Banks and the clean investment storm ahead of them

Do shipping banks need a decade of transition, and LNG as a transition fuel as a way forward?

There are now 30 banks that have signed the Poseidon Principles, up from the 11 original signatories in 2019.  Criticism has been mounting since the Principles’ launch that they are meaningless without action. There is nothing binding, no penalties attached to any of the range of Principles and declarations being written and signed, but expectations are high.

 

So how can banks demonstrate that they are making a difference?

 

According to Paul Taylor at Société Générale Investment Bank, one of the original signatories of the principles, the financial institutions that have now signed the Poseidon principles are going to have to proactively manage their portfolios, as well as have very stringent policies for new business going forward.

 

Talking during one of the frequent alternative fuel discussions these days, this one by DNV, Taylor, who is the bank’s head of maritime, also argued that for signatories to get in line with the trajectory of meeting net zero emissions by 2050, there needs to be a decade where carbon budgets are increased.

 

“We haven’t got that much time and the emphasis is certainly on bringing the new trajectory into play sooner rather than later,” he said. “For that to happen, what we really need is the academics, the IMO, and business to come forward, and to actually bring in a trajectory, whereby there’s an increased carbon budget for the next decade to give industry time to actually bring in the new investments to decarbonize through to 2050.”

 

Banks like Société Générale will have to walk away from some of the business deals they would have signed in previous years, he said, and take a more responsible approach whether on an asset basis or on a client basis, but they need time.

 

This indicated an approach to working with forward leaning shipowners, those with the ability or clout to be first movers, and therefore pose less risk for the banks. But within this transition he also pointed to the fuel options that are available, notably LNG, liquid natural gas, which whjle being a hydrocarbon is what he called a fuel in transition, rather than a bridging fuel.

LNG the transition fuel in transition

One of the contentious discussion in shipping is the role LNG plays in the transition, and banks increasingly see this as a safe bet, especially now the EU has labelled LNG fuel as a green under its taxonomy rating and there are hundreds of vessels in service or on order with dual fuelled engines and LNG fuel tanks.

 

“Let’s not underestimate the role of LNG can play in the transition. We have those that knock LNG, but this is a transitional fuel as well as maybe a fuel in transition” said Taylor, referencing the potential of creating synthetic LNG.

 

Synthetic LNG (e-methane, e-LNG) can be engineered from hydrogen and CO2, one of the fuels under the power-to-X label. The hydrogen can be made from electricity from renewable sources, and the CO2 from captured sources. However, neither is available in anything like the amounts needed.

 

The benefit for the banks is that a switch from LNG to e-LNG requires no additional infrastructure or vessel adjustments, helping ensure LNG-fuelled vessels do not become labelled stranded assets assuming the IMO’s fuel lice cycle analysis comes out in its favour and there’s the available green hydrogen to make it.

 

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