Green financing is a new way of financing that connects the terms of loans with certain sustainability metrics. This type of financing has been widely used in other industries but is just beginning to set sail in the shipping industry.
With regulatory changes coming to the industry and with increased attention on sustainability, container vessel companies are being required to make changes to reduce their emissions and carbon footprint. Green Financing is one tool that helps hold shipping carriers accountable for these shifts.
Understanding Green Financing
Green financing means that a company’s loan is linked to sustainability. Rather than simply offering loans for the purpose of sustainable projects, financing companies have started using this type of loan to connect the terms of a loan to measurable sustainability targets. For example, the interest rate, margin, coupon amount, or repayment amount can all be adjusted based on whether or not the borrower hits certain sustainability targets.
With financial institutions increasingly under pressure to justify investments based on sustainability and environmental risks, this type of financing has become increasingly popular across industries. It enables financial institutions to justify their investments while responding to the public demand for urgent action addressing environmental issues.
Green financing is now starting to pick up steam within the shipping industry, led by Asian and European markets. Hapag-Lloyd is the latest company to take part in this type of financing, with CFO Mark Frese recognizing that this shift will enable the company “to modernize its fleet while further reducing its CO2 footprint at the same time.”
Impacts on the Shipping Industry
For the most part, the shipping industry has fallen behind others in working to reduce its environmental impact. As a result, shipping carriers are now under increasing pressure to reduce emissions and their carbon footprint. The increased demand for sustainability signals a major change in the industry that has long been singularly focused on operational efficiency.
Bjorn Berger of DNL GL believes that this change “represents a whole new ball game for the industry” which has previously been driven “by the efficiency of delivery around the globe that has typically meant being able to sail at full speed, thereby burning more fuel, to minimize costs for the charter.” Now, however, that efficiency must be balanced with sustainability and emission reduction.
To meet these new goals, companies will greatly rely on digitalization, which allows for increased automation, improved data, and real-time data-driven decisions. These advances will lead to improved efficiency and, thus, reduced emissions.
Going forward, to meet these new demands for sustainability, there will be pressure on shipping carriers to build vessels that implement all available technology, including voyage and planning execution, improved fleet performance and management, speed management, hull and propeller maintenance, and increased reliance on remote functions.
ClearFreight works to anticipate changes coming to global logistics so we can help our customers lead their industries. To learn more about how our forward thinking and logistics solutions can help support your supply chain, contact one of our team members today.