An In-Depth Landscape Report of the Aviation Airlines and Aerospace Companies, Which Was Sector

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An In-Depth Landscape Report of the Aviation Airlines and Aerospace Companies, Which Was Sector Climate Action Global Investors Driving Business Transition Climate Action Global Investors Driving Business Transition CLIMATE ACTION 100+ SECTOR STRATEGY: AVIATION – LANDSCAPE ANALYSIS JANUARY 2021 Produced by ABOUT THIS PROJECT There are 10 aviation focus companies in Climate • A list of recommended investor expectations for Action 100+. The PRI coordinates investor the aviation sector; engagements for nine of these companies. • A list of case studies aligned to these In February 2020, the PRI published its Investor expectations; and Expectations Statement on Climate Change for • An in-depth landscape report of the aviation Airlines and Aerospace Companies, which was sector. initially signed by over 122 investors with nearly $6 trillion in collective assets under management. The Between June-November 2020, drafts of these purpose of this statement was to publicly signal documents underwent two rounds of feedback investor support for key high-level actions airlines with investors, aviation companies, and aviation and aerospace companies can take to manage sector technical experts. their climate risks and opportunities. These documents are intended to inform In May 2020, the PRI commissioned Chronos Climate Action 100+ investor engagements with Sustainability to prepare a more-detailed investor airline and aerospace companies by setting out engagement guide for the aviation sector that recommended investor expectations for net-zero would build upon the PRI’s February 2020 climate strategies from such companies, exploring statement and serve as the Climate Action 100+ potential pathways for the aviation sector to sector strategy for aviation. This sector strategy decarbonise by 2050 and showcasing examples of consists of three documents: good practice by aviation companies. For further questions or feedback on this project, please email [email protected] Disclaimer: The information contained in this report is meant for the purposes of information only and is not intended to be investment, legal, tax or other advice, nor is it intended to be relied upon in making an investment or other decision. Without limiting the foregoing, this report is not intended as a voting recommendation on any shareholder proposal. This report is provided with the understanding that the authors and publishers are not providing advice on legal, economic, investment or other professional issues and services. PRI Association and Climate Action 100+ are not responsible for the content of websites and information resources that may be referenced in the report. The access provided to these sites or the provision of such information resources does not constitute an endorsement by PRI Association or Climate Action 100+ of the information contained therein. Except where expressly stated otherwise, the opinions, recommendations, findings, interpretations and conclusions expressed in this report are those of PRI Association, and do not necessarily represent the views of the contributors to the report, any signatories to the Principles for Responsible Investment or Climate Action 100+ (individually or as a whole), or the other four Climate Action 100+ investor networks (i.e., Ceres, IIGCC, IGCC, and AIGCC). It should not be inferred that any other organisation referenced on the front cover of, or within, the report, endorses or agrees with the conclusions set out in the report. The inclusion of company examples or case studies does not in any way constitute an endorsement of these organisations by PRI Association, the signatories to the Principles for Responsible Investment or the other four Climate Action 100+ investor networks (i.e., Ceres, IIGCC, IGCC, and AIGCC). While we have endeavoured to ensure that the information contained in this report has been obtained from reliable and up-to-date sources, the changing nature of statistics, laws, rules and regulations may result in delays, omissions or inaccuracies in information contained in this report. PRI Association and Climate Action 100+ are not responsible for any errors or omissions, for any decision made or action taken based on information contained in this report or for any loss or damage arising from or caused by such decision or action. All information in this report is provided “as-is” with no guarantee of completeness, accuracy or timeliness, or of the results obtained from the use of this information, and without warranty of any kind, expressed or implied. 1 Climate Action SECTOR STRATEGY: AVIATION – LANDSCAPE ANALYSIS PRODUCED BY Global Investors Driving Business Transition Climate Action Global Investors Driving Business Transition CONTENTS EXECUTIVE SUMMARY 3 SECTION 1: INTRODUCTION 10 Background 10 Purpose 11 SECTION 2: OVERVIEW OF THE AVIATION SECTOR 12 What is the climate impact of aviation? 