Parker: Shipping financing will not be the same

Green corridors are likely to transform the realm of shipping finance as the focus shifts from emissions from ships to the entire supply chain, according to Michael Parker, Chairman of the Poseidon Principles.

Parker spoke on a panel on Wednesday as part of the launch of Progress Toward Shipping’s 2030 Breakthrough report from UMAS, Getting to Zero Coalition, and Race to Zero.

Green corridors are shipping routes on which there are commercially operating ships using exclusively alternative fuels.

Three main corridor types cater to sustainable shipping. The first is the single-point corridor, which creates zero-emission shipping routes around specific locations. The second is the point-to-point corridor, essentially a single-route connection between two ports. Lastly, there’s the network green corridor, which establishes routes between three or more ports, allowing vessels to use alternative fuels to reduce emissions.

The numerous green corridors in the making, most notably the one between the ports of Singapore and Rotterdam, are expected to drive decarbonization by facilitating the introduction of the necessary infrastructure and supply chain.

Parker emphasized the potential of “green corridors,” foreseeing them as a means for coordinated long-term contract arrangements.

“Green corridors will pave the way for a more coordinated building-in of the long-term contracts that the industry is looking for. With commitments by cargo owners through initiatives like Zero Emission Maritime Buyers Alliance (ZEMBA), particularly being led by the container sector, I think we’ll see a consistent approach being taken around this by the main shipping lines,” Parker explained.

“We’ve seen through the initiatives from some of the ports, Singapore-Rotterdam is a good example, where this is not just about the ship – it’s also about the availability of these new fuels and the infrastructure. So, what is therefore being financed is very different from what used to be financed. Shipping finance is not going to be the same as it used to be. Because it’s now going to be much more environmentally focused around the emissions not just of the ship, but the emissions being created in the supply chain the ship operates in.”

Parker stressed the significance of recent actions by the International Maritime Organization (IMO), asserting that they have laid out a clear path for the industry to achieve ambitious emission reduction goals by 2030 and beyond.

The Poseidon Principles, which apply to banks, have already incorporated the International Maritime Organization’s (IMO) higher ambitions. The upcoming report from the alliance will demonstrate alignment among 34 institutions, including three Japanese banks and a major Italian financial institution. The report will compare portfolios against the IMO’s previous ambition of decreasing shipping emissions by 50% by 2050 when compared to 2008 and against the striving and minimum emission reduction objectives on a well-to-wake GHG basis.

Parker noted that transparency is key, as financial institutions and insurers are increasingly accountable for the emissions in their portfolios, and highlighted how collaborative initiatives are paving the way for a more environmentally focused approach within the shipping industry.

“That transparency in public puts us under pressure because we will show how far away our portfolios are from the reality of the IMO’s GHG ambition. However, many of us in these groups, particularly the banking group have got net zero commitments by 2050 and very public commitments by our institutions,” Parker said.

“So, the transparency is building the incentives to find the things to finance not at the expense of retrofitting the existing fleet, but in line with the existing fleet, to finance the new fuels and the new ships that emerge.”

Despite the transparency revealing the gaps between industry portfolios and IMO goals, many banks are publicly committed to sustainable finance, with City alone pledging a trillion dollars for financing or range finance by 2030.

Beyond the shipping industry, the discussion encompassed cross-sector collaboration involving energy companies, cargo owners, and new energy sectors. The environmental impact of supply chains and Scope 3 emissions have taken precedence in a post-COVID world, making transparency vital for allocating capital in banking and private financing.

As explained, the financing sector “needs transparency so it can invest in the right things”.

The environmental “haziness,” Parker noted, centers around two key questions: the destination of new fuels and the identification of the right fuels. Moreover, the decisions of ship owners regarding ship orders must precede financing.

The demand for sustainable fuels, often perceived as challenging for shipping, might be more optimistic than previously believed. Parker explained that the cargo owners are likely to drive this demand, which in turn will benefit ship owners.

“We have to look at this much more broadly not just within the shipping industry. The demand for those fuels, which a lot of people think will be difficult for shipping to get, I’m much more optimistic, because a lot of that demand will be driven by the cargo owner, and that will help the ship owners,” he said.

“I don’t think there’s any question about whether the money will be there: it will be there.”

The maritime industry has to address the evolving regulatory landscape, as financial regulators prioritize safety and sustainability.

This in particular relates to the huge losses financing institutions incurred from the shipping sector ten to twelve years ago. That being said, climate risk takes precedence.

“Climate risk is now uppermost in regulators’ minds after financial sustainability and we’re beginning to see the frameworks be created. I think shipping comes well out of that when regulators look at it,” Parker noted, adding that the view of shipping is expected to change because of its integrated role in the global economy.

Poseidon Principles’ Chair concluded with optimism.

“I’m very optimistic that a lot of these parallel initiatives will now begin to converge down the pathway the IMO has set and give us, as financiers, ship owners, and fuel providers, a much clearer picture of where we can work together to finance the projects that need to happen and that will enable us to get somewhere between the 5 and 10% by 2030,” Parker added.