Investors need to make management of demand for air travel a core part of their discussions with and analysis of the aviation sector to help bring it into alignment with keeping global warming to 1.5°C above pre-industrial levels, according to a new report from Climate Action 100+.

Carried out by Chronos Sustainability, the analysis updates a previous investor engagement guide for the aviation sector to reflect the release of the International Energy Agency’s (IEA) Net Zero by 2050 report in 2021.

According to this, the Climate Action 100+ report said, sustainable aviation fuels (SAFs) and new technologies alone are not enough to achieve the deep emission reductions required by 2050 and need to be completed by a reduction in air traffic growth.

According to report, the IEA estimates that by focusing on three priority areas – keeping business travel to 2019 levels; capping long-haul flights (of more than six hours) for leisure at 2019 levels; and shifting demand to high-speed rail – emissions in 2050 could be half of what they would otherwise be, while affecting only 12% of flights.

“Understandably, the increased emphasis on demand management will be unwelcome for the aviation sector recovering from the COVID-19 pandemic and will present challenges for aviation companies and investors,” the Climate Action 100+ report authors wrote.

“Nevertheless, it is vital that it now becomes a core part of the discussion.”

For investors, this means understanding how aviation companies are planning for potential policy and regulatory interventions aimed at constraining air travel demand and ensuring that their business remains viable once more decisive policy responses to climate change come into force.

Investors should also push aviation companies and their industry associations to engage with policymakers about effective policies for demand management, including limits on airport expansion, rail investment and awareness campaigns.

The report also recommended a range of actions that investors should push for and companies should take to scale up SAFs, suggesting that a substantial increase in the use of SAF is needed between now and 2030 to ensure the sector aligns with a 1.5°C pathway.

In 2020, less than 0.1% of aviation fuel demand was met by SAF, whereas under the IEA’s 1.5°C scenario, 16% of the aviation sector’s energy consumption will need to come from advanced biofuels by 2030, and a further 2% from synthetic fuels.

Climate Action 100+ engages 10* aviation focus companies on their transition to net zero. The Principles for Responsible Investment coordinates investor engagements with nine of these companies as part of Climate Action 100+, while the tenth engagement is coordinated by the Investor Group on Climate Change.

In other ESG-related news:

  • 74 more UK investors, including Avon Pension Fund, Barnett Waddingham, PGIM Fixed Income and Schroders, have passed the test become signatories to the UK Stewardship Code; 31 failed. There are now 199 signatories. Some of those who made the cut in this application round had been rejected in the first round. The Financial Reporting Council said it had decided not to differentiate, or tier, signatories to the Code from this year as asset owners, investment consultants and investment managers felt the standard to make the signatory list was “already high”.
  • MSCI ESG Research downgraded Russia’s ESG government rating from B to CCC, the lowest rating. Earlier this month MSCI announced it was reclassifying its Russian Indexes from Emerging Markets to standalone market status.
  • Unigestion has joined the Net Zero Asset Managers initiative, committing to achieve 30% of its AUM being managed in line with net zero by 2030, based on Science Based Targets Initiative methodology and using 2019 as a baseline.
  • CDP has announced its 2021 list of top 20 funds for environmental performance, with La Banque Postale Asset Management and Mirova taking 30% of all ‘Climetrics Fund Awards’ for actively managed equity funds, based on their 2021 performance on climate change, deforestation and water security.

*Airbus, Air France-KLM, American Airlines, Boeing, Delta Air Lines, Lockheed Martin, Qantas Airways, Raytheon Technologies, Rolls-Royce Holdings and United Airlines.

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