The class society is using its role as a trusted advisor to help lenders and borrowers understand the impact of energy efficiency on access to finance, writes ABS director, sustainability strategy Panos Koutsourakis
ABS is helping shipowners to access ‘green finance’ – provided to borrowers who can demonstrate their environmental credentials – with a programme assessing the contribution of environmental technologies to the reduction of carbon emissions and intensity.
The demand for greater energy efficiency and the drive towards decarbonisation will increasingly require shipowners to obtain finance that in part reflects the environmental performance of those assets. The green financing trend is being driven by regulation – principally IMO’s decarbonisation targets – and by the Poseidon Principles, a market measure designed to link access to capital to improving energy efficiency and carbon reduction.
By also acting as a trusted ‘second party opinion’ provider to the finance providers, ABS is supporting the industry’s transition to a net-zero carbon environment while also helping operators fulfil their ESG strategies.
Green financing options are growing fast, with principles and guidelines for such bonds and loans formulated and subject to market guidelines. Our work is aligned with the International Capital Market Association (ICMA) and the Loan Market Association (LMA) to provide lenders with advice and insight on the shipping market and help them understand the relative contribution of environmental technologies.
Green bond principles are designed to provide issuers with guidance on the key components involved in launching a credible green bond; aid investors by ensuring availability of information necessary to evaluate the environmental impact of green bond investments and move the market towards standard disclosures which will facilitate transactions, according to ICMA.
In a survey of its members conducted by the LMA, over 40% of respondents said they consider investors to be the most likely to drive growth in green and sustainable lending in 2021. This supports the view that ESG issues have moved rapidly up the agenda for investors over the last few years and highlights that market participants, rather than regulators, are perceived to be the key drivers for green and sustainable lending moving forward.
For borrowers, ABS will review their ESG guidelines and offer advice on which technologies may qualify them for green financing with a positive environmental contribution.
Green finance may include favourable terms such as lower interest rates or an extended payback period in recognition of the demonstration of improved environmental performance. By verifying the contribution of selected technologies, it could also avoid making expensive investments into assets that are not operationally or financially sustainable.
Owners also need help in understanding the criteria on which banks will lend and to align themselves with their green finance guidelines. This techno-economic analysis of the suitability of environmental technology can be made for newbuildings or retrofits.
To help owners communicate their ESG performance, ABS provides the ‘Environmental Monitor’, which leverages multiple data sources including vessel routeing, waste stream, operations and emissions data to provide transparent reporting. It performs calculations in accordance with the Environmental Ship Index and Poseidon Principles, enabling tracking of numerous key performance indicators and reporting on scrubber system performance.
IMO’s medium-term measures for energy efficiency and decarbonisation strategy create a trajectory for performance improvement and both owners and financiers must monitor vessel performance to ensure it continues to meet the criteria.
Banks and finance providers will be required to manage their portfolio risk and make judgements as to whether the assets they are financing will be able to meet tightening environmental regulations and attract profitable employment.
While some lenders will be experts in the market, some institutions, investors or lessors need support in understanding not just the industry outlook, but which technologies offer genuine contributions to emissions reduction.
The assessment of environmental technologies by ABS will be based on IMO guidelines and the terms of the EEXI and Carbon Intensity Indicator, with reference to the Poseidon Principles. It can also reflect a bank’s own guidelines and advice for granting green finance to asset owners.
In its daily conversations with shipowners, ABS found the topic of finance was discussed regularly when talking with owners about energy efficiency technologies.
A shipping industry undergoing a period of seismic change requires that class services evolve alongside it, supplementing survey and certification services with broader advice around their options for decarbonisation and ESG.
Riviera Maritime Media’s Carbon Capture & Storage Webinar Week is being held 18 May 2021 – use this link for more details and to register