towards a green finance for business aviation

December 18, 2019

The growing awareness of the urgency to address climate change calls for a better alignment of the financial system. Giulia Mauri presents an overview of worldwide efforts on sustainable finance in the bizav sector

 

In 1985, Dr. Emmett L. Brown (also known as ‘Doc’) built a time machine from a retrofitted DeLorean car. The first journey that took Doc and his friend Marty McFly to 1955 was fuelled by a plutonium nuclear reactor, but the last flight of the first Back to the Future’s film trilogy was fuelled by garbage. The energy source was a ‘Mr. Fusion generator’ that came straight from the future and that could turn garbage into fuel.

The vision of the director and co-writer of the Back to the Future trilogy, Robert Zemeckis, was to have a future free of carbon emissions. A future where the world could re-use its waste to fuel its flying cars.

It seems now, many years after the predictions of science-fiction, that the future envisaged by Robert Zemeckis (or at least a part of it) is slowly becoming a reality and Business Aviation is playing a unique role in this development.

Sustainability as a New Global Conscience

Mankind has always dreamt of flying and gaining the freedom to travel wherever it wants and whenever it wants. Business Aviation, as opposed to commercial aviation, delivers on that promise of freedom and flexibility. However, that promise alone no longer seems sufficient.

Indeed, through the years, and in particular in the past couple of years, younger generations have become even more active environmentally. The simple message of millions of teenagers worldwide is that action must be taken now to address climate change and that we should all be concerned about the future of our planet.

This movement and the wider environmental initiatives have created an awareness amongst all sectors of business and civil society that requires each economic operator, government or individual to be actively involved in protecting the environment and a global conscience has now emerged that places “sustainability” front and center.

Although Business Aviation has been involved in climate change discussions for many years, the results of investments made in the past are only now starting to become visible and the focus of the industry is clearly moving towards sustainability.

What is the Industry Doing?

In the last two years, many different initiatives were undertaken at the European Business Aviation Convention & Exhibition (EBACE) to raise awareness and to promote sustainability in Business Aviation.

One of the main developments in this sector appears to be the development, promotion and use of sustainable aviation jet fuels (SAJF) which are non-petroleum-based fuels made from processed renewable waste such as cooking oil.

Once certified as ‘Jet-A1 fuel’, SAJF may be used together with normal fuel; the combination helps to reduce CO2 emissions. The development and promotion of SAJF is not only driven by governments and trade associations, but also by fuel companies such as Air BP, Avfuel and Shell Aviation.  All of these companies are investing in R&D projects to lead the transition of the Business Aviation industry to low carbon emission fuels.

In addition to the promotion of SAJF, other parts of the industry have invested in the development of electric aircraft. Nearly all of the major aerospace companies such as Boeing, Airbus, Embraer, Rolls-Royce, Honeywell and Safran have been working on projects to develop electric flights and many different start-ups are looking at the market for electric aircraft.

In addition to the efforts of the industrial players, whether in relation to the production of fuel-alternatives or the development of electric aircraft, associations have also been active. Through the initiatives of GAMA and IBAC, the industry has formalized its sustainability goals. The Business Aviation Commitment on Climate Change (BACCC) aims to achieve carbon neutral growth for the industry. In order to reach that goal, the BACCC promotes a global approach based on the use of SAJF, but also the use of new technologies, the improvement of the infrastructures as well as operational improvements.

The Financial Sector

One important sector which is often overlooked when sustainability is discussed is the financial sector.

Banks and financial institutions are a fundamental part of the industry. They provide funds and financing to the Business Aviation community and they are, therefore, involved in the developments and trends of the industry as a whole.

Notwithstanding the efforts of the industry to lower its CO2 emissions and to communicate such commitment to the public, the aviation sector is perceived globally by the new generations as being a highly polluting industry. More and more individuals are prepared to cut back on flying for environmental reasons and the fight against industries perceived as polluting has become ever more vocal.

Sustainability has, therefore, become one of the items that banks have to consider when they finance new assets. Crédit Suisse for example has adopted a specific Statement on Sustainability and they have a Sustainability Management Plan whereby new investments and financings are evaluated also from a sustainability point of view.

BNP Paribas is equally engaged in a sustainable finance, meaning that they carry out a long term assessment of the ethical impact of the institution’s investments. In addition, Bank of America has recently mobilized new investments through its Environmental Business Initiative to increase the bank’s investments in low-carbon business initiatives.

These trends show that financial institutions that are active in sectors often viewed as polluting are now considering the impact of their investments on their sustainability goals.

For Business Aviation this means that, in the current global context, financial institutions and banks should be able to internally and externally promote investments in Business Aviation by showing that the sector is working to reduce its CO2 emissions or is making major inroads in offsetting its emissions by investing in projects that lower CO2 emissions.

A New Cooperation

Among all the great projects that the Business Aviation industry is developing for the promotion of a greener industry, none seems to directly involve the financial sector.

Banks and financial institutions should always be involved in the industry’s programs to reduce emissions and their voice should be heard. This would help them become knowledgeable about the industry’s sustainability’s initiatives and to use that information to demonstrate how aviation fits within the institutions’ sustainability goals.

We have had the chance to discuss this topic with people responsible for the financing of private jets. They all agree that banks and financial institutions should be much more involved in the industry’s sustainability projects. They all suggested ideas that could help them to defend their investments in Business Aviation and thus show that the industry is reducing its greenhouse gas emissions and is taking measures to improve its sustainability.

One idea that has been discussed and where the Business Aviation community could take forward an industry-led approach (rather than a regulatory or state-imposed approach) concerns a common certification system.  This would allow all business jet operators to participate in a commonly agreed incentive system. Operators, in cooperation with fuel providers, and possibly assisted by industry associations, could certify on behalf of the industry what reduction of CO2 emissions has been achieved and how. For example, a reduction of CO2 emissions could be measured by showing that all consumed fuel has been SAJF or that a large part of the CO2 emissions have been offset by investing in CO2 reduction programs.

A similar system already exists on the macro-political scene. The Clean Development Mechanism (CDM) is one of the flexible mechanisms introduced by the Kyoto Protocol. Under the CDM, emissions-reduction projects can earn certified emission reduction credits that may be used to meet a country’s emission reduction targets under the Kyoto Protocol.

A similar mechanism, which could allow operators to off-set their greenhouse gas emissions in excess of the targets agreed by the industry with credits earned by financing emission-reduction projects (pre-accredited by the industry) could be used by banks and financial institutions to show that the industry is doing its part and that financing business aviation is in compliance with the financial institutions’ sustainability goals.

Another idea would be for industry associations to help create an independent organization which could then grant ‘green labels’ to operators that demonstrate their commitment to reducing CO2 emissions. Green labels could be granted, for example, to operators who are part of the ISBAO certification, or that could show that their company is aiming to achieve carbon neutrality with concrete actions.

There are likely to be many different projects, but in order to do so, banks and financial institutions should be involved and heard and a new cooperation between the industry and the financial sector should be launched so as to achieve a common goal: environmental sustainability of the industry.

Attorney Giulia Mauri is a partner at Pierstone Brussels. She has more than 20 years’ experience in advising national and international clients on all aspects of aviation and transport-related transactions, including asset-finance and leasing, regulatory issues, carrier’s liability and litigation matters. She also acts as a mediator and is the co-founder of Mediation4Aviation, a mediation platform dedicated to the aviation industry. Giulia co-chairs the European and Legal Affairs Committee of the European Business Aviation Association and is an active member of the Industry Affairs Group of the European Regions Airline Association. www.pierstone.com/team/giulia-mauri; giulia.mauri@pierstone.com; +32 02 899 23 62.