Can ‘clean’ jet fuel get airborne?

Welcome back. Loyal readers have been aware for some time of the growing pressure on David Malpass, the Donald Trump-appointed head of the World Bank, over his perceived lack of interest in scaling up climate finance. Now that Malpass has decided to quit a year early, Joe Biden has an opportunity to install a successor who can make more aggressive use of the bank’s balance sheet to galvanise green investments in developing nations.

Barring a serious upset, Biden will exercise his nation’s de facto (and controversial) prerogative, as the bank’s largest shareholder, to appoint a US citizen as its leader. That could still leave the door open for Ngozi Okonjo-Iweala, the widely respected head of the World Trade Organization, who holds both Nigerian and US citizenship. Speculation has also been swirling around Rajiv Shah, head of the Rockefeller Foundation, who shared his thoughts on scaling up climate finance with Moral Money last year.

Whoever it may be, the bank’s new leader will face a profound challenge of institutional reform. As an official at another development finance institution told me recently, the problems around the bank’s climate finance work are “not just about Malpass”.

For today’s newsletter, we kick off by looking at another area seeking to pull in big investment, in the race to help the aviation sector meet its challenging green targets. And Patrick highlights the rising scrutiny of big US companies over their union policies. See you next week. (Simon Mundy)

Sustainable jet fuel makers eye fat profits

Making jet fuel from waste products, using an enzyme found in rabbit guts, might seem an outlandish plan for a business. But with this month’s listing on Nasdaq of LanzaTech, retail investors have a chance to take a punt on that business model — and on the aviation sector’s drive to eliminate its carbon footprint.

The 302 airline members of the International Air Transport Association (Iata) have promised to reach net zero carbon emissions by 2050. That means they must eliminate civil aviation’s annual carbon footprint of roughly a gigatonne — even as Iata predicts robust traffic growth for decades to come. Two-thirds of that emissions reduction, Iata promises, will come from switching to “sustainable aviation fuel” or SAF, created from renewable or waste sources.

With a market capitalisation of $1.3bn, Chicago-based LanzaTech is far smaller than the energy majors that have started pouring resources into this space — but it is targeting a large slice of the action.

In December, the steel giant ArcelorMittal announced a €200mn project to turn waste gases into ethanol using LanzaTech’s technology — which is already in use at several industrial sites in India and China. That ethanol can then be turned into jet fuel by sister company LanzaJet, which LanzaTech has spun out into a new business while retaining a 25 per cent stake and key intellectual property.

At a site in rural Georgia, LanzaJet is building a plant that will produce 45mn litres of aviation fuel from ethanol a year. That’s a sizeable number compared with current global production of SAF, which Iata estimated at 300mn litres last year. But this is just a pilot for what Jennifer Holmgren, chief executive of LanzaTech, hopes will be a rapid expansion as the company targets annual SAF production of 4.5bn litres by 2030. “We know the demand will be massive,” she told me.

Newly listed tech companies have a penchant for eye-catching growth projections. But Holmgren is not alone in forecasting bumper growth for this sector.

The key driver is not the green hearts of airline executives, but public policy, with EU regulators blazing a trail. By 2025, SAF will need to account for 2 per cent of fuel supplied to EU airports. That level will be ratcheted up every five years until it reaches 63 per cent in 2050. And while the US has so far steered clear of compulsory mandates, last year’s Inflation Reduction Act included hefty subsidies for SAF, aimed at driving annual domestic production of more than 13bn litres by 2030.

Most of the world’s leading oil companies have set out growth strategies for SAF. Shell, for example, has signed supply agreements with Ryanair and Amazon Air, while TotalEnergies began production of SAF in Normandy last year. But SAF currently contributes a fraction of a percentage point of world jet fuel supply, and will not produce a meaningful share of the oil majors’ revenue for the foreseeable future, said Gordon McManus, research director for refining and oil product markets at Wood Mackenzie.

A big obstacle to growth in this space, McManus told me, is supply of feedstock for SAF — mainly fats and oils from plants and animals. Efforts to secure more supplies for fuel would risk competing with food production, he warned, and the constraints mean “there’s little prospect for cost improvement in the current generation of fuels”.

Holmgren claims LanzaTech can offer part of the solution; its process can work with a wider range of inputs than most competing technologies. One promising option, she said, would involve carbon dioxide, captured from the air, together with hydrogen produced with solar or wind power.

Analysts at KPMG said that this “power to liquid” approach could prove the most promising source of SAF in the long term. But it will require huge investment to build scale and bring down costs. In the meantime, they warn, the EU’s aggressive mandates for sustainable fuel risk pushing demand ahead of supply, and driving big surges in prices.

That may prove painful for airlines, and for the travellers who will inevitably bear much of the cost. But for sustainable fuel producers and their investors, it could spell years of fat profits. (Simon Mundy)

‘Patience has now run out’: Investors frustrated with US company union policies

This week Starbucks chief executive Howard Schultz was in the crosshairs of firebrand senator Bernie Sanders, who criticised him for refusing to testify at a hearing “about his company’s long-running non-compliance with federal labour law”.

“Apparently, it is easier for Mr Schultz to fire workers who are exercising their constitutional right to form unions . . . than to answer questions from elected officials,” Sanders said.

Shareholders are also getting increasingly agitated about how big US companies are treating employee unionisation efforts.

The Dutch pension fund Pædagogernes said last week that it divested $43mn of Amazon shares over the company’s failure “to respect basic worker rights”.

“Patience with the company has now run out,” chief executive Sune Schackenfeldt said, noting the Amazon sale follows divestments from Walmart and Ryanair over labour rights.

“The door to Amazon has been hermetically closed, and it has not been possible to enter into a dialogue about the problematic behaviour they have,” Schackenfeldt said. “But if Amazon’s management opens the door, we would like to invest in the company again.” 

Last year, a group of Amazon warehouse employees made history by organising the company’s Staten Island distribution centre without the backing of an established union. But subsequent union efforts fizzled. Amazon “adopted union-busting techniques including ‘captive audience’ meetings, where employees are taken off the shop floor to hear anti-union arguments”, our colleague Dave Lee reported.

Amid the union pressure, 39 per cent of Amazon shareholders last year supported a petition asking for additional information about freedom of association at Amazon — a surprisingly large figure considering that founder Jeff Bezos remains the company’s biggest shareholder. An Amazon spokesperson declined to comment on the Pædagogernes divestment, but pointed to the company’s previous statement saying employees have the choice of whether or not to join a union.

Union tensions are rippling across corporate America. In January, Apple said it would publish by the end of this year more information about how its collective bargaining complies with the company’s human rights policy. Last year, the iPhone-maker faced a shareholder petition calling for this unionisation report.

Next month, Starbucks faces a shareholder vote on a similar petition — comparing the Seattle company’s union engagements to its overall human rights policy. Starbucks is arm-twisting investors to vote against this shareholder proposal, arguing that the company pays at least $15 an hour while offering an employee stock purchase programme.

In a February 14 letter to Sanders, Starbucks said Schultz was the company’s interim chief executive and would not be in this role in March (when the hearing is scheduled). To date, the company has not been part of any enforcement order for labour violations from the National Labor Relations Board.

Amazon, Apple and Starbucks have all been big beneficiaries of the surge of money into environmental, social and governance funds. But as labour issues become a bigger focus for investors worldwide, these companies risk losing their cherished green halos. (Patrick Temple-West)

Smart read

From the FT’s Derek Brower and Amanda Chu, here’s a comprehensive look at how the US is trying to build on the momentum from last year’s Inflation Reduction Act to become the world’s cleantech superpower.