Airlines That Don't Live Up To Environmental Standards Face Tough Financing In Future

Negative public perception of companies' environmental policies can no longer be regarded as territory for marketers or advertisers only. Companies now risk their funding if they are not 'green', say financial analysts.

A recent issue of Global Flight reported that airlines are forced to go green not only because of consumer pressures but also because of financial reasons.

Analysts say that airlines that do not have a strategy in place (very soon) to address environmental issues might soon find itself unable to get finance. That is totally at the other end of the spectrum of where the commentator was coming from. It is a first sign that real change in attitude is taking place. You can argue about the effectiveness of the various carbon programs or of purifying the fuels, but at least the hypocrisy factor’s gone down.

The magazine outlines that risk analysists are increasingly giving as much weight to the effect of public perception as to the still uncertain scientific understanding of aviation's precise impact on the environment. Who knows, perhaps the mix of regulations, new European guidelines and financial considerations that together could make or break airlines when it comes to the bottom line, might turn out to become a model development for other industries. “A risk manager will [...] as a matter of course take account of a business's holistic impact on the environment and will subject that to the same level of audit scrutiny as he would traditionally give to a business's balance sheet”, Flight Global writes. It goes on to quote a risk management expert as saying "We don't have to prove we're right about the risk. We just have to prove we may be right."

Further down in the article a (ratings agency) Moody’s Analyst is quoted as saying: "If there is successful adherence by European airlines through a formalised structure, that could well improve access to capital. These airlines could well show the way, be the harbingers of a trend and could ultimately become the model. But they will first have to demonstrate that they are managing these programmes effectively."

The same specialist believes that a new US administration could be positive for the creation of an emissions trading program. If the Open Skies transatlantic air travel liberalisation is going to step up competition in the airline industry, it will also lead to a further internationalision, which might mean that the European initiative could be adopted in the US as well, the analyst said.

Moody's is already working on standardised methods to rate airlines’ pollution in as fair a way as possible. The methodology includes financial metrics and qualitative considerations such as fleet age, fuel hedging strategies and geographic spread of risk. A rating agency is acting as a bridge between the rather inflexible world of industry to the more flexible world of finance and consumers at large.

Green economics is hardly an established concept academically. That is because economists have difficulty believing that anything other than the input in their models reflects reality. But they forget that the numbers they so diligently belabor are only valid because everyone else in the game plays by the same, fallacious, rules.

The biggest misconception by far is of course the concept that the earth’s resources are accounted for with as if they are infinite. Academia might lag behind the times though, because if you look at businesses, especially those ‘blamed’ for some of the worst pollution, a notable change is taking place. Economics is of course a field that is traditionally highly empirical – it took us until the 17 hundreds to have one bright mind think up a systemic approach to the mishmash of Mercantile parties – and who knows, the rule book might be re-written in the not so distant future.

Watch this video of an alternative proposition on the earth’s natural resources. A reaction to the movie reads: “You obviously do not understand free markets. Who is making green technology buddy? Its not the government. Its businesses in the ECONOMY that are creating green technology because it is PROFITABLE to do so.” But it seems that the tipping point is has moved forward. Profitability as a focal point is on its way to being replaced by probability.