10/07/2023
Environmental, Social, and Governance (ESG) issues are now seen as a key risk to investments in aviation, and authorities across the world are demanding more transparency and stricter reporting standards. It’s never been more important to understand the pathways to net-zero emissions, and their real term impacts on all key players across the industry. Each month, IBA’s ESG Consulting team will be sharing key insights and the latest news from the growing world of sustainable aviation.
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Legal and General Investment Management (LGIM) (one of the world’s largest asset managers) recently paused investments to Air China due to their failure to meet basic climate targets. LGIM makes annual engagement programmes to encourage businesses to tackle climate change and strive towards net zero emissions. It has singled out 14 companies that could be taking more climate action and have consequently been subject to divestments. The investors stated they expect the 14 companies to produce comprehensive and certified net zero emission targets, disclose actions and investments into net zero plans and achieve the policy environment requirement in the Paris Agreement. LGIM reported that companies in emerging markets, like China, were less responsive to engaging in climate issues. The actions by LGIM are material evidence that ESG metrics are becoming more vital in investment decisions and may encourage others to understand the importance of setting and adhering to climate targets. A recent article by IBA published via IATA discussed the importance of ESG-linked Finance and growing confidence within banks to tie positive ESG performance with their products. Industry stakeholders and financial institutions are currently working together to standardise metrics and methodologies, to align financial institutions’ lending and investment portfolios with net zero emissions by 2050. The growing commitment from banks suggests that airlines like Air China and other industry stakeholders will be catalysing their sustainability obligations if they want to retain their investors.
Aerospace company Tecnam have put on hold the development of their all-electric passenger aircraft ‘P-Volt’. The aircraft was supposed to be put into service in 2026 on domestic routes in Norway, but battery limitations have hindered its commercial viability. After extensive research, it was concluded that the battery technology is not advanced enough to be an operational reality. Tecnam conducted three years of research on the entire lifecycle of the all-electric aircraft and determined that after only a few hundred flights the operator would have to replace the battery. The slow charging and undercharging of the battery mean that the lifecycle emissions from production and operations are deficient. However, not all electric aircraft manufacturers have experienced technological downfalls. It was announced at the Paris Airshow that Miami-based AeroLease had signed a letter of intent to purchase 50 Eviation Alice electric aircraft, ZeroAvia announced multiple deals including a large order from California-based Flyshare for 250 hydrogen-electric turboprops, alongside various other deals, collaborations, and investments. Current electric aircraft are limited by a short-range and low seat capacity and will be accommodating for mainly regional flights with limited passengers. With international short- and long-haul flights the main cause of emissions in aviation, and electric aircraft energy density currently unable to serve these routes (and unlikely to within the next 20 years), IBA question whether electric aircraft investments should be a priority area in decarbonisation strategies. If electric aircraft will be a focus for regional travel that can be achieved via rail transport, then government investments should be for enhancing efficient and cost-effective rail transport instead.
A recent SkyNRG report states that 400 new refineries are a requirement in the US and Europe for the aviation industry to meet its 2050 net zero targets. The fuel supplier believes that it is possible for blending mandates worldwide to deliver 4.5 billion gallons of SAF by 2030 and for Europe and the US to produce 42 billion gallons of SAF by 2050 – but only if there is a significant infrastructure expansion. The forecast from SkyNRG is based on the ReFuelEU legislation, tax credits for SAF projects in the US, and the UK’s considerations of its own SAF blending mandate. The scale up will require substantial investment, however obtaining investments is not a primary issue. There have been many airlines and aviation stakeholders announcing partnerships to develop SAF such as United Airlines partnership with Blade Blue Energy, Delta and DG Fuels collaboration, plus Air New Zealand and Fulcrum, to name a few. While partnerships and investments are progressing, this is immaterial if there is limited feedstock availability. The solution to constrained feedstock and meeting increasing demand is for the aviation sector to shift priority focus to developing Power-to-Liquid (PtL) SAF plus, the energy sector must progress renewables in parallel. If the industry can successfully develop PtL SAF, it has the potential to be an economical and sustainable fuel to mitigate emissions in the aviation sector.
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