25 June 2022

GreenAir News

Reporting on aviation and the environment

Investor and customer climate activism poses threat to airlines without a sustainability strategy, finds report

A new report has explored the likely impacts on the airline industry of the increasing costs of sustainability, including pressure from corporate customers and investors for more transparent climate policies, and evidence of meaningful results. The Airline Sustainability Benchmarking Report, jointly produced by aviation data group CAPA and the carbon reduction consultancy Envest Global, assessed 52 airlines and more than 100 corporations with large air travel requirements to identify trends linked to sustainability, writes Tony Harrington. It found that corporations increasingly were sourcing their business travel not just on typical determinants such as price, route and schedule, but also on the climate action strategies and performance of specific airlines. The report also highlighted increasing shareholder and investor activism on climate as “an existential threat” to airlines with poor sustainability strategies and warned “multiple airlines” could fail within the next three to five years if they did not demonstrate meaningful commitment to decarbonisation, or could not afford to do so.

“Climate change is a critical challenge, and climate inaction is a critical mistake,” said CAPA Chairman Emeritus Peter Harbison. “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.”

David Wills, Envest Global Executive Director, Advisory, said the sustainability performance of most companies historically was driven by the need to comply with environmental regulations. “What we’re seeing now is that pressure on companies to improve their environmental performance is coming from their customers and their investors, to line up with their own commitments,” he added. “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. 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.”

The report found the role of procurement departments within customer organisations would broaden to consider not just the cost of travel, but also selection of the most suitable and sustainable airlines and flights, with selection factors including cost, convenience, emissions and Covid-19 protection measures.

Brett Mitsch, Envest Global Executive Director, Investment, said investors, large and small, were increasingly focused on sustainability strategies and demonstrated results of companies in which they were invested or considering investing. “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,” he said. “We believe this is a truly existential threat. 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.”

Mitsch said the number of signatories to the United Nations Principles for Responsible Investment (PRI) exceeded 4,000, which collectively were responsible for managing assets in excess of $120 trillion.

“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,” states the report. 

It also questioned the detail provided by airlines about carbon offsets, which it said were insufficient to make any meaningful assessment of their source, location and validity, observing: “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.”

Additionally, it noted cargo data was largely missing from airlines’ sustainability reporting, even though it accounted for approximately 12% of the total load tonnages of the air transport industry.   

Image: CAPA/Envest Global Airline Sustainability Benchmarking Report