Banks explore challenges decarbonisation poses to ship finance

At a Global Maritime Forum roundtable in London yesterday, the Carbon Pricing Leadership Coalition and global NGO Carbon War Room, worked with shipping leads from major global financial institutions to explore the challenges of decarbonisation for ship financing.

With the launch of the report Preparing shipping banks for climate change: How can internal carbon pricing help ship-financing banks in risk management?,  the two organisations called for shipping’s financial institutions to begin analysing and managing the risks created by the shipping industry’s imminent decarbonisation. In order to do so, they suggest that the industry unites around a global standard for maritime-specific climate risk assessments.
 

The report outlines the drivers of decarbonisation of shipping markets. The drivers include the International Maritime Organization’s (IMO) plans to adopt regulations for reducing emissions from shipping and the possibility of shipping being brought into the EU’s Emissions Trading Scheme (ETS), both from 2023, and science-based targets initiatives that could also apply pressure from outside the maritime sector to reduce emissions. The report also outlines the role that the Paris Agreement could play in depressing demand for the transport of key commodities like petroleum products and coal. 

Moreover, the report suggests that the shipping industry begin to consider methods, such as internal carbon pricing or other shipping industry-appropriate tools, to analyse the potential climate-exposed finance that is part of the existing $355.25 billion global loan book as well as new investments. The report concludes that to overcome key barriers to achieving this, it is in the interest of financiers to move together in creating a global standard for maritime-specific climate risk assessments.

Internal carbon pricing, which is already used by 32 percent of companies, according to an October 2017 report by CDP, means that the future potential costs of investments are factored into the bottom-line as dollars per ton of CO₂. This enables decision-makers to clearly see when a carbon-intensive investment offers more risk than reward as the world works to keep global temperatures well below a 2-degrees Celsius increase.

The roundtable was part of the Task Force on Decarbonizing Shipping, an industry-led initiative working to develop tangible decarbonisation pathways for the industry. A finance working group aims to deliver principles for integration of climate risk into lending decisions as well as to foster the development of best practices and tools to support their uptake. The Task Force on Decarbonizing Shipping is a collaboration between the Global Maritime Forum, Carbon War Room, the Carbon Pricing Leadership Coalition (CPLC), and University College London (UCL).

“Many global financial institutions have committed to bringing their portfolios in line with the transition to a low-carbon economy. To fully achieve this, they must address the climate risks to hundreds of billions of dollars in shipping investments that will emerge as soon as 2023.”

Maurice Meehan, Director of Global Shipping Operation, Carbon War Room

Angela Churie Kallhauge, lead, Carbon Pricing Leadership Coalition (CPLC), said,"As nations implement the Paris Agreement, the financial sector is also working to understand and manage the risks and opportunities created by this fundamental shift in the global economy. The CPLC, a global convener of governments, businesses and civil society around carbon pricing, works with partners to share experiences, methodologies and challenges as different sectors begin to incorporate climate risk and opportunity into their business plans. In the shipping industry, financiers will play a key role in ensuring the successful decarbonisation of the sector.”

James Mitchell, finance lead, Carbon War Room’s Shipping Program, said, “Ships are carbon-intensive assets designed with a life span of up to 30 years. A newbuild financed today will likely need to operate under a carbon price before its first five-year drydock, when modifications can be made. Yet today most lenders are making decisions without even factoring energy efficiency into lending decisions. By the end of its life span in 2050, that vessel could need to operate close to 90 percent more efficiently than when it was first delivered. We are working to ensure that the expertise of ship financiers is fully leveraged to enable and even accelerate the profitable decarbonisation of the shipping industry."

Michael Parker, Member of the Board of Directors of the Global Maritime Forum and Global Shipping & Logistics Industry Head for Citi, said, “On behalf of the Global Maritime Forum I was pleased to host this round table. Shipping bankers and other capital providers are working proactively to understand the impact of likely further global environmental regulation on the maritime sector and we are happy to engage in a discussion about helping the industry adapt to the decarbonisation agenda.”

This report is the latest step in Carbon War Room’s work with key partners to ensure that the industry’s financiers support a successful decarbonisation of the shipping industry. The report builds on the February 2017 research paper by UMAS and Carbon War Room “Navigating Decarbonisation: An approach to evaluate shipping’s risks and opportunities associated with climate change mitigation policy,” which established that climate policies will impact shipping markets and require actions by financiers and shipowners.

“Preparing shipping banks for climate change: How can internal carbon pricing help ship-financing banks in risk management?” is available for download from 
http://info.rmi.org/e/310101/resource-library-/4c17s/66547047

About Rocky Mountain Institute

Rocky Mountain Institute (RMI)—an independent nonprofit founded in 1982—transforms global energy use to create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. In 2014, Carbon War Room merged with and now operates as part of RMI. RMI has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing.
 
For more information, please visit the Rocky Mountain Institute website.

About The Carbon Pricing Leadership Coalition 

The Carbon Pricing Leadership Coalition (CPLC) was founded in 2015 at COP21 in Paris. It brings together leaders from government, private sector and civil society to share experience working with carbon pricing and to expand the evidence base for the most effective carbon pricing systems and policies. The CPLC is a voluntary partnership of about 250 partners worldwide – national and sub-national governments, businesses, and civil society organizations. All these partners agree to advance the carbon pricing agenda by working with each other towards the long-term objective of a carbon price applied throughout the global economy. The Coalition follows the transformational vision of the High-Level Panel on Carbon Pricing where the percentage of global emissions covered by explicit carbon prices doubles to 25% by 2020 and doubles again to 50% within a decade. The CPLC’s maritime engagement is led by the Coalition partners University College London and Global Maritime Forum. It aims at bringing stakeholders from the international maritime industry together to discuss carbon pricing as a cost-effective policy option contributing to the sector’s decarbonization efforts.

About the Global Maritime Forum 

 The Carbon Pricing Leadership Coalition (CPLC) was founded in 2015 at COP21 in Paris. It brings together leaders from government, private sector and civil society to share experience working with carbon pricing and to expand the evidence base for the most effective carbon pricing systems and policies. The CPLC is a voluntary partnership of about 250 partners worldwide – national and sub-national governments, businesses, and civil society organizations. All these partners agree to advance the carbon pricing agenda by working with each other towards the long-term objective of a carbon price applied throughout the global economy. The Coalition follows the transformational vision of the High-Level Panel on Carbon Pricing where the percentage of global emissions covered by explicit carbon prices doubles to 25% by 2020 and doubles again to 50% within a decade. The CPLC’s maritime engagement is led by the Coalition partners University College London and Global Maritime Forum. It aims at bringing stakeholders from the international maritime industry together to discuss carbon pricing as a cost-effective policy option contributing to the sector’s decarbonization efforts.

About UMAS 

In combination, UCL Energy Institute, MATRANS and UCLC operate under the branding of the entity UMAS University Marine Advisory Services. UMAS is a shipping sector focused commercial advisory service that draws upon the world leading shipping expertise of the UCL Energy Institute, combined with the advisory and management system expertise of MATRANS.
 
Since 2014 UMAS has been delivering maritime and shipping projects for a range of clients in the public and private sector, including the International Maritime Organisation, European Commission, European Bank of Reconstruction and Development, Committee on Climate Change, Carbon War Room, International Paint and Danish Shipowners Association.