Executive Summary: In 2019, the airline industry accounted for approximately 1 billion metric tonnes of CO2e or about 2.5% of global Greenhouse Gas Emissions (GHG). When non-CO2 effects (NOX, vapor, soot etc.) are factored in, the sector’s contribution to rising temperatures is much higher. According to the European Commission, if the industry were a country, it would rank in the top ten emitters. While the COVID-19 pandemic significantly impacted air travel volumes, we believe the sector is poised to grow rapidly in the years to come. If airlines are a secular growth industry, then their emissions will also increase.

The key question this paper addresses is: how does DSC Meridian approach decarbonization with an emitting industry that is essential to the economy? The main challenge is that the industry as a whole is widely viewed as extremely difficult to decarbonize. There are factors companies can control like focusing on fuel efficiency and carbon offsets; however, airlines cannot get to net zero on efficiency and offsets alone. Aircraft technology and fuel innovation must be part of the solution going forward. As with all industries, climate change could be a significant disruptor, and within the investment theme of decarbonization, there will be winners and losers which should create opportunities for asset managers like DSC Meridian from both a long and short perspective.