Sailing towards a sustainable future – the Shipping sector

Ships are going green. The EU Commission recently approved a new set of EU Taxonomy (“EUT”) rules to expand the eligibility of the ships in scope. Previously, only vessels which have zero direct (tailpipe) CO2 emissions qualified for the so-called “Green Financing” whereas under the new rules the criteria have been relaxed slightly so as to include vessels which, comply with certain greenhouse gas intensity thresholds. The background to this change is that the shipping industry is believed to have high potential to reduce their greenhouse gas emissions and these new rules should encourage and accelerate investments in green technology.

Without maritime trade, the world economy would come to a standstill - around 80% of global trade is conducted by sea. More than 30,000 ships pass through the Kiel Canal alone each year, and about 2,000 ships are on the Baltic Sea at any given time. Maritime trade is considered the most carbon-efficient way to transport goods and despite its significant contribution to global trade, it is responsible for only 3% of the global greenhouse gas emissions. However, there is no room for complacency since,  if the shipping industry were a  country, it would rank 6th between Japan and Germany.

In addition, the industry is connected to other environmental impacts: polluting chemicals in the paint of ships, sewage and waste discharged into the sea, oil spills, and environmental risks from irresponsible dismantling of old ships. Accordingly, the shipping industry is under significant pressure to improve its environmental footprint, reduce fuel consumption and CO2 emissions. The sector is primarily regulated by the International Maritime Organization (IMO), a specialized agency of the United Nations which is responsible for measures to improve the safety and security of international shipping and to prevent pollution from ships. Despite this however, implementing new legislation can take many years and national structures can be difficult to enforce in the maritime sector, as shipping companies and ship owners are free to choose under which flag and, accordingly, under which legal framework they sail.

These challenges also bring opportunities with them. Next to the regulatory authorities, banks play an important role in driving forward the decarbonization of the sector. As providers and managers of capital, they can exert a significant influence.

ING is actively involved in this transformation and is taking various steps to drive the sustainable development of the industry. For example, the bank is one of the founding members of the Poseidon Principles, a framework for responsible ship finance created in 2019 which today consists of 30 signatories accounting for over two-thirds of the global shipping market or USD 200 billion. The initiative provides an industry standard for assessing and disclosing the climate credentials of ship finance portfolios. Thanks to the yearly emissions data provided by shipowners on the ships it finances, ING measures its ship finance portfolio against the Poseidon Principles trajectory, to determine its shipping climate score. For three consecutive years after the implementation of the Poseidon Principles, ING has outperformed the trajectory with the latest score being -2.8% below the pathway for the year 2021. The score will be published in ING’s next climate report, the Terra report.

Another instrument widely used by banks nowadays are loans enhanced with a Sustainability Linked feature. These are regular loans but with a margin differential (+/-) depending on the borrower’s performance on tailored Environmental, Social & Governance (ESG) key performance indicators (KPIs). The aim is to exert a positive influence on the shipping market towards a more sustainable future.

Initial results can already be seen. While the focus remains on engine and new ship designs, the industry is increasingly looking at alternative fuels such as hydrogen, ammonia or methanol, and on their supply availability. The development of cleaner fuels is essential to make shipping more sustainable. Currently, there is no market-ready technology that can be implemented at a large scale to provide continuous supply of green fuels for all ships on water. But the push for sustainability by banks and regulators has set something in motion: more and more shipping companies are launching pilot projects for new fuels or using electricity-powered barges on shorter routes. In many cases, they are also experimenting with liquefied natural gas (LNG) with the expectation to transition to Bio LNG and/or eLNG. In the meantime, there is an interim solution. By simply reducing speed, known as slow steaming, ships can reduce their fuel consumption and CO2 emissions.

The shipping industry has considerable potential and can play a vital role in the sustainable transformation of the global economy. It is on all parties involved in this industry, be it shipping companies, regulators, politicians or financial institutions to ensure this potential is realized.

Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate.