A Thrilling Introduction to the Enchanting World of Aviation Sustainability Accounting and Reporting
Aviation Industry Emissions and Regulatory Pressure are Growing
The heavy reliance on hydrocarbon fuels has led to the commercial aviation industry becoming increasingly subject to compliance costs and risks associated with climate change mitigation policies. The International Civil Aviation Organisation (ICAO) and International Air Transport Association (IATA) members have all pledged to achieve Net Zero emissions by 2050. However, the number of fuel-burning commercial aircraft is set to double by 2040, and the current trend of emissions growth will see CO2 emissions triple by 2050 relative to 2005 levels.
Further, sustainable aviation fuel (SAF) production currently falls short of rising demand, and remains up to five times more costly than traditional jet fuel [1]. Hybrid/electric propulsion technologies are decades away from integration and are unlikely to ever be implemented in long-haul routes, which are responsible for the bulk of emissions.
But Measurement and Monitoring are Hard
In its ‘Beginners Guide to Airline Sustainability Reporting Handbook,’ the IATA states [2]:
“Sustainability reporting can be a significant first step for airlines to demonstrate their commitment to environmental, social, and economic responsibility and implement their sustainability strategy. At the same time, it is a measure upon which the airline will be held to account. One of the key benefits of sustainability reporting is enhancing stakeholder trust and incentivizing businesses to adopt and integrate more sustainable practices. Globally, sustainability reporting is increasingly influencing the decisionmaking of executive boards, investors, lenders, and the general public.”
However, they also note that sustainability disclosures can be confusing and complex for airlines operating in multiple jurisdictions (for example, to which jurisdiction do an international flight’s emissions belong?), resource intensive to create and manage, and inconsistent across different frameworks.
These combined factors have created a) an overwhelming need for near-term aviation decarbonisation interventions, and b) the need for an agreed-upon set of standards for climate reporting that serves to encourage transparency around sustainable practices and risk management, and the ability to report progress on sustainability practices in a consistent framework.
We Read the Standards So You Don’t Have To
Enter the positively sesquipedalian International Financial Reporting Standards Sustainability Disclosure Standards (IFRS-SDS) developed by the International Sustainability Standards Board. The IFRS-SDS forms a “global baseline of sustainability disclosures designed to meet the information needs of capital market stakeholders”, intended to solve the lack of mandatory global standards for sustainability reporting. It acts as an encouragement to organisations across all sectors to adopt more sustainable practices in order to reduce associated risks and costs. Currently, 169+ countries are committed to the IFRS-SDS reporting, establishing their own mandatory and voluntary reporting requirements for companies. Many countries have established their own climate reporting accounting standards aligned with the IFRS-SDS, including Australia, the UK, and EU member states. In Australia the inclusion of a sustainability report (focusing on climate related financial disclosures) in a company’s Annual Report is now mandatory. These reports show stakeholders all sustainability-related risks and opportunities that could affect the organisation’s prospects, including cash flow, access to finance, cost of capital, and exposure to climate-related risks.
Not All Emissions are Made Equal
Under the IFRS-SDS, companies report on three emissions categories: Scope One, Scope Two, and Scope Three. They are [3]:
Scope 1: direct greenhouse gas (GHG) emissions that occur from sources that are owned or controlled by an entity
Scope 2: indirect GHG emissions that arise from the generation of purchased or acquired electricity, steam, heating or cooling consumed by an entity
Scope 3: indirect GHG emissions that occur in the value chain of an entity not included in Scope 2 GHG emissions, including both upstream and downstream GHG emissions
The chief concern for global airlines today is the burning of jet fuel, which is the primary source of their GHG emissions, 99% of which are in the form of carbon dioxide (CO2) [4]. CO2 emissions from jet fuel fall squarely in the Scope 1 category, and currently make up more than 2% of all CO2 emissions globally.
Greenwashing and Green Premiums are Out; Green Discount is In
Inaction is a risk for airlines as the industry is increasingly subjected to compliance costs and climate change mitigation policies. The aviation industry will continue to be vulnerable to these costs and policies as governments implement regulatory changes, forcing companies to implement practices to reduce their carbon footprint. To this end, the IFRS quite literally spells out the implications of its reporting standards for airline operators looking to reduce emissions from burning fuel [4]:
“Management of fuel-related environmental impacts includes increasing fuel efficiency through fleet upgrades, retrofits, and flight speed and route design optimisation, as well as using alternative and sustainable fuels. These initiatives require capital expenditures, but in the long term, they may reduce fuel costs and decrease exposure to GHG emissions programmes and regulatory risk”
MicroTau’s Riblet Modification Package is one of several levers that airlines can pull to reduce their emissions, however this product’s unique differentiator is that it immediately reduces fuel costs and emissions by up to 4%. Given the IFRS’ purpose is to encourage meaningful corporate action on climate change and sustainability by ensuring transparent reporting on climate risks, MicroTau can help airlines show commitment to IFRS-aligned reporting and demonstrate tangible emissions reductions in the near-term.
[1] New certificates offer flyers a sustainable fuel option to cut CO2. World Economic Forum. Available at: https://www.weforum.org/press/2021/06/new-certificates-offer-flyers-a-sustainable-fuel-option-to-cut-co2/.
[2] Beginners Guide to Airline Sustainability Reporting. IATA.org. Available at: https://www.iata.org/contentassets/77ec9a8c8a864daaa00bdb7f5de02902/beginners-guide-to-airline-sustainability-reporting-april2024.pdf.
[3] Greenhouse Gas Emissions Disclosure requirements applying IFRS S2 Climate‑related Disclosures (2025) IFRS.org. Available at: https://www.ifrs.org/content/dam/ifrs/supporting-implementation/ifrs-s2/ghg-ifrs-s2-educational-material.pdf.
[4] Industry-based Guidance on implementing Climate-related Disclosures Volume 61 - Airlines (2023) IFRS.org. Available at: https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards-issb/english/2023/issued/part-b/ifrs-s2-ibg.pdf?bypass=on.
