ESG and the Aviation Industry
In this Chambers Expert Focus podcast, we learn from Pillsbury Aviation partner Antony Single about the new challenges and opportunities the aviation industry faces against the rise of ESG.
The Expert Focus: ESG and the Aviation Industry
“The aviation market has had to up its game,” says Single. “But there are some really exciting designs and opportunities that we are seeing.” Faced with increased regulation, a finance market potentially aligning towards ESG-friendly assets, intense attention from the press, and a demanding stakeholder group, the aviation industry has a steep climb ahead but is throwing itself at the challenge.
ESG and the Aviation Industry podcast insights
The rise of ESG within aviation
“ESG as an issue has moved up: five years ago it was maybe at page 30 in someone’s annual report, and now it has moved up to being a critical board issue. It's a CEO-level risk issue and as a result of that, it's something that has the focus of boards and everyone below that.”
“You can't just think of this as just one individual player having to make the changes, because ultimately this is something that impacts the manufacturers, the airlines, the banks and the leasing companies. It impacts everyone in different ways.”
The effect of ESG on finance
“There are studies that look at stock performance on certain public ESG criteria, and there is a strong correlation between the businesses that perform well with the ones which are able to perform well on the ESG criteria.”
“It's important – it’s more than just being a good corporate citizen and a civilised company.”
“Businesses embracing ESG are going to have greater opportunities in financing, cheaper opportunities potentially for refund on financings and ultimately being seen as a lower credit risk compared to companies that that aren't able organise themselves. ESG is really critical for all businesses, but particularly the aviation industry.”
“A number of banks have started to take an approach of saying: ‘I only want to finance new aircraft. Newer aircraft have more efficient fuel burn, they are seen as much more ecologically sound, they create a lot less CO2, and so those are the aircraft that I want to finance.’ And if that's the direction of travel, what effect will that have on the value of aircraft that are older? Where will the financing costs for older aircraft start become more difficult?”
An emerging compliance framework to meet stakeholder expectations.
“If you look at the aviation industry and the wider ESG space, there are a lot of different organisations who are all calculating compliance in a slightly different way, much like rating agencies in the financial space, so it can be quite confusing.
For our clients starting to look at this, it takes time to step back and work out their strategy. What are you trying to achieve? What are you trying to work towards? Because it's important – it’s more than just being a good corporate citizen and being a civilised company. It’s making sure that you are in compliance with regulations, but also that you are compliant with customer desires and feedback, and that you are aligned with the stakeholders in your business.”
“I think the EU in particular has been a leading entity in terms of the EU Taxonomy Directive, and providing some guidance from that perspective. But when you start to look at the EU Taxonomy directive, there's a lot of uncertainty as to what it necessarily means.”
On powering aircraft sustainably…
“The aviation industry is probably a more challenging industry to try to fix the environmental aspects because you have something that needs to be lighter than air and fly through the sky. But there are some really exciting designs and opportunities that we are seeing. Ultimately the engineers think that there will be a threshold as to how big an aircraft you can actually create using battery. The obvious route people are looking at is sustainable aviation fuels, where there's real progress being made. There are a number of different opportunities there, but it's going to take time to scale up.”
Chambers Aviation Finance Global Practice Guide
Chambers Global Practice Guides provide a global view of the Aviation Finance market, covering 32 jurisdictions. This guide analyses the impact of COVID-19 on the sector, legal details on purchasing and sales of aircrafts and engines and more. The guide can be read here.