Speaking at Airline Economics’ Sustainable Aviation Fuel and carbon financing conference day in Dublin, Mark Allen, head of corporate finance at SMBC Aviation Capital, explained that many of the company’s lenders are already moving portfolios towards supporting net zero emissions. “Over the last couple of years, we’ve been working hard to create a sustainable financing framework,” he explained, adding that the first transaction was conducted in September 2023. “We’re very focused on the integrity of our new facilities. And we’re acutely aware of the reputational damage of greenwashing allegations,” he added, with the appointment of global ESG rating company Sustainalytics vital in facilitating annual independent verification. However, despite SMBC’s intention to continue deploying this product this year, “we are finding it’s quite mixed in terms of banks' attitudes to sustainability linked lending,” concluded Allen.
“Fleet renewal is essentially the carbon metric or KPI that people keep talking about. And that’s something we’ve done in a sustainability linked loan as well,” noted Ryan Opeka, chief operating officer and chief legal officer of Jackson Square Aviation (JSA). “That’s really what that airline customer was comfortable with, because those are the metrics that they are tracking; the leverage they feel like they can control”. However, take-up of sustainability-linked loans (SLLs) remains very low. “We’ve been offering this as a concept for a while but… I think people are a little reluctant to put their hand up and risk that greenwashing allegation,” he adds.
Frank Wulf, global head of aviation at NordLB, concurs that “a number of clients are actually quite reluctant"" to use sustainability linked loans amid circulating “uncertainty”. He would welcome a “very simple system, a very simple set of KPIs” to help clarify matters. And although NordLB has been approached by a few airline clients actively wanting a sustainability lead in their transaction, this is not generally the case.
“Our assets are not the greenest assets,” acknowledges JSA's Opeka, who believes that sustainability linked loans are “a really hard sell internally” because “you’re asking us to potentially put capital at risk for a product that’s not being solved”. He added: “Incentivising people like us with capital to deploy and take those risks would be great.""
“In terms of collaboration across the aviation sector value chain, we do think it’s important that leasing companies offer incentives to airlines,"" said Allen, who noted that despite a number of carriers being “proactive” in opening discussions around sustainability-linked loans the product remains “in its infancy”.
Özlem Ayata, director, global aviation finance office at MUFG, believes that not only should there be safeguarding for lenders (potentially in the form of an insurance product), there “should also be compensation for the borrower” who has invested money into a project with all good intentions. “We want to safeguard ourselves, and that’s only natural,” she concluded, adding that “it needs to be definitely reflected in the documentation, some way of safeguarding… at the time of the financing”.
Uncertainty surrounding sustainability linked loans remains strong
