'Banks need to climate-proof $400bn shipping debt'

A report by two global organisations on Monday said leading banks holding $400 billion of shipping debt are unaware how ill-prepared the maritime industry is in the face of oncoming climate regulations.

The report by Carbon War Room and UMAS on Monday added there is climate leadership vacuum in ship finance.

In October last, over 170 countries at the UN's shipping body agreed to deliver a new set of carbon-cutting rules by 2023 to cover the world's fleet of carriers, estimated to be around 50,000 strong.

With the onset of climate policies as soon as 2023, there will be a need for significant capital investment to keep vessels competitive, said the report.

"Financiers should be future-proofing investments and preparing to harness the new opportunities decarbonisation will create. With $400 billion in global shipping debt at stake, we have little evidence this is happening. We've taken the first step," a statement quoting Carbon War Room and Rocky Mountain Institute CEO Jules Kortenhorst said.

The 10 banks with the largest shipping portfolios are DNB, Kew IPEX, Nordea, Kexim, Bank of China, Credit Agricole, HSH Nordbank, China Exim, DVB, Commerzbank.

The report, 'Navigating decarbonisation: An approach to evaluate shipping's risks and opportunities associated with climate change mitigation policy', released in London lays out the first approach to climate stress-testing of shipping assets.

It proposes that enhanced due-diligence undertaken today by financiers, shipowners, and shareholders can help deliver long-term value and avoid losses by the mid-2020s.

But a few industry lenders are climate stress-testing their investments in shipping, which has been notoriously slow to invest in energy efficient technologies.

As a result ships built in 2017 with a projected lifespan of 30 or more years may face expensive retrofits or scrapping as the UN's International Maritime Organisation cranks up carbon targets with implications for world trade.

"There is clearly a climate leadership vacuum in ship finance. Decarbonisation can still be a win-win on profit and climate for shipping desks, but they will have to be more proactive and live up to the green reputation that many of their institutions hold," Kortenhorst said.

UMAS Director Tristan Smith said: "Future regulation on shipping greenhouse gas is now certain. It's just the velocity and stringency that remain unknown."

'Navigating decarbonisation' is the third installment of research on stranded assets and climate risk in shipping from Carbon War Room and UMAS.

It offers a method to analyse how greenhouse gas mitigation policies in shipping and national contributions under the Paris Agreement could impact existing and future investments in shipping.

--IANS

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