A greater share of green finance must be directed to creating more sustainable oceans
The ocean absorbs 25% of all CO2 emissions and generates 50% of the world’s oxygen1.
Yet seas and coastal areas also face a worrying set of environmental threats, whether from climate change, rising sea levels, or overexploitation and pollution. However, they are getting a tiny fraction of the capital going into green finance.
If the ocean was an economy of its own, it would be among the largest by GDP globally. Its contribution to world economic output is expected to double from current levels to over USD3 trillion by 2030, supporting more than 40 million full-time equivalent jobs2. This is the OECD’s forecast for a “business as usual” scenario; but business as usual looks increasingly unsustainable.
One solution is to move from an ocean economy centred on growth to a blue economy that prioritises livelihoods and ecosystems through more sustainable use of resources5. From renewable energy to tourism, waste management and fisheries, well-managed marine ecosystems could unlock a much larger contribution to reducing poverty, according to the World Bank. This could include feeding more than 9 billion people by 2050 and unleashing additional economic benefits in excess of USD80 billion annually6.
“This is a huge risk but also a huge opportunity for us,” says Alex. “We can learn from the success of green finance to create a new generation of blue economy solutions. For example, in 2018 we launched the world’s first blue bond7 with the Republic of Seychelles and the proceeds help expand and protect marine areas, improve governance of priority fisheries and develop the Seychelles’ blue economy.”
With an estimated 80% of world trade by volume moved by sea8, the rising importance of shipping is stimulating port projects in markets including Singapore, Bangladesh, Nigeria and Kenya. However, in order to make the transition to a greener maritime industry, the sector faces a number of challenges, with finance at their core.
The International Maritime Organization (IMO) has called on the sector to address its environmental impact, including by limiting the amount of damaging sulphur in its fuel9 and reducing CO2 emissions by at least 40% by 203010. Yet just when investment is badly needed, some sustainable investment guidelines for the transport sector exclude activities that are dedicated to fossil fuels, potentially denying operators of ships like tankers new flows of green funding11.
At the same time, first movers face higher investment and operational costs: a nexus of pressures that have caused the Energy Transitions Commission to observe that “a new green shipping value chain” is needed12.
In line with Standard Chartered’s aim to finance the sustainable transition in emerging markets, it is backing new blue solutions across the value chain. One approach is to link loan agreements with shipowners directly to progress on sustainability goals.
A recent sustainable loan arranged by Standard Chartered for Odfjell SE did exactly that and linked the credit margin to progress achieved against the client’s sustainability targets.
This transaction was the first loan facility that was aligned with Odfjell’s wider Sustainability Linked Finance Framework and the firm’s most recent public bond instruments. Odfjell uses a metric for carbon intensity – the Annual Efficiency Ratio (AER) – as a sustainability KPI, rather than an absolute emission measure.
Standard Chartered also arranged something similar for ASYAD Group’s shipping arm “Oman Shipping Company” – the first of its kind in the country13. The ships produced will have ECO notations – a key standard for environmental ship design, construction and operation that goes beyond statutory requirements14. The deal also sets a target for an eight per cent year-on-year improvement in ASYAD Group’s Energy Efficiency Operational Indicator, a tool for assessing efficiency and CO2 emissions.
As well as fostering sustainable growth, the blue economy is also about supporting seafarers’ rights and the wider human rights agenda. At Standard Chartered, personal connections are helping to inform this change.
Standard Chartered has joined a growing group of Sustainable Shipping Initiative (SSI) members that recognise the need to focus on the human side of shipping15.
“We, among others, saw a need to raise the profile of this issue among charterers – those who hire out vessels – and to use our leverage to drive positive change,” explains Abhishek.
These measures include establishing an industry code of conduct for charterers based on international labour and human rights standards; and identifying and establishing a roadmap for tackling systemic human rights risks for seafarers – a widely-recognised gap in catalysing industry-wide policy and practice.
“Shipping requires a large amount of manpower and can significantly lower unemployment, especially in emerging economies,” says Abhishek. “However, it also needs to be the right kind of development.”
The transition to a blue economy will be expensive, but a route is emerging.
Initiatives including the Initial IMO GHG reduction strategy, the Poseidon Principles framework for responsible shipping finance, Sea Cargo Charter, and the Neptune Declaration on Seafarer Wellbeing and Crew Change are defining both how shipping will recalibrate itself and how the financing landscape will evolve around it. But these changes will require determination and fresh thinking.
“We need to move capital to where it matters the most, to areas where it isn’t currently flowing – like to the emerging markets, and also to the oceans” says Alex. “We are present in markets, such as Europe and the Americas, where people want to invest in the priorities identified by the UN’s SDGs. But we also operate in markets across Africa and Asia which really need SDG finance, and where it’s not currently flowing fast enough.”
Abhishek noted that another challenge will be navigating the options ahead. “There are lots of ESG parameters in shipping, which can be confusing - but we know them. We also know our clients, and the markets they operate in.
This is how Standard Chartered can lead the way, especially in emerging economies where the bank has a leading international shipping finance position.
“We can guide our clients to a global platinum standard that will soon be set in green shipping.”
