ISTAT Jetrader - Winter 2022 - 29

We might also see financiers, airlines and lessors
shying away from carbon offsets, which have broadly been
discounted by the market; indeed, one European airline
recently announced it would stop buying carbon offsets
covering its flights and focus on sustainable aviation
fuel (SAF), new technology aircraft and carbon capture,
among other measures. The International Civil Aviation
Organization (ICAO) also recently announced its long-term
aspirational goals, one of which is to reduce dependence on
carbon offsets.
We often refer to " green " to infer/imply a financing
has some ESG element in it. But to be clear, there are
significant differences.
A green loan or bond is money raised for a specific project,
such as financing renewable energy or clean transportation -
specifically for aviation, this could be, for example, a hydrogen
or electric-powered aircraft using renewable energy. It
could possibly mean - and probably should mean - a
current (even a previous) generation aircraft using 100%
SAF (resulting in a ~80% life cycle CO2 reduction) or 100%
carbon capture of the aircraft's emissions. After all, the goal
is to reach net zero. Several years ago, there was a loan
that financed current generation turboprops on lease to an
airline that was replacing its older four-engine jets; an ESG
assessment firm stated that since the CO2 reduction was
around 30%, the loan " qualified " as " green. " Given this was
simply current technology replacing older technology, this was
roundly viewed as greenwashing. I am not aware of any green
loans or bonds financing aircraft since.
A sustainability-linked loan (SLL) or bond (SLB) is what
the aviation industry seems to be coalescing around at
In the absence of laws and specific implemented regulations, this industry,
which depends on volatile fuel prices, needs decarbonization strategies and incentives
to be thoughtful, adaptable, achievable and impactful.
clearly on the " E. " What does this mean in reality? As this
is a capital-intensive industry, the chokepoint is, in large
part, financing.
The industry has made some progress. Issuers and
lenders have begun to structure loans and bonds based
around principles established by the Loan Market Association
(LMA) and the International Capital Markets Association
(ICMA). While each investor may have its own criteria for
what it feels is " ESG enough, " it is a start. There is an English
expression that " beauty is in the eye of the beholder. " Here,
ESG - at present - is in the eye of the investor.
present and accounts for the vast majority of issuance. These
SSLs or SLBs to date are financings in which the borrower
must set and meet - or exceed - companywide targets
in order to receive a lower interest payment (or avoid an
increased one).
SLLs/SLBs are structured such that the issuer will
establish key performance indicators (KPIs) and sustainability
performance targets (SPTs). The borrower creates its SPT -
say, a pledge to reduce the company's net CO2 emissions
per passenger kilometer and its KPI would be lower this by a
specified amount over a defined period.
* WIN TER 2022 * 2 9
ISTAT Jetrader - Winter 2022

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