WHEREAS: The Intergovernmental Panel on Climate Change has advised that greenhouse gas (GHG) emissions must be halved by 2030 and reach net zero by 2050 to limit global warming to 1.5°C. Every incremental increase in temperature above 1.5°C will entail increasingly severe physical and transition risks for companies and investors alike.
In its 10-K filed in February 2023, Southwest Airlines (“Southwest” or “the Company”) acknowledges it is “subject to various environmental requirements and risks, including increased regulation, changing consumer preferences, physical, environmental, and climate risks, and risks associated with climate change.”
Though Southwest has a goal to reach net zero by 2050 with supporting interim goals, its targets lack validation as aligned with limiting warming to 1.5 degrees Celsius. While it is a positive sign that Southwest intends to develop a 1.5°C-aligned transition plan per its 2022 CDP report, it is important for investors to understand how both the Company’s targets and its implementation plans are sufficiently ambitious to minimize climate-related risks.
Four of Southwest’s primary competitors, American, Delta, United, and JetBlue have near-term targets to reduce jet fuel GHG emissions from initial sourcing and production to use by 45% or more by 2035 validated by the Science Based Targets initiative (SBTi). United and Delta have both committed to SBTi’s net zero standard. More robust, validated targets and planning on par with its peers may strengthen Southwest’s industry competitiveness.
Investors increasingly seek disclosure of how companies are addressing climate risks and opportunities; emissions reduction targets to position their business for success in the transition to a low carbon economy; and climate transition plans – detailing the forward-looking, near-term, and quantitative actions the company will take to achieve its sustainability goals.
Investors believe adopting 1.5°C-aligned science-based targets for its full value chain and developing a robust climate transition plan will help the Company mitigate physical, regulatory, and reputational risks.