Banks are demanding much stricter environmental criteria when financing shipping companies, as pressure mounts from investors for the sector to become greener, according to the Boston Consulting Group (BCG).
Shipping, which accounts for about 90% of global trade, is responsible for nearly 3% of the world’s CO2 emissions, and BCG forecasts that the sector will need $2.4 trillion to reach net-zero emissions by 2050.
“ESG-driven calls are already prompting greater action from banks. Shipping is already feeling it and they (shipping companies) are under pressure now,” said Peter Jameson, partner at BCG, who are consultants to the COP26 UN climate summit that starts on October 31.
Standard Chartered has already provided loans linked to sustainability targets to drilling group Odfjell and the shipping division of Oman’s Asyad Group, the bank has said.
“By looking at lending on new assets, banks are going to create a greater conduit for CO2 reductions through their policies,” Jameson told Reuters.
“Banks are also seeing insurance companies feeling pressure from shareholders and this is also causing large pension funds to rethink.”
Analysts estimate that major shipping financiers currently provide about $300 billion a year in loans to the sector.
Of the $2.4 trillion BCG estimates will be needed to achieve net-zero emissions by 2050, Jameson said $500 billion would be needed between now and 2030 and the remaining $1.9 trillion between 2030 and 2050.
Most of the total amount – about $1.7 trillion – would go toward the development of future fuels.
“Funding sources are already available, but many more are still needed,” Jameson said.
It is estimated that ESG-related managed assets will account for up to 80% of total shipping lending by 2030, according to BCG.
The International Maritime Organization (IMO), a United Nations agency dedicated to shipping, has stated that its goal is to reduce greenhouse gas (GHG) emissions from ships by 50% from 2008 levels by 2050, but industry groups are calling for more progress from governments.
“The risks to the balance sheets will start to force more questions to be asked of the IMO,” said Ulrik Sanders, managing director of BCG, adding that this would “drive further action towards decarbonization.”