental affect caused by aviation. This noise is mainly caused by engines but also aerodynamic noise. Requirements have been set by ICAO and EASA to minimize the effect caused to the surrounding. Icelandair complies with these limitation and guidelines. On top of that, Icelandair's fleet is in progress of being modernized. Procedures have been adapted to reduce environmental effect. Close cooperation with local communities has had positive effect reducing noise pollution.

Furthermore Icelandair has adapted procedures which minimize both carbon emission and noise such as CDA (continuous descent approach), RAAL reduced acceleration altitude, One engine taxi and delayed APU start. These procedures and results are monitored on daily bases by fuel efficiency programs. Enabling the company to react quickly on any negative trend. Maintenance actions have been enhanced such as engine core was, exterior cleaning and control rigging.

Icelandair and Air Iceland Connect have offered passengers the option to offset the carbon footprint of their air travel since September 2019. The new carbon calculator makes it easy to calculate the carbon footprint associated with each flight, and the contribution necessary to offset it. Contributions from passengers made through the carbon calculator are used by Kolvidur – Iceland Carbon Fund to cultivate forests in Iceland.

From 2020 Icelandair will offset all employee business travel.

Icelandair strives to ensure that all employees experience that they are part of one team. This is crystalized in the company's core values which are simplicity, responsibility and passion and provide the foundation for the strong company culture at Icelandair.

A new strategic vision and mission was introduced in 2019. The guiding light of the organization is that Icelandair brings the spirit of Iceland to the world and in doing so delivers smooth and enjoyable travel experiences. Such a clear vision on the destination and such a purposeful and relatable way of getting there is set to mobilize the employees to act in concert all going in the same direction.

Underpinning the new vision and mission are specifically crafted five strategic initiatives which serve to crystalize how the organization is progressing and creating value over time. One of these initiatives is a culture of passion and performance of which People & Culture is the owner and steward to ensure implementation and follow through.

After a turbulent year characterized by unparalleled external events both internationally and domestically Icelandair Group (Icelandair) is experiencing a year of rebalancing and refocus from where it is set to return to a profitable trajectory guided by a new strategic vision. Against this backdrop the number of full-time equivalents (FTEs) only grew 1% from the year before compared to a compounded annual growth of 8% over the past seven years.

For the fiscal year 2019 Icelandair Group consisted of 14 operating companies with Icelandair as its core with 72,5% of the employee population, whereof the support functions of Icelandair support the subsidiaries and thus creating scalability and synergies within the group of operating companies.

The first step to ensure equal opportunities is to reduce the impact of gender stereotypes by showing great role models and introduce the jobs to girls where women are underrepresented and to boys where men are underrepresented. Icelandair needs to ensure that the roles offered at Icelandair are appealing and available for everyone.

Icelandair has made considerable improvements when it comes to gender equality in recent years. Ten years ago, there was only one woman of five Board Directors and only men within the Executive Management. Today, women represent 40% of the Board of Directors and 33% of the Executive Management. In other management positions the ratio is 48/52.

Icelandair is among the top airlines with the highest proportion of female pilots in the world today, or 12%, increasing from 6.5% in 2009. Male cabin crew were 5.3% 10 years ago but are now 9%. However, the gender balance within aircraft maintenance roles has not changed over time and is still over 99% men.

The airline industry as a whole is now starting to put gender equality on the agenda as IATA, the International Air Transport Association has organized a pledge for airlines which is called 25by25. The aim of this project is to bring the proportion of the gender that is underrepresented in management and flight-related roles to 25% or improve the current status by 25%.
Icelandair has set targets that align with the airline industries goals about gender equality in management positions, pilot positions, cabin crew positions and aircraft maintenance techicians jobs.

To achieve this Icelandair will focus on reducing the focus of gender stereotypes in marketing materials and represent great diverse role models that already work at Icelandair. The company will also systematically introduce different roles within the Company to girls and boys. In addition, rules and procedures have been adapted, so they do not discriminate between genders, such as uniform rules, for example regarding shoes and make-up.

