Banks Wade in to the Issue of Green Shipping

Environmental issues and big business are, in the current climate, moving towards a point where they are one and the same. However, there is still some way to go and there needs to be a number of developments in order to move towards a greener role for business. We have discussed environmental issues, mostly under the guise of so-called ESG principles (Environmental, Social, and Governance) on a number of occasions – in terms of finance, cars, shareholders, and many others. This author has also written on the role that financial gatekeepers have on making ESG investing the norm. It is this concept of a ‘role’ that is the basis for today’s post, with news coming today that a number of leading Banks are leading the way in encouraging the shipping industry to go green.

The news came this morning that a number of banks – Citi, Societe Generale, DNB, ABN Amro, Amsterdam Trade Bank, Credit Agricole, Danish Ship Finance, Danske Bank, DVB, ING, and Nordea – have signed up to a global framework labelled the ‘Poseidon Principles’ which aims to implement a strategy that will see the shipping industry’s carbon footprint cut by 50% by 2050. This target was widely deemed as ambitious for a number of reasons, mostly because there are a number of competing initiatives like the one that aims to lower the level of sulphur in shipping fuel by 3% by next January. Research into the environmental impact of shipping is growing, with it being stated that ‘one giant container ship can emit almost the same amount of cancer and asthma-causing chemicals as 50 million cars’ and that ‘just 15 of the world’s biggest ships may now emit as much pollution as all the world’s 760 million cars (as of a decade ago)’. The shipping industry alone contributes almost 3% of the world’s total greenhouse gas emissions, and ‘emits the same level of greenhouse gas emissions as Germany’. Clearly then there is a need for action, and whilst the collected banks who signed up to the Poseidon Principles in New York today account for nearly 20% of the $450 billion global shipping market, it is anticipated that a number of Asian banks will join the accord to heap the pressure on the shipping industry to go green. Yet, what does it mean for the industry to ‘go green’?

In responding to the accord, COO of AP Moller-Maersk, Soren Toft, explained that ‘to deliver on ambitious climate targets, zero-emission vessels will need to enter the fleet by 2030’. Whilst efforts to encourage more efficient sailing are well underway, the reality is that zero-emissions sailing must be the way that the industry goes. There have been developments made within the technological side of the equation, with zero-emissions large passenger boats (100 people+) being developed more than ten years ago. However, the goal is to have an economically viable option on the table that does not increase the environmental impact of the industry i.e. just moving the impact ‘upstream’ as it were. A report by Lloyd’s Register entitled Zero-Emission Vessels 2030. How Do We Get There? concluded that ‘advanced biofuels appear the most attractive ZEV solution currently available’. Yet, whilst the report states that biofuels are the most attractive, mostly on an economic basis, there are concerns over its sustainability and availability. The issue seemingly lies between finding a commercially-attractive proposition that can be coupled with technological advancements – one might question whether both can be obtained at exactly the right time.

However, there is another issue and that is the role of the banks. While Citi takes the lead in this current initiative, other banks have been listed as massive financiers of the fossil-fuel industry. JPMorgan Chase has been recognised as the top fossil fuel financier, whilst Wells Fargo increased its support of the sector last year by a staggering 13%. At a time when investing principles are moving towards a greener basis, this reality within the banking industry looks appalling. However, one of the reasons behind this reluctance to move into greener sectors is because they may not believe that the time is right to move – first-mover status only has so many benefits and when weighed against the persistent riches available via fossil fuel production, perhaps that equation is not as balanced as people may think. It is stated within the business press, as just one example, that shipping is about to ‘undertake a rapid technology and fleet change’ and that this exposes the banks to increased risk – the sentiment being that they must seek to move with the times. However, there is only loose optimism on whether the target of zero-emission ships entering the global fleet by 2030 is even achievable, so it appears a number of banks are choosing to ‘stick’ rather than ‘twist’. Many may believe that there will be a penalty in this, in that banks like JPMorgan Chase will be penalised for not entering the market and putting pressure on shipping companies early enough, whilst Citi have. Yet, in reality, there will be no such penalty. The reality is that the Poseidon Principles are a really good start, but that they are just the start. It will serve to bring forth a healthier discussion and perhaps an increased incorporation of environmental principles, but there will be many more stages before this world-leading polluting industry changes course.

Keywords – Shipping, Pollution, Environment, Business, @finregmatters.