ESG in the context of Aviation Finance

Environmental, Social and Governance (ESG) is an area many aviation finance stakeholders are grappling with. Businesses are facing increasing pressure from investors, regulators and other stakeholders. Aviation financiers must determine how ESG will impact their business.They need to identify the specific risks and opportunities facing the industry. What practical steps management should take?

There are many drivers of the ESG agenda for aviation finance stakeholders, depending on where they sit in the value chain and whether they are public or private organisations. Regardless, those that lead on ESG are most likely to find competitive advantage and create greater value for those stakeholders.

ESG in the context of Aviation Finance

Pre-COVID-19, aviation accounted for 2.5% of man-made CO² emissions. However, sustained growth in demand will outpace further efficiency improvements, whilst other industries are expected to decarbonise at a faster rate. Inevitably, aviation's share of harmful emissions will rise and the weight of public opinion will increasingly encourage governments to take action.

IATA has stated, "Climate change is not just an issue for protesters or scientists… This is on the top of the agenda for mainstream investors now". The lack of viable near-term solutions to solving the net-zero challenge the industry faces will drive demand for younger, new technology aircraft as the industry seeks to reduce its carbon footprint.

While the 'E' has attracted the most attention, aviation financiers must also address the 'S' and the 'G'.