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Moving towards a global green ship finance market

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With sustainability demand growing maritime is moving towards a global green ship finance market with a major demand expected for retrofit funding, according to KfW IPEX Bank.

Speaking at a DNV green ship webinar on Wednesday Stephan Vetter, Vice President, KfW IPEX-Bank. explained that the green loan market was becoming global and that the same applied to shipping finance.

Commenting on the green finance trend in general he said: “The green loan market is becoming global. The first green loans were closed in Europe, now more and more green financings are visible in Asia, especially Singapore, and with election of Biden and the new environment strategy of the US the American green loan market is also gaining traction.”

This was creating a loop among stakeholders for green finance. “Institutional investors look for green investment opportunities and for companies investing in green projects, also driven by regulatory requirements. Corporates are aware new green projects are demanded from their investors so they are searching for green investments, which then banks are interested to finance, and their shareholders are then asking for it.”

As to whether the same trend was being seen in ship finance, Vetter said the answer was “yes”.

“We are getting more and more calls and requests for green financing from lines from all over the world, especially since autumn last year,” Vetter said. “We are moving to a global green ship finance market.”

He said that a recent analysis by law firm Stephenson Harwood that green and sustainable models were taking a 10% share of new ship financings seemed realistic when applied to the bank’s own recent transactions and pipeline.

The year saw KfW IPEX Bank involved in a $889m green financing deal with Hapag-Lloyd for six large containerships it has on order. “In our view this transaction outlines that if bankers, shipowners and advisors work together we can achieve a lot in green finance.”

While the most prominent product in the market today are green loans, as well as sustainability linked loans and corporate finance, for shipping a growing demand for retrofit financing is expected to be seen so that existing vessels can meet CO2 targets.

“Also, we at KFW believe that retrofit finance will be one of the most demanded products in the next few years as CO2 reduction targets cannot only be achieved with newbuildings. The existing fleet needs to contribute to overall reduced CO2 fleet emissions,” Vetter said.

Deals done for scrubber retrofit financing were seen as a potential model for green retrofit financing. “One can argue whether the installation of scrubbers is sustainable, however, the scrubber financing structures serve as a good example how the investment need for further retrofitting can be mastered,” he explained.

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