More shipping companies could follow in the footsteps of Odfjell Group in taking advantage of transition finance, according to Norway’s biggest bank.
Odfjell has a reputation as a sustainability leader in the shipping industry.
In 2021, the Oslo-listed chemical tanker owner was the first shipping company to establish a sustainability-linked finance framework.
In April this year, the company launched a transition finance framework aimed at supporting the funding of the company’s transition towards a climate-neutral fleet.
“We hope that we can see more shipping companies doing this type of financing, earmarking money for investing in the transition,” Nina Ahlstrand, global head of sustainable finance at DNB Markets, said in an interview in Oslo.
Odfjell’s transition finance framework was the first of its kind in the Nordic region.
The financing can be used for vessel-specific retrofits, research and development, wind-assisted ship propulsion (WASP) technology, zero-emission capable newbuildings or vessel life-extension programmes.
“Transition finance shows in an effective way that sustainability is not binary,” Ahlstrand said.
“We need long-term investments in zero-emissions solutions, but where those are not yet available, we also need to invest in the shorter-term emission-reduction generators available here and now.
“The transition finance stamp shows that it is a transition phase, not necessarily the end goal,” she said.
“Earmarking money for sustainability measures is a very concrete way of showing one’s ambition. However, we can expect that the bar for what qualifies will increase over time as we approach global climate target deadlines,” she added.
DNB is aiming to be net zero by 2050 across all its lending and investment portfolios, as well as in its own operations.
“Our clients must do the work. They must reduce their emissions so that we can reduce our financed emissions,” Ahlstrand said.
She leads the sustainability finance unit at DNB Markets, which consists of six bankers.
“The goal is to help our clients meet investors’ expectations on sustainability in the capital markets. We work with supporting and nudging clients in the right direction,” she added.
According to Ahlstrand, sustainability-linked or green loans are a good tool to steer capital to sustainable investments.
“We help clients be as concrete and clear as possible about where they are on their sustainability journey. Today, banks and investors expect much more than beautiful words in investor presentations,” she said.
Earlier this year, DNB helped John Fredriksen-backed SFL Corp raise $150m by issuing sustainability-linked bonds.
In sustainability-linked finance, the cost of the financing depends on the sustainability performance of the borrower.
“If you have a green or sustainability-linked stamp on your transaction, investors generally have a bigger interest in listening. It creates a bigger interest and can sometimes push down the price. It is supply and demand. Or maybe you can get a larger volume at the same price,” she said.
Ahlstrand thinks it is important for shipping clients to work systematically with sustainability.
“We focus more on engagement and inclusion than excluding specific clients. We want to work with our core sectors and have an active dialogue with our clients,” she said.
Progress over milestones
How far a company has come in its sustainability work is not the most crucial for DNB.
“It is more about seeing that a client has an understanding of sustainability-related risks and opportunities and how they handle those. Right now that is the most important for us,” she said.
“Realising that sustainability can have an impact on access to capital and financing costs can elevate the discussion in the companies, which also highlights the important role that financial markets play in supporting the transition,” she said.
The expectations of banks and investors on companies to work with sustainability are growing.
“I think we are in a shift now. So far everyone has set these long-term net-zero ambitions. But now we must start to see what the road map looks like. If a company wants to be relevant and competitive over time, it needs a concrete sustainability strategy,” she said.
A clear transition plan will efficiently improve the credibility of a net-zero ambition, according to Ahlstrand.
“We want clients in our portfolio that have a concrete strategy and a competitive position in their markets,” she added.
