This Client Alert summarises recent developments in green finance in support of the international shipping industry.
A new global framework
The shipping industry has been given new stimulus by a global framework for responsible ship finance, known as the Poseidon Principles, which were signed in New York by a number of banks in June 2019.
The Poseidon Principles aim to promote the reduction in greenhouse gas (GHG) emissions across the international shipping industry by including climate considerations into banks’ loan portfolios and lending decisions.
The Poseidon Principles are consistent with the International Maritime Organisation’s (IMO) strategy set in April 2018 to reduce by 2050 annual GHG emissions from shipping by at least 50% of 2008 levels.
The Poseidon Principles were developed by leading shipping and other global banks in collaboration with the Global Maritime Forum and other industry players and experts.
The founding signatories
The founding signatories to the Poseidon Principles are Amsterdam Trade Bank, ABN AMRO, Citi, Crédit Agricole, Danish Ship Finance; Danske Bank, DNB, DVB Bank, ING, Nordea, and Société Générale. These banks together hold a global shipping loan portfolio of about $100 billion. Other banks (including those in the Asia Pacific) are expected to become signatories in the future.
Recent Green Financing Transactions
There have been a number of green ship finance transactions over the last six or so months.
In December 2018, BNP Paribas signed a USD 40m loan agreement with Singapore-based Quantum Pacific Shipping to finance the purchase and installation of exhaust gas cleaning systems on its vessels. It was the first green loan to be sourced out of Asia and is evidence of the availability in the market in Singapore of green finance for shipowners to help meet IMO’s emissions regulations by 2020. The loan was entered into in conformity with the LMA’s Green Loan Principles (see below).
In February 2019, ING and the European Investment Bank (EIB) signed a EUR 110m loan agreement with Dutch ship management company Spliethoff to finance the retro-fitting of its vessels with exhaust gas cleaning systems and ballast water management systems. The element of finance provided by the EIB was made under the EUR 300m Green Shipping partnership with ING that was signed in 2018 to support sponsors of green and sustainable projects in the maritime transport sector.
Increasing Role of Multilateral Development Banks, Regulators & Other Industry Groups
Over the last two years, Multilateral Development Banks (MDBs), regulators and loan industry associations have played an increasingly active role in promoting the financing of green and sustainable projects in the maritime transport sector.
The EIB is one of a number of MDBs that have programmes in place. In 2016, the EIB established the European Fund for Strategic Investments (EFSI) EUR 750m Green Shipping Guarantee Programme. This Programme focuses on sustainable shipping projects and the promotion of alternative fuels such as LNG. The EIB has, pursuant to this Programme, signed partnerships with each of ING, ABN AMRO and Société Générale.
In 2018, the European Bank for Reconstruction and Development (EBRD) and the IMO signed a new partnership to support and promote sustainable shipping. Under this partnership, the EBRD and the IMI will collaborate and implement frameworks to achieve a fair, effective and sustainable maritime industry.
Turning to the market itself, the Loan Market Association (LMA) issued Green Loan Principles in 2018. These Principles have been developed in order to promote the development and integrity of the green loan as a product. The Principles are voluntary guidelines to allow lenders and borrowers to determine the circumstances where a particular loan transaction may be categorised as “green”.
On the regulatory front in Asia, the Monetary Authority of Singapore (MAS) is taking active steps to promote sustainable financing. These include engaging financial institutions to consider environmental, social and governance criteria in their decision-making processes, supporting the adoption of industry standards, encouraging the local green bond market, and providing sustainable bond grants. In June 2018, the MAS signed a partnership agreement with the International Financial Corporation, a member of the World Bank Group, to promote the growth of green bond markets in Asia.
About the Author
Justin Boyd has over 28 years’ legal and regulatory experience in commodities trading, origination and financing, wholesale banking, bank regulation, energy project development, financial derivatives and corporate transactions.
He has held senior in-house legal and regulatory risk positions, and has been a partner of an international law firm. Most recently, he was the Global Co-Head (Legal) of Financial Markets, and the Head of Global Regulatory Reform, both at Standard Chartered Bank.
The information contained in this Client Alert is intended to be a general guide only and not to be comprehensive, nor to provide legal advice. You should not rely on the information contained in this Client Alert as if it were legal or other professional advice.
© Mercatis Law Asia LLP 2019. All rights reserved