Will Asia's banks join the movement to decarbonise shipping?

Chinese, Japanese and Korean banks are among the shipping industry’s top lenders. A new framework to promote low-carbon shipping needs Asian players on board to have wider impact.

port shipping
Shipping accounts for about 2.5 per cent of global carbon emissions, about the equivalent of Germany. Image: Eco-Business

Shipping, which the world relies on to move cargo around, accounts for about 2.5 per cent of global carbon emissions.

Three months ago, 11 international banks including Citi, Société Générale and ING signed a framework to promote responsible ship finance called the Poseidon Principles. Named after the god of the sea in Greek mythology, the framework will tie shipping finance to climate targets that are in line with the International Maritime Organisation’s (IMO) goal to halve shipping’s greenhouse gas emissions by 2050.

The 11 banks together represent a loan portfolio of about US$100 billion to shipping, or about 20 per cent of the total.

With ship financing pivoting east in recent years, however, the community knows it is vital to get Asian banks and financiers on board for the Poseidon Principles to have wider impact.

“We need and expect the Chinese, Japanese and Korean financiers, plus others in Asia, to sign up,” said Paul Taylor, Société Générale’s London-based global head of shipping and offshore.

“Asia is at the heart of the shipping industry and banks, lessors and export credit agencies have the opportunity to demonstrate their leadership in sustainable shipping finance by signing the Poseidon Principles,” said Taylor, who spoke to journalists on a recent trip to Singapore.

Two state-owned Chinese banks, the Bank of China and Export-Import Bank of China (China Exim), are the biggest lenders to shipping, according to Petrofin Research, which monitors the industry. Other major Asian players include the Export-Import Bank of Korea, China Development Bank and even Singapore’s DBS Bank.

Efforts to lobby Asian banks and governments have begun, and Taylor said Citi, Société Générale and several other industry players, such as the Global Maritime Forum, made a trip in June to Beijing and presented the framework to China Exim and large Chinese leasing companies.

The response was positive, he said. “We expect them to take their time but to study the Poseidon Principles seriously and become signatories in the coming months.”

Asia is at the heart of the shipping industry and banks, lessors and export credit agencies have the opportunity to demonstrate their leadership in sustainable shipping finance by signing the Poseidon Principles.

Paul Taylor, global head of shipping and offshore, Société Générale

What are the Poseidon Principles?

Under the framework, banks will assess and disclose the climate alignment of their ship finance portfolios to ensure they are in line with the IMO’s emissions trajectory. Each signatory will collect carbon intensity data of the vessels in its portfolio and report its climate alignment score from the end of next year.

Banks should know the environmental impact of assets they finance, said Taylor.

While shipping is unusual in that IMO, as regulator, has set emissions targets, the same principle can apply elsewhere, such as to aviation and power plants, he said.

There is also scope to expand the Poseidon Principles in future to cover other social impacts such as ship recycling.

For now, the Poseidon Principles will limit lending to shipping companies that do not meet standards to curb emissions, and will help banks to work with their clients on cleaner fuels and technologies.

Today, the most viable fuel for reducing emissions is liquified natural gas (LNG) as it is in plentiful supply, said Taylor. LNG-fuelled vessels account for 11 to 12 per cent of global orders and just over 2 per cent of vessels on water, he said. The remainder run on more polluting fossil fuels such as heavy fuel oil. 

Natural gas has the potential to cut greenhouse gas emissions from shipping by 10 per cent compared to heavy fuel oil, according to a study published this year by the Sustainable Gas Institute at Imperial College London.

However, LNG will not be sufficient to reach the industry’s 2050 emissions targets. Future solutions could include bio or synthetic LNG, ammonia, hydrogen and methanol, but heavy investment in research is needed to make them viable by 2030.

The world is looking at a 30-year transition period involving multiple alternative fuels and pilot projects, said Mohd Shahrin Osman, regional manager of maritime advisory at DNV GL.

Even hybrid ships running partially on battery power are in their early stages as few ports offer charging stations. 

“Like LNG, we will have to start with short sea voyages, pilot it, then see which parts of the world you can deploy it in,” said Shahrin, adding that supply infrastructure must be built in tandem with the ships.

“Tomorrow’s solution does not exist today but the industry is working on it,” said Taylor.

Will banks that have divested from coal heed this call?

On whether Asian banks will adopt the Poseidon Principles, Shahrin said it will also depend on other parts of the value chain—if cargo owners want their goods to be transported in more sustainable ways, for instance. Mining company BHP called a tender in July for the world’s first LNG-powered bulk carrier to transport up to 27 million tonnes of Australian iron ore to China, he noted. BHP said this will eliminate nitrogen oxide and sulphur oxide emissions, and reduce carbon emissions along the world’s busiest bulk transport route.

If (responsible ship finance) is something that other parts of the value chain promote, I think then there’d be more reason for Asian banks to get on board.

Mohd Shahrin Osman, regional manager of maritime advisory, DNV GL

Some of the Asian banks that have divested from coal could also decarbonise their shipping portfolio, said Shahrin. Among those that have pledged to exit from coal power investments are China’s State Development & Investment Corporation and Japan’s Mitsubishi UFJ Financial Group.

Asked if it will sign the Poseidon Principles, Singapore’s DBS—which recently decided to cease financing new coal-fired power plants—said it is monitoring the development of the framework and evaluating whether to participate. “We will consider the materiality of our shipping portfolio against our overall business, and the readiness of clients to disclose their climate profiles,” said a bank spokesperson.

Singapore will host the Global Maritime Forum’s Annual Summit next month.

“If (responsible ship finance) is something that other parts of the value chain promote, I think then there’d be more reason for Asian banks to get on board,” said Shahrin. “Because once you sign up for it, you’ve got to declare your portfolio and abide by it. There must be motivation for them to do so.”

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