GREEN FINANCE SOWING SEEDS

Members Corner

Source: UECC, 2021-06-16

Access to green finance is growing along with pressure on shipping to clean up its environmental act and UECC has demonstrated this is an attractive form of funding with its investment in a trio of newbuild LNG battery hybrid PCTCs.

As well as making a major bet on sustainable shipping with the order at China’s Jiangnan Shipyard, UECC also took the initiative in green financing by securing a loan with Svenska SkeppsHypotek for the ground-breaking newbuilds that are due for delivery from October 2021 onwards.

“Clearly, such financing must also make commercial sense and we have found it has yielded significant gains in the form of reduced borrowing costs, with a higher margin discount compared to normal financing,” says UECC’s Chief Financial Officer Thomas Thue.

“These vessels were eligible for green financing as they will cut CO2 emissions by around 40% from day one.”

Green finance includes an array of loans, debt mechanisms and investments that are structured to promote the development of environment-friendly projects.

The main sources of green funding for the shipping industry are bank and bond financing, although the number of financial products on offer is growing, and the value of the sustainable bond market reportedly could be worth as much as $2.36tn by 2023.

However, the availability of green capital comes at a price for shipowners in the form of strict ESG (environmental, social and governance) reporting requirements due to more stringent regulations on shipping emissions being imposed by the IMO and EU, as well as other regional authorities.

Thue says the Poseidon Principles, a global pact agreed in 2019 among major banks to ensure their ship finance portfolios are aligned with climate goals, are gaining increasing traction in the financial community.

“The shipping industry must relate to a plethora of environmental rules from across the board - the IMO, EU, governments, NGOs, the financial community, investors and clients - that essentially represent a carrot-and-stick approach to make green investments more favourable,” he says.

This regime is set to become even tighter with the implementation in 2022 of the EU’s taxonomy rules that aim to help investors to determine whether an economic activity is climate-friendly.

Financiers are also looking at the overall emissions profile of a potential client’s existing fleet to determine whether this makes it eligible for green financing terms, according to Thue.

He believes new green guidelines for bank funding will to a greater extent dictate the availability of cash for new build investments going forward, with financing becoming relatively more expensive for vessels running on fossil fuels.

Bank pressure on clients to make sustainable investments represents a two-way street as it also gives clients leverage to demand more advantageous financing to invest in greener technology, according to Thue.

“As such, we believe that investing in sustainable technology - such as hybrid LNG-fuelled ships with reduced emissions - and having an environment-friendly profile will give us a competitive edge in the future, also in securing favourable financing,” he says.

He believes the increased availability of cheaper green financing could incentivise fresh new build orders that have slumped to an historic low due to global macro-economic challenges amid the Covid-19 pandemic that have hit trade volumes in shipping.

“There is a growing awareness in the industry and we see more investments in environment-friendly technology such as LNG and alternative fuels like bio fuel, in which UECC is playing a leading role,” Thue says.

''Green finance can be good for the shipping business if investments meet ESG criteria'' Thomas Thue, CFO, UECC says.


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