NETWORKING FOR STRONGER PORT INDUSTRY AND BETTER COMMUNITY
The decarbonisation of shipping has sparked a green technology
revolution, but pushing it forward is another revolution driven by
lenders pivoting towards their own green goals, says Sean McLaughlin,
The shipping finance industry is undergoing its own evolution and
revolution. The introduction of clean technologies along with
regulations such as the EU Taxonomy are extending the reach of green
finance principles across the industry.
The Poseidon Principles, initially for finance and now mirrored in
the insurance markets, are already being used as a framework for
financial institutions and marine insurers to measure and publicly
report the climate alignment of ship finance and marine insurance
portfolios with global climate action goals. Signatories have become a
major force within the industry, but they are not the only force at
work. The EU Taxonomy is soon to be issued, and along with private
sector green bond certifiers such as the Climate Bond Initiative and the
requirements of public markets such as the NYSE, it will have a
far-reaching impact on the green revolution already underway.
Houlder’s recent survey of shipowners from the container,
tanker, bulk, cruise, and ferry sectors indicated that most ship owners
believe that not decarbonising could become an existential threat to
their business. It’s not surprising then that the funders who rely on
the earning capacity of ships see the risk to their loan books of not
focusing on the environmental performance of those assets.
The perception of the influence of funders varied significantly
amongst survey participants, the biggest variation being between large
and small ship owners. Large organisations tend to see access to green
finance as being relatively straightforward, with the challenge being
finding projects which match the funders criteria.
Smaller owners generally don’t issue their own bonds, but alongside
the larger operators they are being asked to meet environmental
performance criteria to access finance. They increasingly see the cost
of their funding being linked to their environmental performance and can
even find themselves risking default on their lending covenants if they
fail to meet baseline environmental performance commitments.
While securing effective financing can be a challenge for smaller
owners, they will need to find solutions to survive. Looking on the
bright side, smaller owners have the potential to move faster if they
have a good plan for their fleet. Taking an innovative approach to
raising finance is key – if traditional finance relationships are not
available, then they can think of alternative financing structures such
as the growing number of specialist funders seeking to fund retrofit
Regardless, environmental performance is an increasing focus in all
financing discussions. Whilst the ship owner may not be issuing bonds,
the bank providing a loan may well have obtained its funding linked to
environmental performance and in any event a threat to the earning
capacity of a vessel is also a threat to the value of the funder’s
Many shipowners have reflected that they are being asked by their
funders for more data linked to their environmental performance when
seeking finance. Being able to provide accurate environmental data isn’t
just important in providing ongoing information to funders, it’s
essential in assessing what is deliverable when committing to a program
of ongoing improvement at the commencement of a new funding facility.
Ways of collaborating will need to evolve. Several ship owners have
expressed frustration about how some government funding for clean
technology projects fails to connect with the operating environment that
it is seeking to improve. Whilst there is no reluctance to involve
academia in these projects the survey highlighted a strong desire to see
grant funding more closely linked to the end user and its operating
environment than to desk-based studies.
Collaboration can be forced by government grants which require a
consortium bid, but this often makes participation difficult for smaller
companies which don’t have the internal resource or external network to
build bid consortia. The time taken in the administration of these
processes can also significantly add to the timeline for delivering on
targets, and in some cases the objective of the ship owner needs to be
compromised to meet the terms of the funding.
The need to find a better and more innovative way of collaborating
was the strongest theme in our recent green financing and broader
decarbonisation discussions. Without this, ship owners see problems with
technology providers, yards, financiers and R&D projects holding
back their sustainability goals. They can’t be expected to simply drop
their competitive aims or to sort the challenges out on an ad hoc basis.
Greater collaboration is the answer, and ship owners are ready. Every
senior industry player interviewed confirmed that there is a
willingness to collaborate on projects that will accelerate the uptake
of new technology. They understand that it is critical to achieving the
rapid, fundamental change that is increasingly expected from charterers,
financiers, consumers, and internal stakeholders who all want to
deliver on their own goals and promises. What is needed is more
independent conveners for clean technology projects and perhaps this is
something that the financial community can play a bigger part in.
We recognise that in many cases the decarbonisation challenge is
about revolution, rather than the slow evolution that shipping has been
used to in the past. The existing fleet is worth about $1.8 trillion and
directly or indirectly, much of that sits on the balance sheets of
financial institutions. This provides the incentive needed to bring the
financial community and ship owners together, to align goals and work on
the evolution of their industries together.
source: Seatrade Maritime News