Since the adoption of the Gender Equality Act No. 10/2008 the company is obligated to implement an Equal Pay Policy in order to improve and advocate gender equality and obtain a formalized Equal Pay Certification. Furthermore, in June 2017 the Icelandic parliament passed amendments to the Gender Equality Act requiring that women and men working for the same employer shall be paid equal wages and enjoy equal terms and conditions of employment for the same job or jobs of equal value to the company. The amendment requires companies, organizations and institutions who employ 25 or employees on an annual basis to attain equal pay certification from an accredited independent third party certifying that their equal pay system and the implementation thereof is in accordance with the legislation and meets the requirements of the Standard ÍST 85, The Equal Pay Standard. On this platform, Icelandair actively promotes and advocates for this legislation in its pursue of more gender equality in the Icelandic labor market.

Icelandair Group and its subsidiaries are required by law and have been certified and received the Equal Pay Certification.

As Icelandair has historically and now recently been the only international airline operator based in Iceland there are consequently many jobs and roles that are industry specific and thus almost exclusively found in Icelandair. This means that employees in such jobs typically have a longer tenure with the group than what typically is considered in the local labor market in Iceland while other industry specific roles have the opposite profile in terms where employee turnover is typically high. When placed in the context of the high growth over the past years this profile of Icelandair´s workforce tenure is rationalized with organizational changes there has been a considerable employee renewal at all levels within the organization.

Health promotion at Icelandair is high on the people agenda and initiatives have been launched with the overall aim of improving the well-being of all our employees. A health policy was put into place to safeguard the health of employees and ensure the necessary support when illness or accidents occur as well as take preventative measures for such events. Adjacent to this the company has a service agreement with Health Protection Service (Heilsuvernd) on confidential medical services ensuring employee's access to health care. Furthermore, Icelandair took a special aim against bullying and gender-related harassment and violence as a part of on-going effort to eradicate such employee behavior. To that end 30 lectures, related to wellbeing were conducted across the organization during the year.

Icelandair Group measures its working environment and cultural alignment through annual workplace audits and audit 2019 showed that 59,5% of the employee population was both engaged and committed. This means that the attitude of the majority of the employees was positive both towards the daily job that they perform and towards the company that they work for. This critical element of the company culture is further supported with a high net employee promotion score of 43 out of 100 (comprised of percentage of promotors less percentage of detractors). These two important measures from the workplace audit both show and reinforce the efficacy and effectiveness of the People & Culture strategy.

Icelandair seeks to attract talented and qualified employees to ensure that the company can meet and exceed its current and future operational challenges while ensuring and facilitating a good and progressive working culture in which the employees can both thrive and perform at their best.

Therefore, it is imperative that the employees of Icelandair have and display a growth mindset where they are both willing and able to learn and develop so both may gain. To that end, Icelandair's People & Culture has taken measures to supply its diverse employee groups with access to market leading learning and development material. By the same token, Icelandair upholds high safety and security standards and has in place detailed action plans designed to achieve these goals with mandatory training carried out for all employees working roles that are designated as part of aviation safety and work environment that is considered risk to occupational health and safety. All new employees go through a company orientation training which includes health and safety training when they commence their employment with the company.

The total of 182 thousand hours of training equates to that each employee would receive more than one week of formal training during the year.

Icelandair has a special emphasis on working with Icelandic suppliers to promote local products and crafts as part of our promise to bring Iceland to the world. We have made it a priority to serve local products on our flights and have Icelandic products in our in-flight sales selection to allow our international customer base to try the best of Iceland. When selecting suppliers for our Iceland selection, we carefully monitor quality and sustainability features.

