New Report Highlights the Costs to Airlines of Cutting Carbon Emissions - and Higher Price of Not

The airline industry, still reeling from the financial shock of the COVID-19 pandemic, is now facing another critical challenge as global pressure increases to accelerate net zero emissions, to exceed the targets set out in the United Nation's Paris Agreement.

The industry first Airline Sustainability Benchmarking Report includes a comprehensive investigation of 52 airlines, and a selection of corporations with large business travel requirements, to identify market trends linked to sustainability.

Coinciding with the UN's COP26 Climate Summit, the report indicates steep cost increases for airlines as emission reduction measures are introduced, strengthened, or expedited, including higher carbon pricing and mandated blending of sustainable aviation fuels.

It also foreshadows even greater costs - including failure - for airlines which do not take meaningful action to cut their emissions, as corporate customers and investors, needing to meet their own sustainability targets, increasingly make their support conditional on emission reduction strategies and proof of results.

Commenting on the importance of the report, CAPA Chairman Emeritus Peter Harbison said:

"Climate change is a critical challenge, and climate inaction is a critical mistake. We have partnered with Envest Global to assess the impact on airlines of increased pressure to reduce aircraft carbon emissions, and to assist them in understanding global trends and meeting the growing expectations of stakeholders."

Envest Global Executive Director, Advisory, David Wills, said that historically, the environmental performance of most companies had been driven by the need to comply with regulations.

"What we're seeing now is that pressure on companies to improve their environmental performance is coming from their customers and investors, to line up with their own commitments," Mr Wills said. "The airline industry is facing a real challenge here as those pressures increase."

"We've looked at over 100 corporations which are among the biggest corporate travellers globally, and there's a very consistent pattern that's emerging. About three quarters of those companies have made some net zero emissions commitment, and those commitments are typically in the timeframe of 2025-2030. But if you compare that to airlines that have net zero commitments, they're typically in the 2050 timeframe - a 20-year difference."

"About 40 per cent of those companies also have specific travel carbon reduction goals, in the order of 30 to 50 per cent from a 2019 base. If airlines can't better align their actions with corporate customers, then there will be a reduction in corporate travel, or a shift of business to more sustainable airlines, to enable those big customers to meet their own climate goals," he warned.

Key findings of the CAPA-Envest Airline Sustainability Benchmarking Report 2021 include:

• The next three to five years could see failures of multiple airlines that do not have the financial strength to invest in decarbonisation, and/or misjudge the need to accelerate their climate mitigation plans.
• Key stakeholders, including corporate customers and investors, increasingly will demand more reliable data on decarbonisation and proof of meaningful action, to make informed decisions on purchasing or investment.
• There is insufficient carbon offset data reported by airlines to enable any meaningful assessment of their source, location, and validity.
• In the next three to five years, carbon offsets for airlines will likely become uneconomic, unavailable, or unacceptable, with offset prices rising with broader demand for decarbonisation, and tighter criteria for legitimate offsets.
• The role of procurement departments within customer organisations will broaden to take into account not just the cost of travel, but also selection of the most suitable and sustainable airlines and flights, based on cost, emissions, convenience, and COVID-19 drivers.
• Aircraft fleet age has a clear impact on aviation emissions. If the average age of aircraft deployed in 2019 was reduced by one year, total CO2 for the whole airline industry would have been reduced by about 40 million tonnes, or 4.5 per cent.
• Cargo data is largely absent from sustainability reporting, even though it accounts for about 12 per cent of the air transport industry's total load tonnage.

Envest Global's Executive Director, Investment, Brett Mitsch, said that in many cases, the investor community had developed strategies on climate change mitigation which went well beyond the positions adopted by governments. He said the number of signatories to the United Nations' Principles for Responsible Investment (PRI) exceeded 4,000, which collectively managed approximately USD120 trillion in assets.

"Stakeholder or shareholder activism is on the rise. We're seeing a concerted effort by the investor community to understand where their risks are from a greenhouse gas emissions perspective. They're also demanding greater disclosure and transparency by all of the companies that they've got stakes in," stated Mr Mitsch.

In a number of cases, shareholder activism has forced changes to corporate sustainability strategies, and even to the composition of boards in companies deemed to be laggards on climate change mitigation.

"We believe this is truly an existential threat," said Mr Mitsch. "Even though aviation is a hard-to-abate industry, there is a demand for doing better. We're seeing from the investor community a far greater expectation on airlines for better monitoring, reporting, and truth in advertising, as it were, of their operations."

Mr Mitsch went on to advise that investors recognised that many airlines were investing heavily in carbon offsets. "But the investors are also starting to say 'Well that's great, but it's only netting off emissions. What are you actually doing to get to absolute zero, not just net zero?"

The CAPA-Envest Airline Sustainability Benchmarking Report 2021 is available for purchase and download here.

To access an exclusive media sample of the report, please contact Annaliese Vella on avella@centreforaviation.com.

About Envest Global

Envest Global is an international carbon reduction strategy and investment management company that specialises in supporting major carbon-emitting industries to achieve competitive advantage and market leadership through the design and delivery of technically innovative and commercially savvy net-zero carbon emission strategies. Envest Global help companies harness the power of investment capital and selected partnerships to accelerate their carbon reduction while delivering market leading growth and margins. The leadership team combines expertise and insight in business leadership, sustainability, capital investment and fund management, carbon reduction technologies and risk management across key industries including aviation, transport and logistics, resources, energy and power.

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For media enquiries and interview opportunities, please contact:

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avella@centreforaviation.com