When banks come on board: the role of the finance industry in decarbonizing the shipping sector

When banks come on board: the role of the finance industry in decarbonizing the shipping sector

Launch event of the CPLC Executive Briefing on internal carbon pricing for ship-financing banks on November 7, 2017, at Citibank in London

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If the shipping industry was a country on its own, it would represent the 6th largest greenhouse gas emitter worldwide, ranging between Japan and Germany. Today, international maritime transport remains the only sector of the global economy without any greenhouse gas emissions reduction target. While the sector’s share in global emissions is currently at 2-3%, emissions are expected to increase by 50-250% under a business-as-usual scenario.

The International Maritime Organization (IMO) has committed to adopt an initial GHG emissions reduction strategy in 2018. This prompts all maritime stakeholders to start preparing for new regulatory challenges. Revising traditional risk management approaches is therefore becoming an imperative - especially for maritime stakeholders with long-term interests such as ship-financiers.

On November 7, 2017, the Carbon Pricing Leadership Coalition (CPLC) launched an Executive Briefing on internal carbon pricing for ship-financing banks at Citibank’s offices in London. This knowledge product was developed with kind support from Carbon War Room. It is meant to generate discussion at the highest levels of ship finance around how to start preparing for upcoming GHG emissions regulations. Hosted by Michael Parker, Head of Shipping at Citibank and Member of the Board of Directors of the Global Maritime Forum, the launch event gathered about 20-30 directors from leading ship-financing financial institutions.

In the beginning, James Close, the World Bank’s Director for Climate Change, introduced the participants to the CPLC. Afterwards, Nick Robins, UNEP’s Co-Director for Inquiry into the Design of a Sustainable Financial System, explained the broad transition that the financial sector is undergoing as it adapts to the new financial landscape of a decarbonizing world. This was followed by James Mitchell’s, Maritime Finance Lead at Carbon War Room, presentation of the Executive Briefing. Afterwards, Michael Parker engaged the audience in a discussion on the specific implications of this opportunity for ship finance.

The Executive Briefing Preparing shipping for climate change: How can internal carbon pricing help ship-financing banks in risk management?

·         gives a brief overview of the shipping sector and its environmental challenges,

·        outlines the implications of upcoming policy and non-policy GHG interventions,

·        discusses the materiality of climate risk, or financial impacts, of these policies for ship owners and ship financiers,

·         explains how internal carbon pricing and lending due diligence amendments can be used to identify and manage climate risk, and

·         presents key next steps around developing best practices and creating a possible industry standard.

This Executive Briefing is part of a broader collaboration between the Global Maritime Forum, Carbon War Room, the CPLC and the University College London to work directly with ship financiers to develop an industry-wide practice of accounting for climate risk.

Carbon War Room’s press release is available online.