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Banks explore challenges decarbonisation poses to ship finance

Nov 08 2017

With the launch of the report Preparing shipping banks for climate change: How can internal carbon pricing help ship-financing banks in risk management?, the organisations called for shipping’s financial institutions to begin analysing and managing the risks created by the shipping industry’s imminent decarbonisation. In order to do so, they suggest that the industry unites around a global standard for maritime-specific climate risk assessments.

The report outlines the drivers of decarbonisation of shipping markets. The drivers include the International Maritime Organization’s (IMO) plans to adopt regulations for reducing emissions from shipping and the possibility of shipping being brought into the EU’s Emissions Trading Scheme (ETS), both from 2023, and science-based targets initiatives that could also apply pressure from outside the maritime sector to reduce emissions. The report also outlines the role that the Paris Agreement could play in depressing demand for the transport of key commodities like petroleum products and coal. 

Moreover, the report suggests that the shipping industry begin to consider methods, such as internal carbon pricing or other shipping industry-appropriate tools, to analyse the potential climate-exposed finance that is part of the existing $355.25 billion global loan book as well as new investments. The report concludes that to overcome key barriers to achieving this, it is in the interest of financiers to move together in creating a global standard for maritime-specific climate risk assessments.

Internal carbon pricing, which is already used by 32 percent of companies, according to an October 2017 report by CDP, means that the future potential costs of investments are factored into the bottom-line as dollars per ton of CO2. This enables decision-makers to clearly see when a carbon-intensive investment offers more risk than reward as the world works to keep global temperatures well below a 2-degrees Celsius increase.

The roundtable was part of the Task Force on Decarbonizing Shipping, an industry-led initiative working to develop tangible decarbonisation pathways for the industry. A finance working group aims to deliver principles for integration of climate risk into lending decisions as well as to foster the development of best practices and tools to support their uptake. The Task Force on Decarbonizing Shipping is a collaboration between the Global Maritime Forum, Carbon War Room, the Carbon Pricing Leadership Coalition (CPLC), and University College London (UCL).

The report builds on the February 2017 research paper by UMAS and Carbon War Room “Navigating Decarbonisation: An approach to evaluate shipping’s risks and opportunities associated with climate change mitigation policy,” which established that climate policies will impact shipping markets and require actions by financiers and shipowners.

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