ShareAction launched a report called ‘Changing Course: Banking Financing of the Shipping Industry’, arguing that institutional investors should widen the scope of their engagement with banks to beyond the fossil fuels sector. As the low-carbon transition will change the industry, financial intermediaries, banks are in a good place to facilitate this transition.
Specifically, the report notes that banks will be able to redirect flows, mitigate climate-related risks and use their influence to push for change at companies deemed climate change laggards.
There’s a possibility that the GHG emissions of the shipping industry could rise as much as 250% by 2050 under a business-as-usual scenario, keeping in mind that the GHG emissions account for 2.4%.
Changing the course of the shipping industry will not be easy. The current fuel of choice, heavy fuel oil, is cheap and highly polluting, while long journeys and heavy loads make switching to alternative fuels much harder than for cars or trains.
This briefing identifies steps that can be taken by investors and banks that support the shipping industry in meeting and going beyond this target. In the short to medium term, operational and technical measures such as slow-steaming are crucial in achieving emission reductions, but to decarbonise and align with the Paris goals, the shipping industry needs to move away from fossil fuel powered ships, and towards low-carbon alternatives. As providers of capital, investors and banks have a key role to play in financing this transition.
In 2018, Maersk, the world’s largest container shipping company, announced a target of net-zero emissions by 2050.
Through lending policies and company engagement, investors and banks must press other shipping companies to match this target. Doing so is important not only from an environmental standpoint, but also a financial one. This briefing finds that a number of trends, such as increasing regulation, present risks to the shipping sector. Ships with higher energy efficiency and lower GHG emissions are generally more resilient to these risks, and act as higher quality collateral. Despite these benefits, few banks disclose policies specific to shipping.
The report concludes that banks, as providers of capital, need to step up and use their leverage to engage with shipping companies on this issue. Investors need to press banks to incorporate energy efficiency into credit risk analysis, align their shipping loan portfolios with the Paris goals, and ensure that shipping clients are, at a minimum, working towards IMO emission reduction targets. Due to the carbon-intensive nature of the shipping industry and the shrinking window available to meet the goals of the Paris Agreement – this needs to be a priority.
To explore more, click on the PDF herebelow
