Banking on Green Aviation
Banks and financial institutions have a key role to play in encouraging sustainable business aviation
This year was supposed to be the ’new normal’ but nobody knows what that is any more. What is certain is that environmental issues, which in other economic crises were pushed back, have stayed at the forefront of people’s minds. This is a growing concern for customers, especially in Europe. So, it is one that manufacturers and lawmakers as well as corporations and financiers need to anticipate and innovate to solve.
Aviation is highly visible. Although producing only 2% of all human-induced carbon dioxide (Co2) emissions, such pollution is regarded as unnecessary and arising from an industry which benefits only a very few. Whether this is true or not is no longer the question. The aviation sector, which is facing the most severe downturn ever, must emerge from the current crisis much greener to be sustainable in the future.
The question is what is green? Who is responsible for making the industry greener? Is it primarily a regulatory and industrial challenge or should banks and financing institutions play a part in the transformation process? Are commercial aviation and business aviation ‘in the same boat’ or can each find its own route to becoming more sustainable?
Business aviation has proven its usefulness during the crisis. It has delivered repatriation flights and medical evacuation missions. The sector provided flexible answers to urgent travel needs when no commercial flights were available and enabled passengers to avoid crowds.
Far less impacted than commercial aviation, the industry is recovering more quickly. The reduction in commercial aviation activity represents a significant opportunity for business aviation to expand its customer base and secure long-term growth. Provided, that is, the environmental challenged is tackled. The beauty of being small is that it should be easier, on a limited scale, to change things to be exemplary.
New technologies, including electric-powered aircraft, will help to cut carbon emissions.
The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and related market-based measures are highly complex to implement. The industry cannot wait for the regulator to become greener. Some countries have already taken diverse initiatives (such as wealth, landing, booking taxes or cancellation of new airport projects) to satisfy their voters. Clearly, voluntary carbon offset programmes are no longer sufficient. The industry must be proactive and take the lead to protect itself and the reputation of its various players.
There is much good news coming from the aviation sector. In line with CORSIA’s commitment to cut in half carbon emissions by 2050, compared with 2005, most industry leaders continue to highlight that climate action is a priority alongside economic recovery. One example of this was displayed at the Air Transport Group’s Global Sustainable Aviation Forum last year.
“Electric air taxis are expected to take to the Paris sky for the 2024 Olympic Games.”
“Finally, banks are also diversifying their impact investment offer; enabling clients to select investments that deliver positive social and/or environmental impacts in addition to financial return. This could include investments in projects making aviation cleaner or schemes to deliver aviation services that benefit society”
Marie-Laure Gassier*, Senior adviser, Business Jets and Yachts Finance BNP Paribas Wealth Management
The prospect of new technologies such as radical aircraft designs, electric and hydrogen powered aircraft are expected to be able to enter the fleet from around 2035-2040 for short-haul flights. And electric air taxis or eVTOLs are also expected to take to the Paris sky for 2024 Olympic Games. Operational improvements such as more efficient air traffic management and better use of existing aircraft shall also play a fundamental early role and help reduce emissions further.
Most importantly, the promising shift to sustainable aviation fuels (SAF) is key to meet the industry’s climate goal. But even if the new fuels are already flying today (accounting for about 250,000 flights since 2016) and can be produced from completely sustainable sources without impacting on land or water use, it is still only a tiny part of the overall fuel mix.
Last year, 40m litres of SAF were produced, representing a miniscule 0.015% of total jet fuel production. The massive development of the production (up to 450-500m tonnes of this low-carbon energy source will be required) will need a strong support from the governments in the next decade.
Positive developments for commercial aviation are useful for business aviation. However specific initiatives can also be taken for business aviation to become exemplary and cut off the argument. The European Business Aviation Association (EBAA) includes among its missions enabling the responsible and sustainable growth for business aviation and strengthening its competitiveness.
A green label named STARS (Standards & Training for Aviation Responsibility and Sustainability) will be integrated into the International Standard for Business Aircraft Operations (IS-BAO) certification for operators. This will raise awareness, reward sustainability efforts and help customers to make responsible choices for their business aircraft management.
Also, aircraft manufacturers, which collect data for their maintenance programmes, are considering including carbon offset into such programmes. A number of customers, whether private or corporate, would be glad to offset their emissions so easily and to report that they fly private because it’s greener than commercial. These are some ideas which could significantly contribute to make the future of business aviation cleaner, not only to protect the reputation of the players and the sector itself, but also to gain a competitive advantage against commercial aircraft.
So, what can the banks do?
Most of the financing institutions are truly concerned about sustainability and willing to play their part. They want to be ‘future makers’ and the pandemic we face has strengthened the conviction they must walk the talk. Beyond individual states and policymakers, corporates have indeed a role to play to meet the objectives of the Paris Agreement, which set out a global framework to limiting global warming. These measures include offsetting voluntarily their direct carbon emissions, through various platforms (such as Atmosfair and ClimateSeed), and encouraging their clients to do the same, using the same tools for the assets they finance. They can also support charities dedicated to improving aviation’s sustainability record. Among others, Aviation without Borders, which provides humanitarian assistance through aviation services, acts directly in line with the social, societal and health objectives of the UN’s Sustainable Development Goals (SDG).
Financial institutions are also supporting the transformation of the economy, not only by ending funding for the most polluting sectors, but also by encouraging the transformation of their clients’ businesses. One example is by reducing the financing cost when some pre-agreed environmental indicators are met. One could imagine that financing a business jet for a client who has subscribed to a carbon offset programme could be cheaper than for another client who did not. The financing available to newer and less-polluting aircraft could also be cheaper than the rates offered for older types.
Finally, banks are also diversifying their impact investment offer; enabling clients to select investments that deliver positive social and/or environmental impacts in addition to financial return. This could include investments in projects making aviation cleaner or schemes to deliver aviation services that benefit society.
The motto is TINA - There Is No Alternative. Whether by using systematic carbon offsets, new technologies, infrastructure and operational improvements, alternative fuels or basket-based measures, business aviation can become exemplary.
The current crisis requires massive innovation. Green and clean business aviation, achieved with the help of the financial community, is certainly the best way to turn the current challenge into opportunity. “I fly private because it’s green” : What a massive argument that could become.
*Marie-Laure Gassier is a senior finance professional with more than 20 years banking experience in France, Asia and Switzerland. Over the past 12 years, she has grown the business jets financing franchise for BNP Paribas, serving both private and corporate clients. Since 2016 she is senior adviser for business jets and yachts finance, based in Geneva.
Coming to a VoloPort (and other facilities) near you will be the low-emission Urban Air Mobility vehicles of the future. Pictured is a demonsatrator installation in Singapore in 2019 built by Skyports.