Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Bank plc View HSBC Global Research at: https://www.research.hsbc.com Transport accounts for 16% of GHGs – and airlines are one of the hardest modes to decarbonise, but pressure is growing In this collaboration between our airlines, ESG and data science teams, we consider the response of EU and US airlines We find a 2019 spike in climate discussions in earnings calls, with emissions disparities between low cost and legacy carriers Increasing focus on airlines to contribute to climate ambition: Policy-makers are increasing their focus on cutting transport sector emissions. As a part of this push, the CORSIA rules target 2020 as the intended peak year for aviation emissions. This regulatory push is being matched, in our opinion, by increasing public pressure and the greater focus we are seeing from investors on how climate change is being addressed by portfolio companies operating across the economy. Climate is suddenly a hot topic: We use Natural Language Processing tools to show that climate change has been discussed on airline earnings calls far more frequently during 2019 than in previous years (Chart 1 below). Clearly, the combination of regulatory and public pressure has made this a material subject for investors. However, these discussions have not been equally spread amongst airlines – European airlines have discussed climate change far more frequently than their US counterparts. A challenge for aviation that is greatest for low cost carriers (LCCs): We review a range of environment metrics. LCCs produce low CO2 per RPK, but notably high levels of CO2 per EUR. LCC environmental performance improves more slowly than legacy airlines and the absolute growth in LCC emissions is very high. The environment poses a challenge for the whole aviation industry, but we see the challenge to be greatest for low cost airlines. Andrew Lobbenberg* Analyst HSBC Bank plc andrew.lobbenberg@hsbcib.com +44 20 7991 6816 Mark McDonald Head of Data Science and Analytics HSBC Bank plc mark.mcdonald@hsbcib.com +44 20 7991 5966 Ashim Paun Co-Head, ESG Research; Climate Change Strategist HSBC Bank plc ashim.paun@hsbcib.com +44 20 7992 3591 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations 10 September 2019 The second frontier Equities and Climate Change Global Chart 1. Surge in climate change discussion on European airline calls Source: HSBC, Refinitiv TRKD 012345672001200320052007200920112013201520172019Sentences per earnings callUS AirlinesEuropean airlinesThe climate is changing for airlines Equities and Climate Change ● Global 10 September 2019 2 Executive Summary 3 Did y...
