Sustainable finance has been a growing phenomenon in aviation in recent years, with over 20 airlines or airline groups having now closed at least one sustainable finance deal and deal announcements growing around 60% annually since 2021. According to data by Ishka SAVi, as of August 2024 there are 52 publicly known sustainable finance deals involving airlines and/or lessors. Until now, the vast majority of borrowers have been European airlines, with European (particularly French) and Japanese lenders the most active in the market.
And yet, transactions over the past eight months appear to tell a different story. Four of the seven sustainable finance transactions in aviation since December 2023 have involved two Chinese-owned leasing firms and one Chinese airline. Chinese lenders have also become more prominent transaction parties. In light of this new trend, impact examines the interest of some Chinese aviation firms in sustainable finance.
CALC’s leading role
China Aircraft Leasing Company’s (CALC) burgeoning sustainable finance activity has not only positioned the firm at the forefront of this trend, but also as the aircraft lessor with the most sustainable finance transactions to date. The full-value aircraft solutions provider – which in addition to leasing also offers MRO, component sales, and disassembly services – has issued three transactions with sustainable finance features:
- In 2022, it issued a RMB1 billion (approximately $140 million) debut low-carbon transition bond through wholly owned subsidiary China Asset Leasing Company Limited;
- In 2023, through the same subsidiary it completed its first and second tranches of low-carbon transition corporate bonds, with use of proceeds in the “low-carbon transition field“ through the purchase of fuel-efficient aircraft for fleet replacement;
- Earlier this year, it debuted the first-ever sustainability-linked aircraft PDP syndicated loan with a placement size of $360 million. This transaction has been linked to two sustainability performance targets (SPTs): increasing the share of latest-technology aircraft in CALC’s fleet to 25% by the end of 2025 and increasing professional training hours for its workforce to 3,281 hours by 2025.
CALC told Impact it plans to continue to use green finance for fundraising and is considering adding “certain sustainability-linked incentives” to lease structures, such as indicators related to fuel efficiency and carbon emissions. “We believe by offering such leases, CALC could encourage lessees to prioritise sustainability and environmental performance throughout the lease term,” the company shared.
CALC’s motivations
Responding to questions by Impact on what motivated these transactions, CALC noted that its use of sustainable finance stems from a desire to build CALC’s reputation as a “socially responsible company,” to strengthen its relationship with stakeholders, to respond to “growing demand for sustainable investments among investors” including attracting a “broader range of investors who prioritise ESG considerations,” and to mitigate market risks associated with environmental and social factors.
CALC also shared a belief that ESG target-setting and indexing will continue to become a priority for airlines and financiers. “It is likely that such indexes will be incorporated in financings and the cost of the financings and possibly even the availability of financings will be impacted if these indexes are not met,” a company representative noted.
The lessor acknowledged that “traditional green financing options may be limited for aviation companies” but transition finance and sustainability-linked structures are opening up sustainable finance opportunities for companies in the sector. The company also sees disengagement with sustainable finance as a long-term risk. “It is likely that investors and financiers will refrain from doing transactions with companies that do not accept sustainability linked products. Some banks have already said that they will only finance sustainability-linked transactions. Investors are sure to follow,” the firm said.
CDB Aviation issuances
The other Chinese-backed lessor using sustainable finance is Dublin-headquartered CDB Aviation, the Irish subsidiary of CDB Leasing, a leasing company backed mainly by the China Development Bank. The lessor closed its first and second sustainability-linked term loans in December 2023 and April 2024 respectively, raising a combined $1.23 billion tied to two environmental and one social KPIs: CO2 intensity reduction, latest-generation aircraft fleet share, and increasing Diversity, Equity, and Inclusion (DEI) related training hours.
The CDB Aviation issuances followed a stated objective to arrange the lessors’ first sustainable finance instrument in 2023. The company’s prioritisation of sustainable finance in its ESG strategy also includes a target to “develop sustainability-linked leases and other innovative sustainable finance products” by 2025. “For CDB Aviation, sustainable finance instruments such as sustainability-linked bonds, loans and leases are a key tool that we can leverage to positively influence the industry and help us to deliver on our sustainability strategy,” the lessors’ 2022 sustainability report notes.
CDB Aviation told Impact that it has “actively incorporated” ESG considerations into its growth’s strategy and, in recognising the importance of leasing and in support of industry-wide efforts to address sustainability concerns, its team “has and will continue” to take ESG into account in its financial strategy as well as other efforts and initiatives.
Spring Airlines embraces China’s first transition taxonomy
Shanghai-headquartered low-cost carrier Spring Airlines also brought aviation into the sustainable finance spotlight last January by becoming the first company in the country to close a loan aligned with China’s first transition finance taxonomy – the Shanghai Transition Finance Taxonomy (Trial) (approximated translation of its original title: 上海市转型金融目录（试行）).
According to a report by environmentalist non-profit China Dialogue, the 310-million-yuan ($43.7 million) loan contained sustainability performance targets such as ton-kilometer emissions and the proportion of SAF used. Proceeds from the loan were reported slated for the introduction of “fuel efficient” Airbus A320 neo aircraft.
China’s policy drivers
In addition to business priorities, there are several Chinese policies encouraging sustainable finance and decarbonisation target-setting:
- Green Finance Guidelines (2016) – Issued by the People‘s Bank of China (PBOC), they provide guidance for financial institutions to incorporate environmental considerations into their lending and investment activities;
- China‘s 14th Five-Year Plan (2021-2025) (drafted in late 2020) – Green financing is included, aiming to support sustainable development and environmental projects, including the use of financial instruments such as green bonds and green loans;
- Working Guidance For Carbon Dioxide Peaking And Carbon Neutrality In Full And Faithful Implementation Of The New Development Philosophy (2020, last updated October 2021) – which outlines China’s target to reach peak emissions before 2030 and achieve carbon neutrality by 2060 – known as the “30/60” goal.
China has also established itself as a global leader in sustainable finance, with policies and regulations encouraging green bond issuances – see research by the Shanghai-based Green Finance & Development Center for more details. According to Climate Bonds, an investor-focused NGO, China was the biggest green bond market for a second year in 2023, recording volumes aligned with Climate Bonds’ GBDB methodology of $83.5 billion from onshore and offshore issuance.
There are also incoming corporate requirements for listed companies to disclose ESG information. Most recently in February 2024, the country’s leading stock exchanges announced guidelines mandating corporate sustainability disclosure for listed companies from 2026. impact would like to thank CALC for its support of this piece, including a comprehensive list of frameworks in China that encourage decarbonisation, ESG target-setting, and sustainable finance.
This Ishka SAVi article was originally published in Impact Insights, Impact’s mid-year report. Ishka is a founding member of Impact on Sustainable Aviation. For more information on Impact (Initiative to Measure and Promote Aviation’s Carbon-free Transition e. V.), please visit: impact-on-sustainable-aviation.org
