Managing Carbon Risk
at Virgin Australia

Context

Earthed are mandated by Virgin Australia (VA) to bolster integrity of the voluntary carbon offset program, including defining the organisational offset procurement policy and project accountability requirements. With passenger offset participation at an all-time low, and lacking the carbon expertise required to design and deliver a program in-house, Earthed will deliver VA a 10% net reduction in emissions reduction over the next 5 years. Carbon markets are entering a period of supply constraint and policy volatility, and this will increase the risks associated with the delivery and pricing of carbon offsets. Careful management of the key elements such as policy, pricing, transactional measures and project selection will be crucial going forward. Equally important is a strong strategy and implementation plan considering these elements. Additionally, increasing scrutiny of airline sustainability efforts and even litigation has highlighted the need to ensure information and communications about such programs are technically correct and provide the full context to stakeholders.

Approach to the Project

Methodology included analysis, governance, operational education, policy and customer adoption. Earthed provided a resource to be based within the Virgin head office to drive project delivery, and monthly reporting was provided to the ESG leadership team and Executive Steering Committee. An operational education program was implemented by Earthed to address knowledge gaps and achieve stakeholder alignment. 

• Departmental workshop sessions were held to originate ideas, which were then evaluated against a range of criteria including forecast offset uplift, implementation cost and implementation complexity. 

• Carbon project standards and procurement policy was determined in consultation with the airline based on market experience, and used as the basis for designing a portfolio of carbon projects for the program. A five-year delivery plan was created and endorsed internally, identifying sequential scopes of work required. 

• Key housekeeping items were prioritised to ensure information was technically correct across all customer touchpoints, and sufficiently addressed disclosure requirements under local consumer laws. 

• Tactical and test & learn initiatives addressing insights from the analysis were introduced to quickly evaluate opportunities, while longer term structural changes requiring lengthy IT enablement were scoped and put into the development pipeline. 

• Key focus areas to drive customer adoption included leveraging the frequent flyer program to incentivise and encourage offsetting, developing an Agency, Small/Medium Business and Corporate Offsetting offering, and embedding sustainability into corporate deal constructs.  

This demonstrates Earthed’s aptitude in managing and engaging with multiple operational stakeholders guided by clear methodological process and framework. Airlines require speed in their turnaround and VA requires Earthed to work on multiple sequential fast inputs to meet the rigour of their day-to-day operation.  It highlights Earthed’s in-depth understanding of operational value chains and its ability to effectively identify areas for focus and drive change. 

Initial Focus Area

Initial opportunity analysis focused on offset programs globally, VA customer perceptions, sustainability trends, and frequent flyer offset behaviour. Using frequent flyer data, we undertook detailed analysis of flight spend, flight sectors and frequent flyer point redemptions across existing offsetter segments, identifying the most valuable customer segments to target with offset incentives. Mandatory reporting included a quarterly performance report and an annual statement of achievements against the milestones and targets outlined in the annual Project Plan. An offset dashboard was created to track live booking and flown data, with granular information on booking source, customer segment and frequent flyer data available to evaluate progress against key markets. We maintain Registered Consultant status with the Australian Government’s Climate Active program, to ensure compliance with voluntary Australian government standard for carbon neutral certification.  This requires us to deliver to Australian Government policy standards and embed processes within our client VA that meet these standards, therefore we have strong contextual understanding of the interplay with between government policy and industry. 

Project Governance

An effective offsetting governance model must establish appropriate connections and working models across all levels of an organisation. This requires extensive collaboration, shared understanding and a willingness to work with varying levels of knowledge and experience in a business to ensure the team is clear on the objectives and deliverables of the program. Overcoming these challenges requires above all extensive education, information sharing and ongoing and regular communication and feedback sessions. Our approach to this project was to establish a clear message on the strategy, benefits to the overall business and to individual operating units; to communicate in a number of forms including in person briefings and establish an internal communication strategy, and to update the leadership team on progress at regular intervals and seek their support to clear obstacles within the organisation when they occur.  

Delivery Approach

To ensure successful adoption at VA we have educated a wide range of staff including leadership teams, finance, sustainability, procurement and marketing. We delivered stakeholder education through interactive workshops, using this as an effective tool to build the framework required for carbon offsetting and related services. Sessions covered policy, carbon markets and carbon offsets, project development, and development of carbon offset, carbon neutral and net zero strategies. The workshops also enabled evaluation of options, development of a risk profile, and determining which processes best suit the current operating and corporate environment. Continued interaction with relevant staff assists in smooth implementation of activities and provides on-going learning. In this way we bridged capability gaps and guide our customer’s teams through the decision making processes. Education sessions enabled identification of business unit leaders who were supportive of the strategy and had the decision making authority to influence achievement of deliverables, and were appointed to a steerco to drive implementation and delivery of strategic initiatives. To improve delivery success, we consulted with key external stakeholders including the Department of Industry, Science and Resources, agency partner Flight Centre and tech partners Amazon Web Services and Sabre.

We have demonstrable experience engaging with government and industry partners as part of operational delivery.

We focused on emphasising the technical foundations of the program, including an industry leading emissions boundary capturing detailed Scope 3 emissions, industry-leading certification through the Australian Government, and selection of high-integrity carbon projects reviewed by carbon experts. Not all carbon projects are created equal, and despite presence on an international registry, pose risks to clients purchasing offsets. After establishing a customer-insights led basis for project selection across price, project methodology, co-benefits and geographic location, we used the expertise of the carbon project development and trading teams to undertake detailed review of proposed projects to ensure only high-integrity projects would be offered to passengers. Locally, we entered into a partnership with Australia’s largest land-based carbon project developer to secure long term access to high-integrity Australian Carbon Credit Units focused on revegetation.  

Our participation in the trading and project markets means we have encountered many of the problems that can occur when sourcing and creating carbon offsets, and this review process enables Virgin Australia to be aware of the potential risks associated with projects, and are in a position to respond with confidence should any of the risks materialise. Our review process assessed multiple factors including how a project or program demonstrates offsets are real, additional and correctly estimated. Other technical details such as permanence risk and leakage were reviewed to ensure offsets are credible. Factors considered included environmental Integrity, social integrity, regulatory risk and implementation risk for multi-year purchase agreements. This environmental risk management is a key factor in delivering a high-integrity offset program.

In the current environment transitioning from the Kyoto Protocol to the Paris Agreement, the uncertainty also presents risks that Virgin Australia needs to manage carefully. Government policy plays a pivotal role in determining choices around climate change and carbon offset strategies, offset standard and location, offset procurement plans, transaction details and project development. As part of our day to day work for Virgin Australia, we monitor and analyse local and international policy and advise management of implications for both compliance and regulatory offset requirements.

This demonstrates our ability to translate research into government policy that can steer the right operational

outcome and delivery, as a requirement to successfully deliver Advocacy and Leadership for Creative Australia.

The next stage in this project for delivery in 2024 is rolling out to customers across the VA network, in a managed way that ensures market acceptance of the messaging, adherence to Virgin brand standards and achieving the goal of exceeding IATA minimum standards on voluntary offset programs. We are currently piloting roll-out to customer groups in advance of a full rollout.