In a major development, J.P. Morgan Asset Management is joining a chorus of global financiers saying that protecting the environment will be a key consideration for extending shipping loans, reports the Wall Street Journal.
Environmental Sustainability Holds The Key
“There is not an institutional investor today in the Western world that is not thinking about the impact of environmental, social and governance factors,” Andy Dacy, the chief executive of the finance firm’s global transportation group, told a meeting at the International Shipping Week here.
“Anyone looking for [shipping] capital, if you’re not employing such a strategy, it’s going to be increasingly very difficult to get capital.” Mr. Dacy said.
The group is the latest financial institution to warn shipowners to abide by a series of measures kicking off next year and extending to 2050 that are aimed at cutting emissions from oceangoing vessels.
Backdrop of This
Starting on Jan. 1, 2020, some 60,000 ships will be required to reduce sulfur emissions by more than 80%. Many are preparing to switch to new low-sulfur fuel mixes or blends that are still under development, a move industry executives say will add some $50 billion in new fuel costs over the next three to four years.
The move is mandated by the International Maritime Organization, an arm of the United Nations that works as the global marine regulator. The IMO has also set a timeline to cut greenhouse gas emissions from ships by 40% by 2030 and by 50% by 2050.
Ships move the world’s commodities like oil, iron ore and grains and the vast majority of manufactured goods. They also contribute around 3% of the world’s global pollution, an amount comparable to major emitting countries, according to Oceana, a group of independent foundations that monitors ocean pollution.
Looking Beyond Balance Sheets
Mr. Dacy said maritime financing decisions over the past decade were driven by private-equity firms coming into shipping.
Now, with private equity largely looking to exit from the industry after several years of consolidation, institutional investors are looking beyond balance sheets to guarantees by shipowners that they will abide by the IMO climate regulations and timelines.
“And it’s not just about environmental impact,” Mr. Dacy said. “It’s how do you treat your crew, how do you work with constituents in the industry to create a transparent organization.”
So far 11 banks—including Citigroup Inc., France’s Société Générale SA and Norway’s DNB ASA —say they will take climate considerations into account when extending new shipping loans.
Directing More Money To Environment-friendly Vessels
The banks, which have a combined shipping portfolio of about $100 billion, or about one-fourth of the global ship-finance market, have signed on to an industrial framework known as the Poseidon Principles, which seeks to direct new money for shipping toward environmentally friendly vessels.
Chinese banks, which control about 25% of all ship finance and more than half of all shipbuilding capacity, are expected to place climate criteria in their ship financing portfolios over the next two years, according to shipping and bank executives.
The principles are also supported by some of the industry’s biggest ocean cargo movers, including Danish shipping giant A.P. Møller-Maersk A/S, agriculture commodities giant Cargill Inc. and Belgium-based tanker operator Euronav NV.
Experts say cutting carbon-dioxide emissions substantially over the coming years will require that new vessels begin running on alternative fuel sources such as biofuels or hydrogen power. Ships that run on such fuels could take years to develop, according to industry executives.
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Source: The Wall Street Journal
