2023 has already brought significant developments to aviation’s financing capacity: a capacity that must be maximised if the industry is to meet its ever-growing challenge of net zero by 2050. In Europe, aviation has, somewhat controversially, been included in the EU Taxonomy, in the form of strict environmental criteria that must be met by new aircraft, both in terms of existing technology and zero-emission aircraft. While greenwashing claims are a concern, aviation’s inclusion is primarily seen as a tool to accelerate the necessary transitions. It would provide green investment funds the license to funnel money into aviation, even if it only enables the purchasing of newer fossil fuel aircraft.
The private sector is following suit, with collectives of financial institutions and industry stakeholders forming working groups to standardise the metrics and methodology of evaluating the exposure of assets and debt in aviation. Following the turbulence of the Covid pandemic, banks are growing in confidence in their ability to tie positive Environmental Social and Governance (ESG) performance to their products with accurate metrics of carbon emissions intensity, Sustainable Aviation Fuel (SAF) use, and board composition, amongst others. As a result, ESG-linked debt is becoming more prevalent as a tool for airlines to align their financing with their decarbonisation pathways.
CO2/RTK is emerging as the industry standard specifically for Investors, with its ability to combine freight and passenger revenue tonnage for operators, lessors, and banks. Scope 1 and 3 disclosures can also now be included, with standardised factors for tank-to-wake and well-to-wake emissions, allowing stakeholders to account for the benefits of SAF use.
IBA’s view is that pathways that appeared unachievable years ago are now beginning to take practical shape, especially with CORSIA and the EU Emissions Trading Systems (ETS) pushing airlines into establishing robust monitoring, reporting and verification principles. Standardised fuel burn accounting and subsequent emissions exposure will provide airlines with the tools needed to obtain sustainability-linked financing and will provide financers with the confidence that these metrics are accurate. As a third-party emissions data provider, we continue to align IBA NetZero with the same working groups, so that when operators, lessors, or financial institutions need access to their Scope 1 or 3 exposure, they are comparing ‘apples with apples’.
While we are enthused by the growing stature of CO2/RTK as the primary metric in allowing the flow of essential finance, absolute emissions of the sector must form part of the context that dictates industry progress. Most CAGR’s place global RTK growth between 2.5 and 3% for the period to 2050, meaning that CO2/RTK will only be a definitive metric if it represents the decoupling of traffic growth from emissions. Aviation is unlikely to hit net zero emissions if the scale of the absolute emissions problem continues to grow, even if carbon intensity per unit of operation continues to decline. CO2/RTK is a key measure to set baselines and subsequent targets, but the structure of aviation financing will continue to evolve to determine actual industry progress, especially as SAF and non-CO2 factors become integrated into the same metric. IBA NetZero will continue to be the premier provider of industry-aligned data throughout these transitions.
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Danny Thurtle
Aviation Analyst – ESG
