A recent study by the UCL Energy Institute has uncovered a critical issue in green financing for the shipping industry. While banks offer cheaper loans to shipping companies with strong climate records, they do not extend these benefits to individual low-carbon ships..

This gap suggests that current financing practices may not effectively promote the adoption of greener technologies in shipping.

Key Insights:

• Company-Level vs. Ship-Level Financing: Banks reward companies with good climate scores, but loan terms for individual ships do not reflect their carbon efficiency. This disconnect could undermine efforts to reduce emissions.
• Poseidon Principles’ Impact: Despite their goal to improve transparency, the Poseidon Principles have not yet led to lower financing costs for ships with lower carbon emissions.
• Stranded Assets Risk: With a significant portion of the fleet still using fossil fuels, there is a growing risk of stranded assets as climate regulations tighten, potentially leading to financial losses.

While lenders recognise the need for decarbonisation, they aren’t yet incentivising more carbon-efficient ships through better loan terms. – Marie Fricaudet, lead author

The data shows that banks are making decisions on a corporate basis rather than evaluating individual ships’ carbon performance. This needs to change. – Dr. Sophia Parker, co-author

The study emphasises the need for stronger regulations that link loan terms directly to the carbon performance of both companies and individual ships. Voluntary initiatives alone are insufficient to drive the necessary change in the industry.

Read the full study on the ScienceDirect website.

Authors:

• Marie Fricaudet: PhD student at UCL Energy Institute and lead author of the study.
• Dr. Sophia Parker: Principal Consultant, UMAS
• Dr. Nadia Ameli: Principal Research Fellow at UCL Energy Institute.
• Professor Tristan Smith: professor at UCL Energy Institute.

Source: UCL Energy Institute