The stance of aviation on climate change has evolved recently. The COVID-19 pandemic paused air travel and growth. Ironically, this sparked change. Survival took priority in the initial crisis. Environmental issues took a backseat. However, the prolonged pause was beneficial. It allowed the world to adopt a “build back better” approach.
Airlines are now committing to net-zero emissions. They align with the IATA AGM resolution and the Paris Agreement. These aim to limit global warming to 1.5°C. Many airlines have pledged to become net-zero. Larger firms are investing in advanced technology. They focus on greener infrastructure and sustainable aviation fuel (SAF). They are also looking at carbon offsets.
The aviation industry has four key strategies now. They aim for net-zero emissions by 2050. The strategies are: improving energy efficiency, using SAF, developing new technologies, and using carbon offsets. Most airline emissions come from jet fuel. So, efforts focus on fleet upgrades and transitioning to SAF. (source)
In pursuit of a net-zero future, the World Sustainability Symposium (WSS) will launch its inaugural edition in October 2023. IATA exclusively hosts this unique event, tailoring it for professionals in airline sustainability.
It provides an unparalleled platform for enriching their understanding of environmental issues and facilitates networking with diverse businesses that can bolster their sustainability objectives. (source)
Aviation Focus: A Case Study on Deutsche Lufthansa AG
Before implementing TCFD, it’s important to highlight that the Lufthansa Group had already shown a solid commitment to sustainability and combating climate change. Their previous actions include adopting numerous measures to minimise their carbon footprint, such as investing in aircraft with greater fuel efficiency and researching alternative fuels.
“Lufthansa Group believes that governments, companies, and investors have a responsibility to mitigate the impacts of a changing climate and facilitate a transition to a climate – resilient economy”source
Lufthansa has divided its approach to dealing with climate change into two parts. Firstly, there’s the leadership team’s role, and secondly, the part that the rest of the management plays.
The leadership team is very involved in managing sustainability. The team set up a special committee in 2023 to examine environmental and social issues. The officer in charge of sustainability handles identifying risks, setting goals, and forming strategies. The leadership team meets twice a month to discuss climate-related issues.
The department responsible for company responsibility reports to this officer. They handle the company’s environmental strategy and communications with customers. They also have an annual meeting where they discuss environmental sustainability in detail. The leadership team and other key decision-makers play a significant role in implementing sustainability activities.
In 2021, they set up a discussion group to discuss sustainability. The leadership team also monitors their strategy, measures, and goals related to the climate and environment.
The head of the company responsibility department checks on climate risks and manages the plan to protect the climate. They also come up with suitable actions. The company formed a committee to address the increasing significance of reducing carbon emissions and complying with environmental regulations. This committee discusses changes in emission laws and their financial impacts regularly.
In 2022, the committee conducted a study to identify risks and opportunities related to the climate. Later they informed the management about the results. The head of the company responsibility department takes ownership of the climate-related risks. They check these risks quarterly and regularly share the most significant risks with the leadership team. The audit team discusses these risks once a year.
Climate change impacts Lufthansa in two ways: it brings risks and opens new opportunities. Risks include:
- Physical damage to planes.
- Changes in laws.
- Shifts in the market.
- Harm to their reputation.
Opportunities arise as we transition towards less carbon use.
A shift to a low-carbon future could affect Lufthansa financially, influenced by changes in taxes and regulations or shifts in customer behaviour. They manage these risks and opportunities as part of their company-wide risk management process, considering short-term (0-1 years), medium-term (1-3 years), and long-term (3-10 years) impacts.
Market risks could arise if customers prefer high-speed rail over flying. Increased competition and high fuel costs could also necessitate the early retirement of less efficient planes. Negative public opinions about flying can lead to reputation risks.
Policy and legal risks are related to higher carbon prices, fuel taxes, and changing energy efficiency standards. Technology risks involve new aircraft technologies and the use of sustainable fuels, leading to increased expenditures.
Lufthansa also recognizes physical risks like higher temperatures reducing passenger and cargo loads and acute weather conditions impacting passenger comfort and safety.
On the brighter side, Lufthansa sees opportunities for more efficient planes, improved air traffic management, and participation in research projects linked to the EU Green Deal. Long-term opportunities include:
- Using sustainable aviation fuels.
- Investing in a modern and efficient fleet.
