The growing primacy of ESG dominated much of discussion at last week’s ship finance panel during the Maritime CEO Forum held at the Monaco Yacht Club. While panellists conceded the outlook for the markets remained “fantastic”, delegates were warned that financing options could become thinner for those in shipping who have not fully taken onboard ESG into the day-to-day operations of their companies.
“ESG is the only angle that can drive investment going forward,” argued Danilo Fumarola, CEO and chairman of Monaco-based owner Gestion Maritime, pointing towards the growing power of the backers of the green banking Poseidon Principles, a group now with 31 signatories representing more than $200bn in ship finance, but whose benchmark to measure customers are meeting their targets – the AER – was, like the upcoming CII, branded as problematic by the shipowner.
ESG is the only angle that can drive investment going forward
Sitting on the same panel was Michael Parker, Citi’s shipping chairman and architect of the principles, who admitted that while CII, EEXI and AER are not perfect, they will likely be tinkered with and improved. The goal will be for the IMO to merge CII and AER, something Parker is confident will happen in the coming few years. Parker also updated delegates on the new trajectories banks and insurers signed up to the principles agreed to last month, whereby signatories will now report climate alignment with the aim of the UN and the latest available climate science to limit global warming at 1.5C.
“The IMO is being too slow,” Parker said, explaining the need to move quicker than the UN body’s current 50% cut in emissions from 2008 levels.
Parker said signatories to the Sea Cargo Charter, a de facto sister chartering body to the principles, would likely follow the Poseidon Principles in upping their green targets too.
“Watch this space many more insurers and charterers will sign up,” Parker said, stressing that once auditing of Scope 3 emissions comes in the shipping industry will have to transform rapidly.
Parker also had a warning for those contemplating investing in tonnage with LNG as a fuel, telling delegates the IMO will soon regulate for all greenhouse gas emissions, not just carbon dioxide.
“On a well to wake basis, LNG will lose its advantages,” Parker said.
On the overall markets, Dagfinn Lunde, chairman of eShipfinance.com, described them as “fantastic” with very low supply, few newbuildings and little chance of demand disappearing.
Quite so, concurred Parker, saying it was the first time he could recall in his 36 years of being in shipping that the industry was facing a global recession with a “lowish” orderbook.
Discussion then turned to Chinese leasing, something the panel agreed had peaked for the time being,
“Chinese leasing has plateaued,” said Gestion’s Fumarola, observing Chinese companies today made up 40% or $70bn of the $160bn ship leasing market. When markets are good, there is less need for leasing as more traditional forms of lending are readily available, Fumarola pointed out, going on to discuss the recent sizeable clampdown in corruption at Chinese leasing houses.
“On the coalface in Asia, there has been retraction from Chinese leasing, partially as banks come back, and there has been a lot of leasing houses who have had issues,” said Alan Hatton, CEO of Singapore shipowner Foreguard Shipping.
The final part of the session focused on coming up with ways to finance retrofitting, something panellists felt will be a growing business in the coming years.
Scrubbers were easy to finance, pointed out eShipFinance.com‘s Lunde, with owners either increasing their first mortgage or fixing a leasing structure for the scrubber itself. Similar financial arrangements will be made for a variety of new kit onboard, including carbon capture technology, Lunde predicted.
Maritime CEO Forum Monaco 2022 was sponsored by Arrow Shipbroking, Cambiaso Risso Group, CTM, Danica, Dualog, eShipfinance.com, Liberian Registry and Ocean Technologies Group.
The next Maritime CEO Forum takes place Singapore on April 24 next year with a return to the Monaco Yacht Club confirmed for October 12.