Research has been released that suggests climate transition pathways pose risks to the banks that hold $400 billion of global shipping debt (Carbon War Room [CWR] and UMAS, 2017). With the onset of climate policies as soon as 2023, there will be a need for significant capital investment to keep vessels competitive. Navigating Decarbonisation: An approach to evaluate shipping’s risks and opportunities associated with climate change mitigation policy lays out the first approach to climate stress-testing of shipping assets and 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.
James Mitchell, senior associate for shipping with Carbon War Room, explained: “Risk is nothing new to the shipping industry or to the major financial institutions that bankroll it, but climate transition risk is. If a newbuilding financing decision is made today, that vessel will very probably have to compete under new IMO or EU policy actions before its first drydock. This work suggests that these risks will impact the market and should be considered now.”
“We recognise the challenges faced today. Markets are weak, capital requirements are increasing, and compliance with upcoming regulations will require significant capital investment. However, actions taken now by financiers, owners, and shareholders will position both individual assets and the industry as a whole for greater long-term profitability, and will ensure that the first step of decarbonisation is a success.”
“The key take away from the report is for financiers and shipowners to be prepared and thus it is crucial to future-proof assets now and plan for flexibility from the onset, through for example, designing for future retrofits and using innovative financing mechanisms to deal with a variety of future scenarios. Scenario analysis that combines an integrated techno-economic assessment with a number of foreseeable policy scenarios can help navigate future uncertainties and help financiers and shipowners make more informed decisions about their assets.”
(Reference: Transport & Logistics News, Charles Pauka, 1st March 2017, Is the banks’ $400 billion global shipping debt about to sink?)