Banks to adapt to new funding framework as carbon rules bite

This was one of the key points arising yesterday from the Green Finance session of a DNV Alternative Fuels Online Conference. The 30 bank signatories to the Poseidon Principles have made a commitment to decarbonise their portfolios.

A consequence of this is that they will have to manage both existing portfolios and new business differently, said Paul Taylor, Global Head of Maritime Industries at Société Générale. This might have to involve “walking away” from business that the bank might have taken on its books in earlier times.

Poseidon Principles signatories have committed to net-zero by 2050 compared with the IMO’s 50% reduction by that time. A review of the IMO target is up for discussion at upcoming MEPC meetings. Taylor conceded that net-zero is a very ambitious target. But it is, nevertheless, in his view, achievable.

Perhaps the most challenging period will be the next decade when new fuels are not available at scale, Taylor said. Over this time, financiers are likely to take a closer look at client portfolios and, in a new business context, the combination of client and asset. Review of a transaction will continue to appraise forward cover and commitments from charterers, which will be essential for some transactions and ship types.

Meanwhile, banks agreeing to a balloon at the end of a transaction based on a possible residual risk is likely to become a distant memory.

Taylor’s colleague, Chris Wright, the bank’s Strategic and Capital Advisory, Maritime Industries, noted that new fuels are likely to cost five or six times more than conventional ones, although prices will come down time. He said that the bank would be keen on supporting ‘first movers’ and structures for some of those transactions could mean that a degree of residual risk could become possible.

Both agreed that the financial challenge will require new ways of operating for shipping’s banks. Advisory business will become more important, Wright said, as banks encourage owners and charterers to consider upgrades to existing ships, including on-board carbon capture, for example, and other carbon-cutting technologies.

But ship lending will have new constraints, he declared, and banks will need to have more strings to their bows. Different sources of capital may be required where traditional ship finance is no longer suitable.

The SocGen executives were taking part in a discussion group in which DNV’s Jan-Henrik Hübner, Global Head of Shipping Advisory, was interviewing them.

You can hear more DNV’s Jan-Henrik Hübner in a live Seatrade Maritime News webinar on 24 November as part of Hong Kong Maritime Week

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