Just transition, environment and social considerations for the aviation fuel transition: An investor guide
This guide outlines environmental, social, and just transition considerations for investors in aviation’s fuel shift. It compares biofuels and e-fuels, highlights regulatory and biodiversity risks, and provides engagement questions to assess companies’ transition strategies, ensuring alignment with climate goals while safeguarding communities and long-term financial stability.
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OVERVIEW
Introduction
Aviation accounts for 2.5% of global energy-related carbon dioxide emissions. The sector faces unique international challenges but has opportunities to lead in climate-aligned solutions. Investors play a key role in ensuring sustainable pathways through engagement, integration of just transition considerations, advocacy, and capital allocation. Risks include stranded assets, transitional costs, and social impacts such as job insecurity. Governments are mandating climate disclosure and alternative fuel use, with the UK and EU already implementing frameworks. Crop-based biofuels are excluded due to their environmental risks and are unlikely to qualify as sustainable investments under UK and EU regimes.
Environment
Alternative fuels lower lifecycle emissions compared to fossil kerosene, but they have high environmental costs. Powering half of EU flights with e-fuels by 2050 would require 8 million hectares of land, while crop-based biofuels would need 33 million hectares—an area the size of Finland. Large-scale land conversion threatens biodiversity, ecosystems, and soil health. Key considerations include biodiversity impacts, land use change, and water use. Companies and investors should apply frameworks such as the Taskforce for Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) to assess impacts. A COP28 joint declaration on green hydrogen emphasised full lifecycle emissions accounting, phasing out fossil hydrogen, and protecting local communities and ecosystems.
Just transition
Aviation’s fuel transition must protect workers and communities reliant on fossil fuel economies. Lower-paid roles, often held by Black, Asian, and Minority Ethnic groups or younger people, are at risk of job losses. Projects located in disadvantaged regions, such as Teesside in the UK, offer opportunities for economic uplift if retraining and community engagement are prioritised. Immigration policies also affect workforce availability and retraining capacity. Guidance such as the International Labour Organisation’s just transition principles can support fair processes. Investors should seek evidence of worker consultation, reskilling programmes, and collaboration with unions and local communities.
Social
Alternative fuels raise social risks by competing with food crops and freshwater resources. Using crops such as corn or soy for biofuels may exacerbate food insecurity, particularly in the Global South, while e-fuels demand significant renewable energy that could otherwise be used for essentials like heating or fertiliser production. This raises equity concerns, as aviation primarily benefits wealthier populations. Sourcing feedstocks from lower-income countries risks environmental neocolonialism and human rights issues, including community displacement and labour abuses. Investors should monitor supply chains closely for fraud and social risks, ensuring policies on human rights and modern slavery are integrated.
Case study – Policy and regulation (EU Clean Industrial Deal)
Launched in February 2025, the EU Clean Industrial Deal (CID) aims to turn decarbonisation into a growth opportunity. It supports energy-intensive industries, clean-tech development, and worker protections through a “Quality Jobs Roadmap” that emphasises reskilling, decent work, and social dialogue. The Deal influences aviation policy via the Sustainable Transport Investment Plan, and investors should ensure companies align with these requirements.
Case study – Just transition finance lab (Spain’s Just Transition Institute – Endesa utility company)
Spain’s Just Transition Institute developed renewable energy tenders linked to job creation, social initiatives, and environmental safeguards. Endesa invested €1.5 billion in northern Spain alongside €60 million in employment opportunities, creating 5,944 indirect jobs and 337,650 training hours for 1,300 unemployed people. This model demonstrates how government incentives can ensure economic and social benefits during energy transitions and offers lessons for aviation projects.
Case study – Climate Action 100+
Climate Action 100+ engages over 600 investors with 169 focus companies to mitigate financial risks from climate change. Its 2024 benchmark showed North American utility companies improving just transition scores, with 11 of 15 companies achieving a “B” grade, up from two in 2023. This highlights how investor engagement can drive progress in sectors with parallels to aviation.