- Contributing to the development of new types of aircraft.
Aviation Scenario Analysis: Lufthansa Group’s Examination of Climate Futures
Lufthansa Group looked at two potential climate futures the International Energy Agency developed. The first assumed a more steady rise in global temperatures (~1.8°C), and the second considered what might happen if we continue with our current policies (~2.7°C).
The scenarios were based on global growth, population changes, renewable and fossil energy balance, CO2 prices, and Sustainable Aviation Fuels (SAF) use in air travel. Lufthansa used these scenarios to look at areas in their business that might be affected by these changes.
The study considered what would happen if operating costs increased due to higher CO2 emissions and the use of SAF. It also looked at how higher ticket prices and increased use of other forms of transport, like trains, might influence changes in market demand.
The study found that for Lufthansa, the highest cost comes from changes in oil and SAF prices, which could exceed the costs for carbon emissions, especially in the medium term.
Under the 1.8°C scenario based on aggressive decarbonization efforts, costs could rise significantly by 2050. However, oil prices could decrease in this scenario due to lower demand, while SAF shares will increase to almost 50% by 2050.
On the other hand, in the 2.7°C scenario, CO2 prices rise more slowly, but higher demand for crude oil could lead to increased fuel costs and potentially significant increases in operating expenses.
The study also revealed that the global demand for passenger transportation would likely increase with population and economic growth. However, higher operating costs might threaten this development. Lufthansa plans to look into this in their following study in 2023.
Lufthansa’s current strategy reflects many of these findings, with climate-related issues affecting its products, services, investments, and operations.
Lufthansa Group uses an organized process (ERM) to manage risks across the entire company, including within its largest business units. This process aims to identify, present, compare, assess, and manage all significant risks related to climate change. The people responsible for each risk must actively monitor them and integrate any relevant information into the company’s planning and decision-making processes.
Lufthansa has guidelines approved by its executive board, outlining the methods and organizational standards for dealing with opportunities and risks. These risks, including those related to climate change, are assessed and combined into a risk map. This risk map is updated every quarter to ensure accuracy and accuracy.
The company also makes clear the financial and strategic impacts of climate-related risks. These risks are quantified where possible and otherwise described as strategic risks. Strategic risks are long-term developments and challenges that could negatively affect Lufthansa.
The company has several procedures to identify and assess climate-related risks at the group and subsidiary levels. They also regularly monitor environmental policy and regulatory changes, assess physical risks through dialogue with climate scientists and research institutions, and identify and assess potential reputational risks through broad stakeholder surveys on sustainability matters.
Moreover, the company’s various departments and critical business units work together to manage climate-related risks and opportunities. Lufthansa is preparing for the future legal requirements of the CSRD, a directive that will significantly impact how risk management, financial planning, and climate impact interact.
Metrics and targets
Lufthansa Group dedicates itself to reducing the environmental impact of its activities, particularly those related to climate change. This commitment not only arises from an understanding of responsible practices and increasing demands from stakeholders such as customers and investors but also aligns with the company’s economic interests, as reducing resource consumption and emission-related costs benefits them financially.
To manage climate-related risks and work towards its strategic goal of halving net CO2 emissions by 2030 and achieving carbon neutrality by 2050, Lufthansa monitors its CO2 emissions and fuel consumption. Integrating specific carbon emissions into its management system ensures sustainable value creation that doesn’t increase environmental impact. On the contrary, the goal is to reduce particular carbon emissions continually.
In 2022, Lufthansa’s total CO2 emissions increased due to rising demand and expanded flight offerings. However, their specific CO2 emissions per passenger-kilometre decreased by 11.4% from the previous year, thanks to increased passenger load and changes in the route network leading to longer flights.
Lufthansa records its CO2 emissions following the Greenhouse Gas Protocol, which categorizes emissions into three scopes. Most of Lufthansa’s CO2 emissions are direct emissions (Scope 1) from their operations, but they also report on emissions generated in other parts of the value chain (Scope 2 and 3). They have these values audited externally each year for accuracy and transparency.
Finally, Lufthansa supports IATA’s more ambitious emission reduction targets and aims to achieve net zero CO2 emissions by 2050. They have implemented several measures to manage climate-related risks and opportunities, demonstrating their commitment to reducing climate impact.
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