A recent study by the London-based UCL Energy Institute has uncovered a critical issue in green financing for the shipping industry.

While banks offer cheaper loans to shipping companies with strong climate records, they do not extend these benefits to individual low-carbon ships. This inconsistency means that even ships with lower emissions do not receive the financial incentives they deserve, the study finds.

According to the study, the gap suggests that current financing practices may not effectively promote the adoption of greener technologies in shipping.

The study emphasises the need for stronger regulations that link loan terms directly to the carbon performance of both companies and individual ships. Voluntary initiatives alone are insufficient to drive the necessary change in the industry.

Furthermore, the Poseidon Principles, introduced to increase transparency and accountability in the shipping finance sector, have so far not resulted in lower financing costs for more environmentally friendly ships. These principles aim to align lending decisions with climate goals, but their impact has been limited, according to the study.

The study also finds that shipowners who invest in greener vessels are not seeing reduced financing costs, which may slow the industry’s transition to sustainable practices.

Another concern is the risk of stranded assets. A large portion of the current global fleet still runs on fossil fuels, and as climate regulations become stricter, these vessels may face early retirement or become economically unviable. This could result in significant financial losses for shipping companies and their lenders, as they are left with assets that no longer meet regulatory standards or market demand.

Marie Fricaudet, lead author of the study commented: “While lenders recognise the need for decarbonisation, they aren’t yet incentivising more carbon-efficient ships through better loan terms.”

“The data shows that banks are making decisions on a corporate basis rather than evaluating individual ships’ carbon performance. This needs to change,” Sophia Parker, co-author, added.

Read the study HERE.

A recent study by the London-based UCL Energy Institute has uncovered a critical issue in green financing for the shipping industry.

While banks offer cheaper loans to shipping companies with strong climate records, they do not extend these benefits to individual low-carbon ships. This inconsistency means that even ships with lower emissions do not receive the financial incentives they deserve, the study finds.

According to the study, the gap suggests that current financing practices may not effectively promote the adoption of greener technologies in shipping.

The study emphasises the need for stronger regulations that link loan terms directly to the carbon performance of both companies and individual ships. Voluntary initiatives alone are insufficient to drive the necessary change in the industry.

Furthermore, the Poseidon Principles, introduced to increase transparency and accountability in the shipping finance sector, have so far not resulted in lower financing costs for more environmentally friendly ships. These principles aim to align lending decisions with climate goals, but their impact has been limited, according to the study.

The study also finds that shipowners who invest in greener vessels are not seeing reduced financing costs, which may slow the industry’s transition to sustainable practices.

Another concern is the risk of stranded assets. A large portion of the current global fleet still runs on fossil fuels, and as climate regulations become stricter, these vessels may face early retirement or become economically unviable. This could result in significant financial losses for shipping companies and their lenders, as they are left with assets that no longer meet regulatory standards or market demand.

Marie Fricaudet, lead author of the study commented: “While lenders recognise the need for decarbonisation, they aren’t yet incentivising more carbon-efficient ships through better loan terms.”

“The data shows that banks are making decisions on a corporate basis rather than evaluating individual ships’ carbon performance. This needs to change,” Sophia Parker, co-author, added.

Read the study HERE.