Green money in search of green shipping projects

Speaking to Seatrade ShipTech Virtual – Is Ship Financing Changing Faster Than Shipping? The panel said the money was available at preferential rates for the right projects.

Dr Jan-Henrik Hübner, Global Head of Maritime Consulting, Maritime, DNV, said the classification society works with banks active in shipping and other industries that have hundreds of billions of dollars dedicated to projects ecological and ESG, although maritime transport would need to compete with other sectors.

“If you come up with some really green projects, the doors of the banks are extremely wide open to obtain financing at slightly favorable interest rates. If there is something really green, I think there is no shortage of money at the moment. Rather, it is that bank ship finance managers are looking for good green projects that they can present in their bank, because they also aim to have green or sustainability-linked finance, ”said Hübner.

Interunity Director George Mangos refined the point: “I don’t think there is necessarily a windfall of cheap money, as the money has to be cheaper in order to eliminate some of the associated costs.

Mangos recalled a case where two LNG-fueled small container and bulk carrier projects struggled to achieve viability, even with the cheaper money behind them. The related government grants have been “massively oversubscribed,” Mangos said. “I think we are still not in a position where most projects are really economically viable at the moment; This, I think, takes a lot of work.

Paul Tivnan, CFO, Ardmore Shipping recognized the banks for their efforts in creating the Poseidon Principles in 2018, a move he said started a fire among ship owners to start taking decarbonization and green finance seriously.

“It created an incentive, now we’re two years down and we’re hoping to gain momentum and get to a really good place,” said Tivnan.

Houlder Ltd strategy consultant Sean McLaughlin said Poseidon’s principles grew out of more than just good intentions. “The real driver was a tough business fact: if you don’t recognize the impact of climate change on businesses, these banks will end up with loan portfolios that are worthless because the underlying assets behind these loans will be worth nothing, ”McLaughlin said.

McLaughlin stressed that he is not criticizing Poseidon’s principles, but sees their creation as a sign that banks understand the scale of the problem facing the industry. Another sign of the challenge ahead was the Bank of England’s decision to put the UK financial sector to a stress test on its resilience to climate change.

“I think the easiest thing people think of going forward is that it’s not about finding a bonanza of cheap money to do certain projects. It is to recognize a direction of movement. If you don’t recognize it, you’ll have a problem, ”McLaughlin said.

Tivnan pointed out a more immediate impact on banks in the absence of Poseidon’s principles. “If the banks do nothing and continue to fund older assets that are not performing very well on CO2, then in a weak market these ships will be severely depreciated,” Tivnan said. The evidence is already clear in the market, he said, as access to finance for vessels over 12 years old was not available from major banks.

“So you’ve seen over the last couple of years an increase in alternative loan providers, who now provide mezzanine financing for older ships or mid-life ships. So you see almost a bifurcation in the market from financing shipping to high quality modern ships and a clear focus on decarbonization, and others who are sort of active players focusing on mid-ships. life and less concerned with the co2, high risk stuff with prices attached to it as well.

“Banks have always been selective, but now they have another reason for being selective,” said Tivnan.

The panel supported carbon taxes as a way to encourage low-carbon development and to pressure less efficient operators to improve.

“Having a carbon price for the remaining life of a ship under construction now, whether the carbon price is $ 100 or $ 150 or whatever, helps many projects make the green and carbon-free choice.” , said Hübner. Such a carbon price would foster innovation and development towards decarbonization without the need for government subsidies, although such subsidies can still be useful in the beginning.

Mangos said the confluence of environmental goals in the maritime and financial realm align the goals and incentives of lenders and the shipping industry. “This confluence is extremely positive. This will help pave the way for the whole transformation of the industry, ”Mangos said.


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