From aviation’s displeasure with the EU Taxonomy to lessors reacting to their EU CSRD de-scoping under Omnibus Regulation proposals, Ishka SAVi explores some of the key takeaways from Ishka’s full-day aviation sustainability investment conference in London on 25th March. For a fourth year running, Ishka’s flagship sustainability event – now titled Ishka Financing Sustainable Aviation (FSA) – brought together some of the industry’s most prominent sustainability voices, from airlines and SAF players to lenders and policymakers.
EU Taxonomy anger
After years on the drafting board, the EU Taxonomy’s aviation ‘do no significant harm’ (DNSH) criteria were expected to become the north star for sustainability-minded aviation banks and institutional investors in 2025. Instead, the first three months of the year have seen it become a bureaucratic failure, with major disparities in the percentages of reported alignment by airlines and other aviation stakeholders, and the aircraft leasing sector expected to broadly fall outside of reporting requirements as part of Omnibus proposals announced in late February.
“It’s a headache to interpret,” commented a major European lender at the event, who also said the criteria currently has “no impact” on its mobilised capital. The speaker’s bank, however, has put in place “internal measures” to incentivise transactions that may be aligned with the Taxonomy criteria.
“The idea was to make sustainable reporting comparable throughout the industries, within the industries, and now I’m also excited to hear whether it has fulfilled its purpose,” sardonically commented a major European airline executive at another point in the conference, addressing the financiers in the audience. The same airline complained that one-sixth of its annual report is now being taken up by sustainability disclosures, many of them mandated.
A frequent topic of debate has been differences in reported Taxonomy-aligned capex and opex by airlines and OEMs – something seemingly caused by convoluted requirements. This issue was also spotlighted at the European Regions Airline Association (ERA) conference in Copenhagen earlier last month, not least the incongruous situation of Airbus’ in-production aircraft, in principle compliant, being in zero alignment in the OEM’s own Taxonomy reporting due to banned substances in manufacturing processes. A major European airline speaking at Ishka’s FSA event shared a similar experience, saying they were not able to “include latest-generation aircraft because they had halon [fire] extinguishers […] this is madness.”
The Omnibus proposals were welcomed by many delegates and speakers. One Big 4 panellist called for “a balance to be struck” between transparency and strict requirements. At the ERA event in late March, Eddy Liégeois, head of aviation policy at the Commission’s Mobility and Transport department (DG MOVE), also acknowledged that the EU Taxonomy regulation is a “very complex” matter, and the Commission would seek “to correct and address” early implementation issues “this year”. An EU policymaker at Ishka’s FSA event similarly acknowledged “frustrations about the complexity” of Taxonomy reporting.
On a related point, a panel of mid-life and end-of-life aircraft investors and services companies at the end of the FSA event advocated for greater recognition of aviation’s aftermarket industry’s role in environmental circularity. Speakers called for Taxonomy criteria to incentivise aircraft OEMs to prioritise component commonality in newer aircraft variants.
Lessors expect to leverage CSRD lessons
After over a year of auditor warnings and extensive preparations, nearly 20 leasing companies were expected to report under the EU Corporate Sustainability Reporting Directive (CSRD) as part of the ‘Wave 2’ tier of companies (first reports in FY 2026 on 2025 data). However, proposed changes to CSRD in the Omnibus proposals – limiting CSRD reporting requirements to companies with more than 1,000 employees – are expected to reduce that number to zero. This begs the question: what will lessors do with all their CSRD compliance groundwork?
One US-headquartered leasing firm noted it hoped to “leverage” some of its CSRD preparatory work for Californian reporting legislation, “[under] which we are still expecting to report on next year.” The same firm also noted that “the delay in the [CSRD] timeline” will give it “a little more time” to work on its double materiality assessment (DMA). A DMA assesses a company's external impacts (impact materiality) alongside how sustainability issues affect the company's financial performance (financial materiality). It is worth noting that besides the proposed CSRD scope changes, the Omnibus proposals also include a “stop-the-clock” delay for companies that are yet to start reporting.
