Maritime in transition – balancing profit and purpose

With the maritime industry at a pivotal point in its transformation to a lower carbon future, find out how financial institutions can play a more strategic role in proactively supporting the industry’s transition.

Inside a seismic shift in shipping

Shipping may be the least energy-intensive way to carry goods, consuming one-fifth of the energy required for freight transport, but it is nevertheless being forced to confront the reality of its role in climate change – not least because it is a carbon-emitting  activity that still relies heavily on oil-based fuels.

International Shipping is the largest contributor within the sector with 740 million tonnes of CO2 emissions in 2018. The share of international shipping emissions in global GHG emissions has increased from 2.01% in 2012 to 2.02% in 2018, with containers, bulk carriers and tankers account for 86.5% of emissions. 1

This has led to a major shift in approach within the industry, according to Andreas Sohmen-Pao, chairman of BW Group, who recently spoke with Standard Chartered’s Global Head of Shipping, Abhishek Pandey at an industry event. BW Group is a major player in the sector, managing the world’s largest fleet of very large gas carriers and the second-largest fleet of offshore floating production vessels, among many other assets.2

“We’re at a major societal turning point, and at a business level there will be a new frame of reference for what’s acceptable,” Mr Sohmen-Pao said. “I think some people are saying, what is the point of making a lot of money if we destroy the planet?”

Maritime in transition – balancing profit and purpose

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Investing in change

With this in mind, what steps has the shipping industry taken? For a start, the IMO has adopted mandatory measures to reduce emissions, to support the UN’s Sustainable Development Goal #13 to take urgent action to combat climate change. All stakeholders in the sector, from financiers to lessors and operators, are committing to take steps to drive long-term decarbonisation.

But getting to this goal is not a straightforward path, particularly when it comes to the regulatory infrastructure. “Should it be carbon levies, or a traded scheme? Do offsets work? What is future fuel going to be?” Mr Sohmen-Pao asked. “There will be plenty of debate, but the industry is acknowledging the problem and talking about solutions in a very different way from what was done historically.”

Inevitably, change is unlikely to depend on one solution. That means investing in a variety of innovative technologies, in the likelihood that they won’t all pan out – a risk that BW Group has been ready to adopt.

“We’re investing in many different things,” Mr Sohmen-Pao explained. “LNG for some ships, LPG for other ships, methanol, batteries, biofuels, solar, wind… As a private company at the holding level, we have the luxury of being able to be a bit more experimental.”

It’s not just fuel. BW began investing in environmental technologies of all kinds around 12 years ago, through a subsidiary called BW Ventures.

“We bought into ballast water management systems, carbon nanotubes for better paints, hull cleaning robots, more efficient electrical motors, water treatment…” Mr Sohmen-Pao noted, explaining that as with most venture capital activity, many initiatives didn’t succeed. But there are high hopes for some, including the maritime battery maker Corvus, which is now exploring maritime-certified hydrogen fuel cells,3 and those in the wind energy sector.

Finance incentives

“Given the complexity and scale of global energy infrastructure built up over decades, there will be no overnight transition”, Mr Sohmen-Pao said. “But it’s an equally big mistake to think that it will never happen. “Because when you marry human ingenuity with financial capital – which is happening now – we’ll see big shifts happening.”

Indeed, the power inherent in the provision of finance is a major potential driver of change, Mr Sohmen-Pao said.

“My main hope is that this period of more discerning capital and bank financing continues… it’s right that banks support companies they feel are going to be good stewards of capital and differentiate as they are doing today.”

This is why Standard Chartered has become a signatory to the Poseidon Principles, a global framework that aims to align carbon emissions in the shipping industry with international targets set by the UN, including its ambition for greenhouse gas emissions to peak as soon as possible and to reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008.4 Signatories to the principles represent a bank loan portfolio to global shipping of approximately USD185 billion – nearly 50% of the global ship finance portfolio.

As Mr Pandey explained, “Cutting carbon emissions in the shipping sector is crucial in avoiding the worst effects of climate change. As a bank that specialises in financing world commerce and the enablers of global trade, signing up with the Principles is therefore an important addition to our existing efforts to reduce emissions. We look forward with partnering our peers and clients globally to achieve the goals we all share with the IMO.”

1 IMO, Fourth Greenhouse Gas Study, 2020: https://www.imo.org/en/OurWork/Environment/Pages/Fourth-IMO-Greenhouse-Gas-Study-2020.aspx

2 https://www.bw-group.com/about-us

3 Renewable Energy Magazine, “Corvus Energy to start development of hydrogen fuel-cell systems with technology supplied by Toyota”, February 2021: https://www.renewableenergymagazine.com/hydrogen/corvus-energy-to-start-development-of-maritime-20210201

4 https://www.poseidonprinciples.org

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