Shipping industry faces ESG heat from lenders

[LONDON] Banks are demanding much stricter environmental criteria when financing shipping companies as investor pressure grows on the sector to accelerate going greener, according to Boston Consulting Group (BCG).

Shipping, which transports about 90 per cent of world trade, accounts for nearly 3 per cent of the world's CO2 emissions and BCG forecast the industry will need US$2.4 trillion to achieve net-zero emissions by 2050.

"ESG-driven requests are already prompting more action from banks. Shipping is already feeling it and they (shipping companies) are under pressure now," said Peter Jameson, partner with BCG, which are consultants for the COP26 UN climate summit that starts on Oct. 31.

Standard Chartered has already provided loans linked to sustainability targets for drilling group Odfjell and the shipping division of Oman's Asyad Group, the bank has said.

"When looking at lending on new assets, banks are going to create a bigger conduit for CO2 reductions through their policies," Jameson told Reuters.

"The banks are also seeing insurance companies feeling shareholder pressure and this is also causing big pension funds to reassess." Leading shipping financiers currently provide close to US$300 billion of lending to the industry annually, analysts estimate.

Of the US$2.4 trillion that BCG estimates will be needed to achieve net-zero emissions by 2050, Jameson said US$500 billion would be required between now and 2030 with the remaining US$1.9 trillion between 2030-2050.

The bulk of the total amount - around US$1.7 trillion - would go towards developing future fuels.

"Funding sources are already becoming available, yet plenty more are still required," Jameson said.

ESG-related assets under management are estimated to represent up to 80% of total lending to shipping by 2030, BCG said.

UN shipping agency the International Maritime Organization (IMO) has said it aims to reduce overall greenhouse gas (GHG) emissions from ships by 50 per cent from 2008 levels by 2050, but industry groups are calling for more progress from governments.

"The risks to balance sheets will start to force more questions being asked to the IMO," said Ulrik Sanders, managing director at BCG, adding that this would "prompt more action towards decarbonisation".

REUTERS