Icelandair also has more than 2,000 suppliers around the world. We are one of the largest buyers of products and services in Iceland, and have a significant footprint. During 2019, we have worked to centralise and improve our procurement function across the Group. As part of this process we have identified responsible procurement as a material issue for Icelandair Group to work with. We have initiated the work to categorise our suppliers according to sustainability risks and to design solid monitoring and follow-up measures. We have mapped our largest suppliers according to sustainability risks and used the opportunity to train our procurement team on responsibility issues.

In 2020, we will implement a new responsible procurement system covering all our suppliers and launch our new supplier Code of Conduct. Our responsible procurement system will cover a risk assessment of suppliers, a self-assessment, follow-up dialogue and audits and trainings as part of the ongoing monitoring. From mid-2020, our new supplier Code of Conduct will be integrated in all new contracts.

Icelandair Group conducts all its business in an honest and ethical manner and the integrity of each and every member of staff serves to maintain the good reputation and trust of the Company. All persons, representing or performing services for or on behalf of Icelandair Group must comply with applicable anti-bribery and anti-corruption legislation and policies, and Icelandair Group’s Code of Conduct.

A new anti-corruption and bribery policy was established and approved by the executive management early 2020 which applies to the entire Icelandair Group workforce at all levels and grades (whether permanent, fixed-term or temporary), and all operations, subsidiaries and affiliates in all countries that the company operates in.

The flight industry has become the backbone of the Icelandic economy and Icelandair has an important role becoming the largest revenue generating industry in Iceland.

The rapid growth in aviation and tourism over the last decade in Iceland has contributed greatly to the country's economy, creating value and jobs. Tourism has become the country's largest export industry and has fueled economic growth over the last decade. The export value of the industry is over 500 billion ISK.

Last year, about 2 million tourists arrived in the country, but the total number of passengers flying through Keflavik Airport was just over 7 million. The growth has exceeded all predictions and though it is slowing down it is likely to keep on growing in a more sustainable way, expected growth for the next two years is 2-5%. The economic and social impact of the industry has exceeded all predictions in creating value and overall contributed to a better living standard for the Icelandic people. The tourism industry is the industry that most people work in this country and these jobs have become full-time jobs today unlike here in previous years.

Good living conditions in Iceland are primarily based on efficient air transport, and Icelandair is one of the largest parties in the country's largest export industry, tourism. The tourism industry now accounts for 39% of total export, 14% of the entire workforce in Iceland and contributes 8,6% to economic growth (GDP ). The state's tax revenue for increased tourism has tripled over the past decade.

Icelandair thus plays a major role in terms of both business and transport to and from the country. It is important that the company continues to work systematically to reduce the negative impact of our operations. The world economy has a lot to do with efficient air transport and few nations as much as Iceland. The Icelandic economy relies on air transport for both passenger transport and, not least, freight transport. Air transport by its nature contributes to the prosperity of the world and is necessary to maintain international relations and trade. Departures to and from Iceland to North America is more than the rest of Scandinavia combined. This depicts the strength of Iceland as a connecting hub between the continents and the strength of Icelandair’s network.

Due to its size and operations, Icelandair Group is also prestigious economically.

Icelandair Group is the largest private company in Iceland, with regards to the number of employees. We put a lot of effort into meeting the responsibility that comes with it. Icelandair Group is proud of its role in the Icelandic community and continues to seek new opportunities to expand its ties to society at large.

Through the organisations we support and the events we sponsor, we are proud to foster and promote the spirit of Iceland.

This is the second sustainability report of Icelandair Group made with reference to Nasdaq's ESG Reporting Guide, issued in 2019. These guidelines are based on guidance from the United Nations' Sustainable Stock Exchange Initiative and The World Federation of Exchange. The report should include all information to fulfil the Icelandic law (3/2006, 66. gr. d.) on non-financial reporting, as amended with reference to EU directive 2013/34 in year 2016.

Icelandair presents its responsibility information in accordance with Global Reporting Initiatives (GRI) standards, core level. The sustainability information presented in the responsibility report for 2019 has not been assured by an external party.