By Marshall Geck (@MarshallGeck), Manager, Climate Action 100+
Climate change is a systemic risk to the global economy, and science tells us that reducing emissions during this decade will be crucial to addressing the problem. All sectors must be part of the low-carbon transition and aviation is no exception. The PRI, in consultation with investors engaging airlines and aerospace companies via Climate Action 100+, has laid out several expectations for the sector in a new investor statement on climate change released publicly in February. So far, it has been signed by 122 institutional investors representing USD $5.96 trillion in collective assets under management—all of whom are calling on airlines and aerospace companies to address their climate risks and opportunities, including by making commitments to net-zero emissions by 2050.
Rising aviation emissions, rising climate risks
Aviation is a carbon-intensive mode of transportation and is projected to continue growing rapidly in the 21st century. While this growth presents opportunities for investors and companies, the accompanying increase in greenhouse emissions also heightens climate change-related risks.
In 2018 alone, aviation made up 2.4% of global CO2 emissions. If the sector were a country, such a footprint would make it the sixth largest-emitting nation in the world. As a result, airlines and aerospace companies are likely to find themselves subject to increasing regulatory risks as the policy gap between the level of action needed to keep global warming to safe levels becomes more apparent to global governments. In addition, the recent growth of no-fly movements—particularly in Europe—demonstrates how these companies could face reputational risks if they are perceived to be making insufficient efforts to reduce their emissions. Furthermore, airlines and aerospace companies that are unprepared for the projected physical impacts of climate change—which research shows could include everything from flooded airports to increases in clear-air turbulence—could potentially face severe consequences to assets, service, and overall viability. All of these risks are playing out against a backdrop where the number of annual airline passengers is set to double to 8.2 billion globally by 2037.
Existing initiatives are important, but more is needed
The industry has responded with several important measures to address aviation emissions. These include efficiency and CO2 targets set by the International Air Transport Association (IATA), the Air Transport Action Group (ATAG), and the International Civil Aviation Organisation (ICAO), which also includes the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). These measures are welcome and will likely be vital to build upon in the coming years. However, as currently designed, they will not deliver the emissions reductions necessary for the sector to be in alignment with the long-term goals of the Paris Agreement, the world’s foremost international treaty to address climate change.
For those with a fiduciary responsibility for other people’s long-term investments, there is thus a strong imperative to ensure that the airlines and aerospace companies invested in are setting robust decarbonisation plans today and addressing their climate risks now.
Investors are setting expectations on climate change for the aviation sector
Working with the PRI and investors participating in Climate Action 100+, the investors in the link at the bottom of this post have developed an expectations statement for the aviation sector that outlines how companies can achieve these goals. Central to the new statement is an expectation that these companies set plans and targets for achieving net-zero emissions by 2050. This corresponds to the level of action the Intergovernmental Panel on Climate Change (IPCC) says will be necessary to keep global warming to 1.5° Celsius and prevent many damaging impacts of climate change. Another key expectation is for these companies to establish robust strategies for developing and commercialising sustainable alternative aviation fuels and technologies with much lower carbon emissions compared to conventional jet fuels. Such alternatives are fundamental to the long-term carbon neutrality of this sector.
“Airlines should be proactive in their efforts to reduce emissions and set medium and long-term targets to become carbon neutral,” said Josh Kendall, Senior ESG Analyst at Insight Investment, a signatory to the new statement.
“We are supportive of airlines that are transitioning towards these goals while also continuing to service consumers. Those that are slow to change will face a fall in demand for their services and become uncompetitive as carbon taxes and regulation impact company cashflows.”
Those investors who have signed the statement noted that “Through organisations like the PRI and initiatives like Climate Action 100+, we will continue our dialogue with aviation companies to ensure that the investments we make on behalf of our clients and ultimate beneficiaries are aligned with the expectations set out in our new statement. Now more than ever is the time for airlines and aerospace companies to address their climate risks and capitalise on the opportunities of the low-carbon transition.”
Please click here for a full list of signees.
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 Calculated by aggregating the signatory investors’ stated assets under management. Because the signatories include asset owners, asset managers, and service providers, some double counting in this figure is possible.