Sustainability is aviation’s license to grow. But what are the financial implications and how do you properly measure progress along the way?

The sustainability track at the World Financial Symposium (WFS) will attempt to answer these questions by looking at the intersection between finance and sustainable initiatives.

“Finance is essential to allow sustainability to move forward,” says Thomas Egan, IATA’s Industry Accounting Working Group’s Accounting Technical Expert. “Usually, from a finance point of view you advise companies to wait and see, to pause before they spend a big sum of money. But with sustainability and net zero 2050, the industry needs to hit the ground running now and run fast.”

One of the foundational aspects to the integration of finance into sustainability initiatives is a more robust measuring and reporting process on a range of environment, social and governance (ESG) metrics. An aircraft that is not fuel efficient isn’t as valuable as a more sustainable model, for example. And the future cost of carbon has to be considered in fleet decisions and proposed business models.

In addition to these ever-increasing nuances, there is a move toward mandatory reporting. There are competing proposals—including from the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) in the European Union—which have multi-jurisdictional implications.

“The point is that we need to arrive at a set of metrics that would properly evaluate and encourage an airline’s sustainability efforts and its compliance against accepted standards and regulations,” says Egan. “ESG efforts can’t be divorced from an airline’s financial health.”

 

Sustainable finance

Also under the microscope at WFS is sustainable finance. How financial institutions view sustainable initiatives and their impact on finance availability and cost are crucial.

There is a need, therefore, to engage finance rating agencies, banks, aircraft lessors, and other relevant stakeholders in the industry’s sustainability efforts. Already, some airlines have availed themselves of sustainable financing. These facilities establish criteria that the borrowers must meet, either initially or at some stipulated point during the terms of the agreement.

The sustainability track at WFS will also cover a variety of other topics, including the skills needed that can drive this new area of finance forward. It is vital that a pipeline of talent is developed but this is a brave new world and the skillset needed is still being determined.

“There is a real desire by regulators and investors to integrate finance and sustainability into a single report, so these two seemingly disparate areas have to be compatible,” says Egan. “That will take an enormous amount of work. How do you audit that, for example?”

But Jon Godson, IATA’s Assistant Director, Sustainability, stresses that this is not only about finance having the power to drive sustainability. Rather, it is acknowledgment that sustainability will impact financial decisions and outcomes in the short and long term as airlines execute their ESG plans.

“Although airlines will be able to secure finance to drive net zero initiatives, improved sustainability performance will yield multiple benefits for airlines, including access to preferential green finance instruments,” says Godson.

“Sustainability is here to stay, and airlines are determined to be net zero by 2050," he concludes. "Finance will play a huge role in driving these industry initiatives forward, ensuring that projects are properly measured and accounted for, and providing a supportive investment framework. It is great to see that this being recognized through the sustainability track at WFS.”

 

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