If she had flown first-class (as Hollywood types tend to do), Emma Thompson would have generated around 4.3 tonnes of carbon dioxide (CO2), equivalent to just under half the average annual amount of CO2 generated by a single person in the European Union (EU). There followed the usual noises about carbon offsets, the price of which has been bubbling up through much of this year, but the actress could have dramatically reduced her carbon footprint simply by flying cattle-class like the rest of us.
All this came to mind when news emerged that UK budget carrier easyJet (EZJ) has decided to become the first major airline to operate net-zero carbon flights across its network by offsetting the emissions from flying. If you buy into the theory that anthropogenic emissions of greenhouse gases are the primary driver of climate change, then you will welcome the news, particularly as travel accounts for 10.4 per cent of global gross domestic product.
Aviation has been central to the growth of the travel industry, doubtless a reflection of rising prosperity in emerging market economies, but also mirroring the growing prevalence of budget carriers. The International Civil Aviation Organization has revealed that global passenger numbers topped 4.3bn last year, up from 1.467bn in 1998. Numbers are expected to double over the next decade, so it’s not difficult to see the imperative from an environmental perspective. But if the easyJet move heralds a wider trend, it begs the question: who is it that pays for this form of restitution – customers, taxpayers or shareholders?
In truth, the question may be redundant given that most of us fall into each category, but a report published earlier this year by the European Commission – 'Links between production, the environment and environmental policy' – gives some idea of the scale of the issue. Analysis from the report, factoring unrealised environmental benefits together with impacts such as uncertainty for business and infringement costs, indicates that the ‘implementation gap’ between legally binding environmental targets in the EU and the current level of implementation could be equivalent to around €50bn a year.
Even with the growing burden of statutory costs, some companies seem to be rushing pell-mell to get ahead of the curve. Elsewhere in this issue (News Spotlight, page 11), Alex Hamer gives a rundown on proposals by Norilsk Nickel (MCX: GMKN) to cut dividends through 2023-25 as part of a plan to increase investment in projects that will boost output, while significantly reducing noxious emissions.
The aviation and mining industries are among the biggest producers of greenhouse gases, but don’t assume that white-collar industry is immune to environmental strictures, especially with a general election looming. Shadow Chancellor John McDonnell is intent on implementing City legislation that takes account of environmental stewardship. An incoming Corbyn government would force banks and ‘shadow banks’ to publish climate-related risks associated with their financial assets, while involvement in so-called ‘brown’ investments could incur new penalties using Basel III regulations.
One way or another, we’re all on the hook, but shareholders might bring pressure to bear on management if mitigation measures start to eat into total returns. easyJet’s new commitment will cost the airline around £25m in the next financial year; small potatoes given that it booked net profits of £349m in the year to 30 September, but it still represents 11 per cent of distributions through the year. Shareholders might not be quite so sanguine if that figure crept up towards the 20 per cent mark, particularly if it wasn’t mandated through specific legislation. The warm fuzzy glow you get through good works isn’t quite so comforting when you’re out of pocket.
And it’s quite conceivable that offset costs could rise significantly over the coming years. The offset market may be unregulated, but it is still subject to the usual supply/demand dynamic. Prices have been on the fly as agencies engaged in the practice have seen a spike in investment in carbon offsetting from large corporations over the past 18 months – the costs of the practice might not seem quite so incidental as more and more companies (and green-tinged celebs) come on board.