13 What is the scale of global aviation CO2 emissions and how are they split? 16 In-depth: sources of aviation greenhouse gas emissions 17 What is the future climate impact of aviation under a “business as usual” scenario? 19 What are the climate risks and opportunities for airline and aerospace companies? 24 SECTION 3: DECARBONISING AVIATION: WHERE DO WE NEED TO GET TO? 26 Decarbonisation pathways 27 Absolute emissions pathways 27 Emissions intensity pathways 28 SECTION 4: ACTIONS REQUIRED FOR DECARBONISATION: HOW DO WE GET THERE? 30 Summary of mitigation options 31 General barriers to progress 34 Interventions required 37 APPENDIX 1: 45 Overview of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) APPENDIX 2: 48 Expanded discussion on mitigation options to reduce the aviation sector’s climate impact APPENDIX 3: 54 The unique role of carbon offsetting in aviation APPENDIX 4: 57 Addressing non-CO2 impacts ENDNOTES AND ADDITIONAL REFERENCES 59 ACKNOWLEDGMENTS 69 2 Climate Action SECTOR STRATEGY: AVIATION – LANDSCAPE ANALYSIS PRODUCED BY Global Investors Driving Business Transition Climate Action Global Investors Driving Business Transition EXECUTIVE SUMMARY 3 Climate Action SECTOR STRATEGY: AVIATION – LANDSCAPE ANALYSIS PRODUCED BY Global Investors Driving Business Transition SUMMARY EXECUTIVE Climate Action Global Investors Driving Business Transition BACKGROUND THE POLICY CONTEXT Aviation provides many economic and social The airline sector is exceptional in the way its benefits, connecting people and businesses across emissions are regulated. Domestic aviation the globe and contributing both directly and emissions, representing around 35% of total indirectly to the world economy. However, it is also global aviation emissions, are the responsibility a significant contributor to global greenhouse gas of individual states and are dealt with through emissions, accounting for around 2.5% of global national climate policies. Domestic aviation carbon dioxide (CO2) emissions from fossil fuel use emissions are specifically included in the process and 12% of emissions from transport. for setting Nationally Determined Contributions (or NDCs) to the Paris Agreement. This proportion is set to rise significantly in the future. In contrast, emissions from international aviation, i.e., all flights departing from one country and As other sectors decarbonise and air landing in another, representing around 65% of transportation continues to grow, aviation is likely total emissions, are not specifically addressed in to consume a much greater share of the remaining the Paris Agreement. That said, the temperature global carbon budget. It is estimated that, for some goals set apply universally and thus international countries, aviation will be the largest contributor to aviation emissions need to be consistent with carbon emissions by 2050. It is also important to those goals. recognise that flying at altitude results in additional climate impacts, such as those caused by contrail International aviation emissions are addressed at a and cloud formation. While there is considerable global level through the International Civil Aviation uncertainty about these ‘non-CO2’ impacts, recent Organisation (ICAO), a specialist United Nations scientific research indicates that the overall climate (UN) organisation. In addition to policy making at impact of aviation is currently around three times domestic and ICAO levels, there is European Union the impact of its CO2 emissions alone. (EU) regulation, which applies to flight emissions within the European Economic Area (EEA). It is estimated that over three quarters of the total CO2 emissions from the aviation value chain arise The complexity of the regulatory regime has from airline activity, which is the focus of this made mitigating emissions from the aviation paper, and most specifically jet fuel combustion sector challenging. Progress has been slow, from flight operations. Most of the remaining particularly at the ICAO level, not least because CO2 emissions come from the production and of the large number of member states involved in transportation of jet fuel. Emissions from the negotiations. This has led to proposals for a ‘dual operations of aerospace companies account for approach’ to policy making, involving both a top- only around 4% of value chain emissions. down approach through ICAO and a bottom-up approach, through national and regional climate To decarbonise the sector, the focus needs to be policies. on airlines’ Scope 1 emissions, defined as those from jet fuel combustion, and the corresponding Some individual countries have taken unilateral Scope 3 emissions of aerospace companies, that is, action to introduce policies, such as
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