Driving maritime decarbonisation with green financing

WHILE regulators have and continue to set binding climate targets for the maritime sector, some shipowners and operators are already going above and beyond, supported by financial institutions that are offering more green financing options, particularly green loans. Essentially, shipowners who meet certain specific criteria related to emissions, energy efficiency or other sustainability topics can access more favourable loan terms.

Currently, green financing makes up a very small portion of the maritime funding landscape. This is compounded by the fact that many shipowners are not aware of the potential green financing available to them. As awareness among shipowners increases, the importance of green financing for decarbonisation will only continue to grow.

Defining sustainability criteria

The main framework that financial institutions use for green financing is the EU taxonomy for sustainable activities. This is true even outside of the European Union, as the EU framework is the most developed when it comes to green financing criteria. The maritime part of the EU taxonomy is predominantly based on the Energy Efficiency Design Index for vessels under construction, a formula to calculate a ship’s energy efficiency.

Whether a ship is classified as “green” under this framework depends on different factors, including the fuel it uses, the industry it operates in and the kind of ship it is. Ammonia- and hydrogen-fuelled vessels are always considered green. Vessels that make use of wind power also have a good chance of being considered green. Finally, any vessel that works in a “green” industry — such as offshore wind — will also qualify for this funding, even if the vessel itself has a traditional profile.

In general, most green funding criteria are relatively easy for newbuild ships to meet. The situation is more complicated for retrofits, although financial institutions are starting to become more interested in offering funding for these projects.

Verifying trust

With the push to decarbonise the shipping industry, including through a slew of new technologies entering the market, financial institutions have needed to improve their technical knowledge of the maritime world. As a result, many institutions have partnered with technical experts — including classification societies — to inspect and validate a proposed vessel’s technical profile, including any sustainable aspects. This helps financial institutions ensure that their green loans are going to vessels that are quantifiably more sustainable.

To prove that a vessel meets a financial institution’s climate criteria, it generally needs a statement of compliance from the institution’s technical partner at the design stage. After the vessel is delivered, a final validation check is performed.

Supporting green financing

As a classification society, Bureau Veritas serves as a technical partner to financial institutions issuing green loans. In addition to technical due diligence checks on specific vessels and technologies, we provide technical expertise to help our clients define green criteria related to fuel consumption. We also help banks monitor their portfolios and report on alignment with the Poseidon Principles and other schemes. We do this by assessing ships’ environmental performance against banks’ internal criteria or fleet averages.

Bureau Veritas can also directly support shipowners navigating public funding schemes. For example, the EU Innovation Fund and the UK Maritime Transition Fund both offer shipowners private investment to build more sustainable fleets. Bureau Veritas can help shipowners validate their compliance with funding criteria to qualify for these government schemes.

Find out more about how Bureau Veritas helps shipowners and financiers with green funding here.