Societe Generale global head of maritime industries Paul Taylor highlighted at Riviera’s CO2 Shipping & Terminals Conference (26-27 JUNE 2024 - HOUSTON TX USA) the importance of transparency, accountability and consistency in carbon shipping financing decisions Mr Taylor stressed the role of long-term contracts and strong corporate covenants, which are crucial for securing loans and mitigating risks, "When we act as bankers, we like to take mortgages over the vessels. We can then enforce on the vessel and sell the ship in the event that we do not get paid our money back," Mr Taylor explained, underscoring the importance of solid financial structures.
The discussion then turned to the risks and mitigants around vessel deployment and offtake. Technical, financial and commercial risks are inherent in CO2 shipping projects and export credit agencies (ECAs) and leasing structures were identified as key tools in mitigating these risks.
Mr Taylor elaborated on the role of ECAs, noting, "We work a lot with export credit agencies. As a bank, it has been a pillar of our shipping finance over many years and has supported us not only in financing conventional assets but also atypical assets such as CO2 shipping."
Taxonomy eligibility and reporting were also significant topics, and the Poseidon Principles, a voluntary framework for ensuring ship financing aligns with climate goals, were discussed extensively.
Mr Taylor, who is also the vice chair of the Poseidon Principles, acknowledged their voluntary nature but stressed their power.
"The purpose of the Poseidon Principles is about transparency, consistency and accountability in our reporting of our carbon intensity on our portfolios. While it may not be enforceable, it is incredibly powerful because it drives our lending behaviour to support shipowners with similar commitments and standards," he said.
Emerging financing mechanisms and partnerships are pivotal in the evolving landscape of CO2 shipping and innovative tools like carbon-linked notes and sustainability-linked loans are gaining traction.
Societe Generale director of advisory (maritime industries) Chris Wright added to the role of structured financial products and long-term contracts, "Structured financial products have a huge role to play. They generally provide significant economic advantages, driving down the unit cost of CO2," Mr Wright stated.
He further highlighted the necessity of government support, noting, "CO2 is sub-economic without government support," underlining the critical role of public policies and subsidies.
Capital allowance within banks is increasingly influenced by environmental, social and governance (ESG) ratings and decarbonisation goals.
Mr Wright explained, "Banks will allocate more capital to projects that have an ESG profile in the long run, helping the credit story because the company is then paying less tax or meeting other climate goals."
A crucial concept discussed was appurtenance, the idea that onboard carbon capture equipment should be considered an integral part of the vessel. This designation allows for better security in financing, as banks could take mortgages over the entire vessel, including the retrofitted equipment.
Mr Taylor explained, "It comes down to either bringing in ECA credits or leasing structures where people take cash flow risk on the benefit from carbon capture."
Audience interaction provided additional insights, with key poll questions revealing preferences for financing options and identifying barriers to investment. The audience identified high upfront capital costs and concerns about commercial viability as significant hurdles.
The Societe Generale session underscored the collaborative effort required from all stakeholders to achieve scalability in CO2 shipping.
The future outlook for the industry was encapsulated in three words by the experts, Exciting, Complex and Challenging.
As Mr Taylor summarised, "We need to support the existing fleet’s decarbonisation while enabling new projects. It is a complex but exciting challenge that requires alignment and collaboration among all stakeholders."
source: Riviera News