Governments and oil majors must redirect their focus and investment to support sustainable aviation fuels as the airline industry prepares to raise its environmental goals, the International Air Transport Association (Iata) chief said.
Higher production could lower the price of sustainable aviation fuels as global airlines continue to invest in cutting their carbon footprint even during the Covid-19 pandemic that has hammered the aviation industry, the trade body said in an online press event on Thursday.
“The time for talking is over, the time for action is now, we want everybody in the industry to play their part and to raise their game significantly to ensure we can meet the targets that are necessary for the industry,” Willie Walsh, Iata's director-general, told reporters during the Iata Global Media Days.
The aviation industry has faced a severe backlash from climate change activists to reduce its carbon emissions. In 2009, Iata pledged to halve carbon output by 2050, compared with 2005 levels, but has not updated its target since then, despite emissions rising due to a pre-pandemic air travel boom.
“We recognise that we do need to update our targets. Our intention is to bring a proposal to our annual general meeting, which we will be held in Boston between October 3-5 and you can wait for the AGM … and you will hear from Iata in relation to our new goals,” Mr Walsh said.
The 2015 Paris Agreement, a legally binding international treaty on climate change adopted by 196 countries, aims to limit global warming to “well below” 2°C — preferably to 1.5°C — compared to pre-industrial levels. It does not specifically include international aviation.
Mr Walsh said that while airlines are working to reduce their carbon emissions, they cannot do it on their own and there is a feasible path towards carbon neutrality if governments, oil companies and aircraft manufacturers contribute to do their part.
“What will be unacceptable to us is if everybody who benefits from our industry in the wider aviation chain thinks that the airlines will just write a big check. We're not going to do that; we will clearly pay the price that is necessary but we expect others to invest and pay the price as well,” he said.
Big oil companies are interested in continuing to produce kerosene because they have invested significantly in that infrastructure, but they now “need to step up to the mark,” Mr Walsh said.
“It's not good enough that these people talk about wanting to achieve carbon neutrality in 2050. We need them to be a part of the solution and therefore they've got to start putting their money, their investments and focus on SAF in the same way as they focused on jet kerosene for many years — the industry will demand it,” the Iata boss said.
Mr Walsh added that oil companies should turn their attention to sustainable aviation fuel production and “rest assured” that there will be demand from global airlines.
Airlines are increasingly committed to buying sustainable aviation fuel despite it costing three times more than jet fuel, Sebastian Mikosz, senior vice president of environment and sustainability at Iata, said during the event.
They increased their consumption of sustainable aviation fuel by 55 per cent in 2020 and this is expected to rise to 70 per cent in 2021, he said.
“This is a fraction of what we consume. It's 0.01 [per cent] of total fuel consumption,” he said. “This is why we need SAF development.”
Limited supply and higher prices of sustainable aviation fuel are limiting increased consumption, he added.
The use of credible carbon offsetting schemes, increasing the production scale of sustainable aviation fuel and improvements in aircraft technology are part of the solutions for decarbonising the industry, Iata said.
The agency plans to hold European plane maker Airbus to a pledge to produce a hydrogen-fuelled aircraft by 2035.
“We will keep the spotlight on Airbus to do that,” Mr Walsh said.
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
