EU SAF Action Highlights Reputational Risks to Airlines

Regulatory pressure over greenwashing increases as deadlines approach for widespread incorporation of sustainable fuel.

An investigation by the European Commission (EC) into potentially misleading claims by airlines and sustainable aviation fuels (SAFs) is not expected to lead to direct sanctions, but leaves firms and their investors open to reputational risk.

At the end of April, the EC and EU consumer authorities sent letters to 20 airlines identifying several types of potentially spurious green claims. These practices included using the term SAF without clearly justifying the environmental impact of such fuels, and using the terms ‘green’, ‘sustainable’ or ‘responsible’ in an absolute way or use other implicit green claims. The letter requested that the airlines bring their practices in line with EU consumer law by 30 May.

According to the EC, the action does not bring into question the use of SAFs in general or their benefits, but instead looks to address advertising and marketing practices that use the term SAF without being sufficiently substantiated. It also shouldn’t be a direct concern for investors, but serve as a basis for a dialogue with the airlines to improve the way they present green claims to consumers.

However, the action cannot be ignored by the aviation industry and its investors, Jane Park-Weir, ESG Litigation Partner at law firm Osborne Clarke, told ESG Investor. “The commission’s action is reflective of a wider, cross-sector approach by competition and consumer regulators to increase efforts to hold businesses to account for the accuracy of their green claims,” she said.

“We expect the aviation sector will continue to attract the attention of activists and regulators alike. Any attention in this area is fraught with risk; even where there has been no greenwashing, the reputational damage is done when the accusation is made and it is hard to fix.”

Regulatory ramp-up

The EC is currently collecting replies from the airlines as to their proposed solutions for addressing the problematic practices identified by the authorities, with the carriers reportedly exhibiting a general willingness to participate in the dialogue.

The airlines will propose commitments on how they intend to change their practices, which will then been reviewed by the Network of Consumer Protection Cooperation (CPC) Authorities to assess the proposed commitments and accept those that seem to be proportionate and sufficient. Should the airlines involved not take the necessary steps to address concerns raised, the CPC network could opt to take enforcement measures.

In March, Dutch airline KLM was found to have misled customers with vague environmental claims and painting too much of a “rosy picture” of its sustainable aviation fuel, according to a district court of Amsterdam judge. The court ruled the airline had broken the law with misleading advertising in 15 of the 19 environmental statements it assessed, including claims that the airline was moving towards a more sustainable future.

easyJet, GOL, Iberia, Lufthansa, and Wizz Air were previously removed from a Science Based Targets initiative validation process for failing to submit targets deemed to be sufficiently ambitious in their climate plans.

“The key challenge to actual and potential investors is ensuring that the company they are backing understands its legal risk and obligations when it comes to making green claims, and mitigates that risk by having adequate evidence to support them,” said Park-Weir. “This is increasingly an area that can make or break a company.”

SAFs are expected to account for up to 65% of the total carbon mitigation needed to achieve net zero emissions in air transportation by 2050. Legal requirements for the supply and uptake of SAF under the ReFuelEU Aviation Regulation, which entered into force in 2023, means that from this year fuel uplift at EU airports must contain at least 2% SAFs, with the percentage gradually rising each year. Mandates include 6% by 2030, 20% by 2035, 34% by 2040, and eventually 70% by 2050. These requirements will apply to all flights originating in the EU, regardless of destination.

CO2 emissions from aviation have been included in the EU Emissions Trading System since 2012, under which all airlines operating in Europe – European and non-European – are required to monitor, report and verify their emissions.

In the UK, if businesses are found to be making false statements, the Competition and Markets Authority will have the power to penalise them up to 10% of their worldwide revenue as of later this year.

“There is a risk of SAF becoming a generic term, like ‘green’ or ‘eco-friendly’ – the use of which regulators are also clamping down on – and there appears an expectation on the EC’s part that airlines should describe SAFs with greater specificity,” said Park-Weir.

In line with the ReFuelEU regulation, the EC is currently finalising a flight emissions label to enable airlines to provide consumers with clear, accurate and reliable information about their carbon footprint, with the goal of standardising environmental labels on flight footprint and restrict self-awarded labels.

Increasing accountability

The commission flagged that any claim of movement towards net zero greenhouse gas emissions or future environmental performance without clear and verifiable commitments, targets and an independent monitoring system could potentially be a misleading practice.

The International Air Transport Association (IATA) recently announced it is developing a registry to accelerate the uptake of SAFs, which could assist with monitoring. Expected to launch in Q1 2025, the registry looks to authoritatively accounting and reporting emissions reductions from SAFs. Seventeen airlines, six national authorities and one fuel producer are among those supporting efforts to develop the registry.

“Governments need a trusted system to track the quality and quantities of SAF used. SAF producers need to accurately account for what has been delivered and effectively decarbonised,” said Willie Walsh, Director General at IATA.

Tee Orianzi, ESG Consulting Analyst at aviation data, intelligence and advisory firm IBA, told ESG Investor that the registry will be key in documenting the volumes, benefits, transactions, and surrendering of SAF certificates. “The fact it’s being instigated by a neutral global body will aid all airlines operating in a jurisdiction with various regional and national policies,” she said.

“It will also take the pressure off airlines concerned about greenwashing, especially in light of the EU’s greenwashing directive. A standardised platform will allow airlines to accurately report all types of SAF and if the registry contains public data it will increase transparency for the industry looking to assess the [environmental] contributions of airlines.”

IATA has also confirmed its projections for a tripling of SAF production in 2024 to 1.9 billion litres (1.5 million tonnes) are “on track”, accounting for 0.53% of aviation fuel needs this year.

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