Norway’s DNB Bank has launched a climate transition loan framework for shipping companies that it has dubbed the “missing link”.
It is intended to help shipowners make and verify investments that decrease carbon emissions.
Christos Tsakonas, global head of shipping at DNB, told TradeWinds: “It is the missing link. We see people doing investments improving the environmental efficiency of their vessels and they have no way of verifying it.”
DNB’s framework aims to provide loan facilities to corporates in high-emitting industries, such as shipping, where zero or near-zero emission substitutes are not yet fully available or feasible.
“What has been missing in the industry are loans that are earmarked for specific environmental improvements, specific improvements of the fleet, that have a measurable impact on the environmental footprint,” Tsakonas added.
Companies must meet four criteria to qualify. They are:
- The key elements of a transition plan are in place.
- Expected and actual emission reduction is material and measurable.
- The best available technology is utilised.
- The lock-in effect of carbon-intensive assets is considered acceptable.
Clients receiving loans will get a small benefit on pricing from DNB, comparable to sustainability-linked loans.
“But the driving force is that you get a stamp and recognition for doing the right thing,” Tsakonas explained.
“You can differentiate yourself from the competition who is not doing this. That is the main attraction rather than the monetary benefit.”
According to Kristin Frones, senior sustainability adviser, the framework was inspired by the needs that DNB identified in shipping.
Investments can include energy efficiency measures, hybrid propulsion, alternative fuels and other reduction measures such as onboard carbon capture and sails.
“We see companies doing large investments that might not qualify for a green label but that still can result in material emissions reductions and make a difference.
“On the way to becoming ‘greener’ and potentially qualifying for green financing, there are a lot of investments that need to be done.
“Transition loans may provide such companies with funding to do the necessary investments, a ‘bridge to green’. We want to cover these investments with this framework,” she said.
Earlier this year, DNB made its first transition loan in shipping to Odfjell as a pilot.
Frones said: “We believe that large investments are required to reduce emissions in high-emitting industries such as shipping and maritime transport, and we want to support our clients in their climate transition by offering financial products and services that promote sustainable activities and help them reach their climate targets.
“The framework will also make it easier for our clients to understand our expectations and the criteria for transition loans,” Frones said.
Tsakonas added: “We think it is an interesting framework and hope that other banks adopt similar frameworks as well.
“So that we can give recognition to shipowners that are making investments for trying to improve their environmental footprint.”
He sees more transition loans by the bank before the end of the year.
“For the majority of the loans we are discussing. We are looking at having a sustainability or transition feature. Companies are extremely keen to showcase that they are doing the right thing,” he said.
DNV will make an external assessment of transition loans under the framework.
Tsakonas said: “It is eye-opening how keen the shipping community and our client base are to embrace the transition technologies. It’s incredible how fast it has happened.
“Two or three years ago, this was not really on the table. Now every time I go to a meeting they are experimenting with technologies. It is extremely impressive how fast shipping companies responded.”
Short-term transition loans can reduce emissions but long term the shipping industry needs a true green shift.
“We need something more radical. But what we have seen so far is impressive,” Tsakonas said.
