Point of Law: ESG Considerations for Business Aviation
Aviation pioneers overcame gravity and drag. Now aviation is engineering for sustainability. The industry and the FAA have been trying to fast-track sustainable aviation fuel (SAF), but it is not available for everyone yet. Despite the high cost and low quantity issues that affect SAF use, the financial sector is increasingly looking at SAF use as part of evaluating a company’s “ESG.”
What is ESG?
Environmental--pollution, raw material use, energy efficiency and recycling practices. Carbon emissions are quickly becoming a concern for investors who would like to take part in exciting new aviation ventures but are afraid of falling victim to “flight shaming.”
Social--employee diversity, employee engagement and turnover, health and safety, satisfaction (both employee and customer), equality, transparency, supply chain and procurement. Aviation has been working on diversity, but there is a lengthy period between recruiting a diverse workforce and seeing that workforce progress from learning, to advancing within the ranks, to leading.
Governance--management compensation, bribery, corruption, whistle blowing schemes and whistle blower protection, lobbying and political influence. Investors are often mystified at the interrelationships between the FAA and industry, particularly in aircraft certification.
The FAA and the aviation industry have been working on the environmental piece of ESG and the FAA’s Continuous Lower Energy, Emissions and Noise (CLEEN) program is poised to accelerate even faster with new funding. CLEEN is the FAA’s principal environmental effort to accelerate the development of new aircraft and engine technologies that will reduce noise, emissions and fuel burn. Through this program, the FAA partners with the aviation industry via a cost-sharing approach to enable the industry to expedite integration of these environmentally beneficial technologies into current and future aircraft. Technologies developed by it should result in a fleet of aircraft that produce less noise, fewer emissions and use less fuel. These technologies support the overall environmental performance goals of the FAA’s Next Generation Air Transportation System (NextGen) to achieve environmental protection that allows sustained aviation growth.
The FAA just received millions in additional funding for CLEEN, but many companies need to show sustainability accountability today. How do companies that cannot yet buy SAF at the pump satisfy investor and public concerns about corporate commitment to sustainability?
An answer is book-and-claim programs. In a typical book program, customers purchase SAF (the claim) no matter where they’re located and pay the premium cost for SAF over traditional Jet A. In return, they receive the credit for its use and apply it to their ESG scores. This SAF is taken off the book at an airport where the fuel is stored and sold to customers who are simply paying for jet fuel and do not get to claim credit toward using SAF in their ESG scores.
How do investors and others who are watching ESG scores and sustainability commitment know whether the book and claim system is accurate? In other words, if a company pays for SAF and obtains the claim, how do we know that the company that received and used the SAF in their aircraft will not also claim credit for using SAF? This question focuses on the “book” in book and claim.
There are many examples of book-and-claim accounting in the regulatory context, including the treatment of renewable natural gas under both EPA’s Renewable Fuel Standard and the California Low Carbon Fuel Standard. The concept of book-and-claim did not begin with SAF. Book-and-claim accounting is a common practice where the sustainability attributes of a product or input are separated from the physical flows of a feedstock, energy input or final product. Under book-and-claim, the production and use of sustainability attributes are documented in a robust manner, typically by a third party, to ensure that attributes are not double counted.
Book-and-claim is a very necessary step to get the industry from the present to a future where SAF is available at every airport. The carbon reduction of SAF can be easily negated if it is transported by truck over long distances. Ultimately, SAF production needs to be as widespread as Jet A production is today.
The aviation industry always has been driven by the desire to go higher, farther, faster. Increased fuel efficiency directly translates to all three. And so, aircraft and engine designers sought to increase fuel efficiency long before the environmental impact of fossil fuels became a public concern. But today, consumers can see the emissions associated with their trip when they purchase their ticket. Savvy corporate and charter operations are investing in the future of their own operations and heading off public relations battles, by participating in SAF book-and-claim.