A new European Union classification system of sustainable economic activities that seeks to drive the trading bloc's climate goals must take account of the transition period needed for shipping as it decarbonises, and define clear rules that work for all.
That was the response from panellists at a Marine Money London debate on environmental, social and governance (ESG) issues when moderator Lindsey Keeble, a partner and global maritime sector head at Watson Farley & Williams (WFW), asked how the industry could avoid regimes being imposed on it that are “simply not workable”.
Paul Taylor, global head of shipping and offshore at Societe Generale, said it is crucial that the EU's working parties on the taxonomy — being designed to enable the scaling up of sustainable investment and to implement the European Green Deal — talk to those working in the industry rather than just policymakers.
“We need clear regulatory rules that work for everybody,” he said. “We need rules that embrace the transitionary period that we will be going through for the next 10 years.”
Overnight greening
Taylor said under the EU’s draft proposals it is unclear if fuels such as LNG or bio-LNG will be able to get green certification, which investors will need in future for ratings.
“If we try to be green overnight … we are going to drive investment away from this market,” he said, adding that this will push back shipping's energy transition.
Maersk Tankers and GasLog board member Kristin Holth said the EU’s decision could have effect by the end of the year without anyone really making the necessary evaluation of the consequences for the transportation sector.
“Obviously, this will have an impact on capital and the cost of capital," she said.
Invisible hands
Flex LNG chief executive Oystein Kalleklev said: “It seems like we have gone from the energy transition to the energy switch.”
He argued for a simpler system where global administrations agree a carbon tax with annual increases, which he said would solve the problem of greenhouse gas emissions.
The invisible hand of the market is preferable over the visible and arbitrary hand of regulators, Kalleklev said.
Holth said the industry needs all hands on deck to achieve its targets but added that new initiatives need to work in the same direction.
She said the industry and shipowners are moving fast as their climate actions open up market share gains.
Respondents: More than 545 senior shipping executives and 10 panel interviews.
Top concern for owners and financiers: Reducing emissions.
Second key concern for owners: Black-swan events such as the Covid-19 pandemic and trade tensions.
Top ESG concern for owners and financiers: Emissions.
Key questions facing shipping: How will new technology be financed? How can one balance the issues of being a first mover to address ESG issues?
Full survey release date: 24 February
Maritime concerns
Keeble, who gave a glimpse of the results from a WFW survey on the key issues facing the maritime industry, said the focus on ESG is here to stay.
Taylor said it has been deeply rooted in banks since the 2008 financial crisis.
But he added that shipowners do not have the same agility or regulation but they do have investments in long-life assets.
“Shipowners are not going to be able to put ESG straightaway at the heart of their business model unless there is a real financial driver to all investment decisions,” Taylor said.
But he added that disparity might be much closer in five years' time.
Equity hole
EnTrust Global managing director Julian Proctor said there has been “a phenomenal change” in how end users think about emissions, and what they disclose and require of freight providers in the past 24 months.
He voiced his concern about a “material equity hole” opening up as institutional capital becomes increasingly environmentally and socially focused.
Proctor said there is huge institutional investor interest in the marine aspect of offshore wind and ferries but towards industrial shipping this becomes more difficult.
"[For] shipowners and operators which can’t show that they can make that transition to those high growth, high decarbonisation aligned cargo sectors, it’s going to get a lot tougher," he said.
Kroll Bond Rating Agency's Michael Labuskes, a senior director for aviation, transport and commercial finance, said there has been an increase in shipping companies trying to access the capital markets.
He said certain investor segments now — and will increasingly — require ratings.
Looking ahead, Labuskes said he expects sustainability-linked bonds to "grow substantially".
Taylor said there could be a developing leasing market, which could help finance some of the technology required for meeting the energy-transition requirements.
