21 February 2022 | 5-minute read
In 2021 the aviation industry continued its drive to create a more sustainable environment and this is likely to accelerate in 2022. Whilst uncertainty and reduced traffic count persisted in 2021, from the previous year, many environmental initiatives were developed and landmark events took place; a feat that is even more impressive given the financial strains and disruption faced by the industry, and its efforts towards innovation.
Following the landmark conference of COP26, more airlines will be communicating their respective commitments to a more sustainable business, working towards the target of net zero by 2050, as a minimum. This has also been backed by the UK Government through their Jet Zero consultation to decarbonise the aviation industry, and IATA’s message of committing to carbon-neutral airline growth from 2021, with a following 50% reduction in CO2 emissions by 2050.
Three of the measures the industry is implementing to achieve net zero are:
- targeting a reduction in waste production (primarily single-use plastics)
- reducing emissions through the increased use of aviation biofuels and modernisation of its existing fleet and
- an increase in contributions to passengers of donating towards carbon offset programmes.
Airlines could benefit from this, economically, through reduced fuel usage; well worth pursuing in the context of an increasingly volatile oil market and geopolitical environment. Airlines will also be conscious of positive Environmental Social and Governance (ESG) marketing opportunities to potential customers, investors and partners; the insurance spotlight is steadily being turned towards ESG, so any reductions in carbon usage are likely to make airlines more attractive to their insurers.
Lloyd’s Environmental Agenda
Lloyd’s issued their first ESG report at the end of 2020. Within this report, managing agents were being asked to not provide new insurance coverage to thermal coal-fired power plants, thermal coal mines, oil sands and new Arctic energy exploration activities. The result, and ultimate intention, will be to phase out all existing insurance coverage for these above risks within the market. This report sets out the future direction of underwriting strategy for Lloyd’s insurers, seeking to make underwriting within Lloyd’s more sustainable and responsible.
The UK Government has recently injected £180m of funding towards sustainable aviation fuels (SAF) production. A British Airways flight flew from London to Glasgow with a 35%: 65% SAF:jet fuel ratio which is said to have reduced emissions by 62% compared to the same flight over a decade ago. The UK aviation industry is also awaiting the Government’s findings from their Jet Zero consultation during the first half of 2022.
In the US, large airlines including Delta and American Airlines have committed to replace 10% of their jet fuel use with SAF by 2030 - a significant announcement considering 89% of their current total carbon footprint is from jet fuel. American Airlines has also announced strategic partnerships with firms that invest in climate solutions.
In order to try and comply with the COP26 commitment of net zero by 2050 and the International Civil Aviation Organization’s goal of 2% annual fuel efficiency improvements through to 2050, it is likely that airlines will be taking a blended approach. This will involve implementing increased use of SAF and other alternative fuels (despite its initial cost of production being considerably more than conventional jet fuel), regular fleet modernisation, and external investment into carbon offset programmes. Faced with the probable increase in costs that airlines will encounter to deliver on these undertakings in the short-term, more efficient means of production from better technologies will help aid this transition phase and government subsidies will support this transition for an industry that is already very price-sensitive in attracting consumers.
Josh Hutson-Flynn
Executive, Technical Underwriting