Linking preferential trade finance to vessel emissions requires real-time monitoring
Whenever extreme weather events prompt demand for faster action on climate change, fingers point to the maritime sector’s 3% annual contribution to global greenhouse gases, said Pole Star global head of maritime trade technologies Simon Ring.
The increasing urgency of the climate crisis is why the European Union is including shipping in its Emissions Trading System (ETS), aiming to reduce carbon emissions by 55% by 2030 compared with 1990 levels.
IMO has also agreed mandatory steps to cut carbon intensity by 40% by 2030 against a 2008 benchmark.
This focus on emissions reductions and ESG (environmental, social, and governance) standards is putting pressure on banks and lenders to offer preferential rates for transactions that are greener and cleaner.
"Charterers and operators that can provide evidence of compliance with fast-evolving standards will have a distinct advantage, especially in relation to the vessels, fuels and routes they use," said Mr Ring.
"Problems lie in the burden of obtaining real-time, accurate intelligence and information about the compliance and sustainability status of a vessel and its route."
Even more complex is the ability to quantify the environmental impact of the commodity a vessel is transporting.
"These are substantial tasks using conventional, manual methods," explained Mr Ring. "What banks and lenders need is immediate access to timely and accurate data and insights in their workflows so they can make faster financing decisions with greater confidence."
Charterers and operators, on the other hand, need this type of integration to make better, greener decisions, and to demonstrate best efforts in sustainability.
"Nobody should be in doubt about the seriousness of emissions reductions targets around the globe," he continued. "China, Japan, and South Korea are all pushing their economies towards carbon-neutrality and the EU has an array of emissions regulations targeting the maritime sector, of which the ETS is part."
The UK is to include shipping emissions in its carbon emissions targets, while the Biden administration in the US has announced it will now collaborate with IMO on carbon reduction.
"If charterers and operators can prove up-to-the-minute compliance, they have a great opportunity to access the innovative trade finance programmes banks and lenders increasingly link to sustainability performance," explained Mr Ring.
"Vessels with superior environmental ratings will earn preferential terms, while carriers with a track record of sustainability will find it easier to finance business expansion."
In addition, ports will charge lower fees if carbon-efficiency is compliant with best practice. Insurers and flag administrations are also likely to follow with reductions.
The Poseidon Principles, launched in June 2019, are an attempt to deliver some of these benefits, linking ship financing with environmentally friendly behaviour and decarbonisation.
"Yet they rely on annual assessments of carbon output, which omit crucial activity within that timeframe, such as choice of fuels, the retrofitting of vessels, speed and routes used," said Mr Ring.
"What carriers and charterers need is real-time, detailed information about the current status of the vessel they use.
"Banks should also be able to screen each commodity transaction for environmental impact across a range of real-time indicators encompassing climate effect, human exploitation, soil erosion, deforestation and water productivity," he added.
For this to be cost-effective and comprehensive requires an automated process that monitors emissions and sustainability right along the supply chain.
"Carbon emissions and sustainability compliance are now measured by expert companies using recognised metrics. If charterers, operators and banks can build this into their current infrastructure and systems, they will have a solution for the long term," Mr Ring explained.
"The whole maritime industry needs greater transparency so all parties can rate vessels meaningfully. That applies to governments, flags and ports, commodity producers and traders as well as logistics companies, forwarders and carriers.
"The only certain way to achieve this is through technology, integrating sustainability monitoring into systems and workflows.
"It is an advance in digitalisation that the entire maritime industry should embrace so it becomes more efficient, more sustainable and more transparent," he concluded.
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