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Green Supplement

By James Mitchell, Finance Lead – Maritime, Carbon War Room

T

he conversation around reducing GHG emissions in the shipping industry is often a difficult one to translate into a single vision. From ship efficiency to digitalization, to vessel oversupply, industry conversations and operations are siloed. To decarbonize successfully, silos that stifle collaboration and innovation must be torn down. The industry is under growing pressure from its customers, key industr y organizations and shareholders, while the regulatory framework that will shape the decarbonized future is beginning to take shape at IMO. However, with no regulation set to enter into force before 2023, and with a 50% reduction in total GHG emissions needed by 2050 for shipping to keep step with the rest of the world, business must take steps now to both accelerate decarbonization and position themselves for future low-carbon profitability. While the journey to a decarbonized industry will be challenging, it is achievable with a range of changes to vessel operations, technologies, and fuels. Innovation and investment in the development and installation of low-carbon technology and fuels is needed. In fact, decarbonization can start today with simple changes in decision-making.

G4 Marine Log // August 2017

Charterers and owners can collaborate to reduce operational emissions, and financiers can incorporate climate risk into lending decisions. With $355 billion of global shipping debt, financiers have their own stability and profitability to consider. The stringency of climate policies set to be implemented by

The industry must take steps now to both accelerate decarbonization and low carbon profitability the IMO by 2023 is today unknown. But, we do know that if a newbuild financing decision is made today, that vessel will have to be competitive under either an IMO or EU carbon price before its first dry-dock. Even with targets that are less ambitious than a 50% reduction in GHG emissions by 2050, impacts on owner cash flow and

vessel valuation will remain significant. These are the climate transition risks faced by asset owners and the banks that finance them. In some cases, the changes to the regulatory framework and subsequent market dynamics could lead to assets suffering unanticipated or premature write-downs, devaluations or conversion to liabilities – the “stranded assets” that are now becoming a common concern within financial circles. The first step to mitigating this risk is understanding where the risks lie and which assets in a bank’s shipping portfolio are in danger of becoming stranded. In a low-carbon market, there will also be a need for significant capital investments in efficiency technologies to keep vessels competitive. Actions taken now by financiers, owners, and shareholders will position assets, companies and wider industry for greater long-term profitability. The financial sector within the industry is critical to achieving decarbonization in a manner that ensures profitability and resilience in the market. Assessing climate risks in lending decisions and ensuring their portfolios are resilient by carbon stress testing them against future policy and market scenarios should be the first port of call. To support this, Carbon War Room (CWR) is working with leading ship financiers to refine and implement best practices around integrating climate risk assessment into lending decisions. The industry has the tools and technologies to achieve higher operational and technical efficiency, while digitalization provides the capability to quantify and communicate those savings accurately and effectively. What is needed is the transparent sharing of this information. The transparent collection, monitoring and evaluation of data will support the mobilization of capital needed by owners and operators to invest in innovation. As shipping digitalizes, how it collects, uses, and shares data will have a significant impact on the profitability of the industry in a decarbonized future. Industries that share best practices and information on the effectiveness and profitability of emission reduction strategies create a level playing field, allowing the industr y to navigate towards a prosperous future collaboratively.

Shutterstock/ Dennis van de Water

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