A representative of another major leasing platform downplayed the impact of the Omnibus proposals on its reporting efforts. “Does it change how we report? Yes and no, to be honest, because we have completed our DMA, and our DMA was very much in line with what we have reported so far.”
Overall, there was agreement that CSRD had become an unmanageable regulation in need of scaling back. “CSRD went too far in terms of the hundreds of metrics that were required […] but do you throw the baby out with the bathwater? No,” commented the executive, noting that lessors will continue to provide sustainability data to their financial stakeholders and are unlikely to completely abandon sustainability reporting. “I don’t see, among us and among our peers, us saying: ‘that’s it, we are not going to report anything’ – I think we will arrive at a much more sensible point ultimately, which will benefit everybody.”
As this report goes to press on 1st April, members of the European Parliament (MEPs) were expected to vote in favour on Omnibus proposals without amendments, creating hopes that a political compromise on the Omnibus proposals could be reached by the summer.
Sust fin deals down, but key lender ‘encouraged’
“[Sustainable finance] should be the linkage that makes all of this horrendous sustainability reporting worthwhile,” outlined a sustainable finance market researcher at the FSA conference, highlighting the connection between regulatory demands and broader funding opportunities.
That linkage, often between sustainable finance frameworks with corporate sustainability targets and green or sustainability-linked instruments, has supported most of the 74 aviation sustainable finance deals tracked by Ishka SAVi to date. However, the total number of deals declined in 2024 for the first time, prompting discussion on the reasons.
“It’s fair to say that the momentum has been less strong in 2024 than in 2023, I think it’s been observed across all sectors and industries, it’s not specific to aviation,” commented a banker with a track record in aviation sustainable finance. “If you put yourself in the shoes of borrowers and issuers, you need to have some level of control, some perspective as to your ability to reach the targets,” they elaborated, commenting that aircraft deliveries and SAF usage uncertainty conditioned the attainability of emissions intensity KPIs, the most commonly used metric in recent years.
The same panel also touched on the recent (and ongoing) withdrawal of global banks from the Net Zero Banking Alliance (NZBA), whose members are required to set emissions reduction targets for their largest polluting sectors. The same major European lender said it continues to “push internally” for “sustainability origination and for [sustainability-linked] structures to be put in place […] And the pipeline from the start of 2025 is quite encouraging in this respect.”
The panel also discussed at length the merits of controllable, but unambitious, sustainability performance targets (SPTs) versus those out of the control of the issuer. Heathrow Airport’s 2023 transaction featuring an aircraft emissions Scope 3 target was praised by one panellist, who also argued only those kinds of ‘uncertain’ KPIs should receive pricing benefits.
The issue of pricing benefits in sustainable finance was also addressed. The same lessor highlighted there is a lack of “financial incentives” in sustainable finance transactions, while the lender noted that, under Basel 3.1 banking regulations, there is currently no capital relief or incentivisation for sustainability financing. Another speaker called for pricing benefits in sustainable finance transactions, with step-ups for missed targets of 100bps to create stronger sustainability performance incentives.
The Ishka View
Arguably, the EU Taxonomy and its aviation criteria always had few supporters: environmental groups see it as too permissive of polluting assets (in-production aircraft) while aircraft financiers see undue limitations in its replacement ratio and future onerous SAF use targets. However, Ishka believes the regulation has merit in forcing large aviation firms to analyse and disclose capital expenditure from a climate and sustainability lens. Transparency is key to understanding a sector’s progress towards decarbonisation, and it is something that global firms fall behind on – as spotlighted by the representative of an asset managers' initiative at the FSA conference. Undoubtedly, however, EU Taxonomy reporting criteria need to be simplified and streamlined, as the regulation is failing investors in creating easily comparable metrics.
