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Berlin, Germany, MAy 06, 2021

Green Aviation Meets The Pandemic

Maximilian Sieben
Finance, Strategy
The world is turning green. The focus on environmental issues increased during the last years, in particular the effect that rising levels of CO2 in the Earth's atmosphere has on global warming. Reducing environmental impact becomes a business imperative. But aviation is still considered one of the most difficult transport sectors to decarbonize. Carbon emissions from aviations accounts for around 2.5% of global emissions. Related to the projected growth of aviation after the pandemic, an increase in emissions is expected. Therefore the idea of "green aviation" and environmentally sustainable practices becomes more and more important.
Which direction to take?
Aviation stakeholders intensify activities to reach the future of carbon-neutral air transportation across the globe. OEMs are looking to improve fuel efficiency, commit to sustainable aviation fuel (SAF) and invest in research and development (R&D) of hydrogen-based and electric solutions. Airlines introduce green strategies, which consider many different factors along their operations like energy and emissions, waste and effluents, supply chain sustainability, conduct and compliance. Some airports are also doing there part. They monitor emissions, distribute SAF to airlines on a regular basis and work towards net zero position.

But among experts there is a lot of criticism of the different measures and a general opinion that the decarbonization process in aviation is going too slowly. Especially in current challenging times companies often tend to lose their focus on sustainability, because they are simply losing their power to deliver on climate change commitments due to the unprecedented crisis. Therefore economists, climate change experts and engineers have been proposing to attach climate conditions to bailouts handed out in the pandemic. On the one hand this would save the industry and on the other hand help reducing the industries' carbon footprint. Adding green conditionality to bailouts could also be beneficial not only in order to save current jobs, but also to induce new job opportunities in aviation. Therefore, many experts see the current crisis as the single greatest opportunity to redirect the future of the industry.
Green financing
In this context green financing and investing is becoming more and more important for aviation. But what's the motivation for sustainable investing? Sustainable investing considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. For airlines and lessors there are several motivations including personal values and goals, institutional mission and the demands of clients, constituents or plan participants. Companies that focus on sustainability may also benefit from lower funding costs and a good investor relation story. Important aspects for sustainable investors are a strong financial performance, but also the believe that green investments should be used to contribute to advancements in ESG practices. Investors may actively seek out investments - such as community development loan funds or clean tech portfolios - that are likely to provide important societal or environmental benefits. Some investors embrace sustainable investing strategies to manage risk and fulfill fiduciary duties. They review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term.
There is a strong link between ESG and financial performance and there are many activities, proposed solutions and promises to make aviation more sustainable and reduce its' carbon footprint. But can the promotion of offsettings, the use of bio and synthetic fuels and the development of electric and hydrogen propulsion really deliver the necessary result and avoid the need for short-term demand reduction? Or is there a kind of "sustainability play book" to justify the industries' growth? It is a fact that aircrafts and engines have become more efficient over the last decades. But critics argue that despite of the efficiency improvements emissions from aviation increased exponentially over the last years and decades.
All bets on hardware?
On the technical side, the development of new aircraft propulsion progresses slowly and poses great challenges. In average it takes around 15 years to develop, test and certify a new engine. This is too long a period for the urgently needed environmental goals to be achieved. In addition to that there seems to be no adequate solution to the existing technological challenges. Hydrogen takes up a lot of volume in the plane, so that flights would become significantly less efficient and more e and electric batteries are heavy, so that electric aircrafts can initially only be designed for short distances. On the business side, there are different "green" activities from aviation companies, that seem to give false impressions and obscure facts. Therefore "green washing" scandals are making the press.

What do you think of green financing strategies and their actual contribution to a sustainable aviation?
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