Shipowners Face Financial Risks from Climate Change

Shipowners who ignore climate change face serious financial risks, reports the UK's Seatrade Maritime News.

A study by UCL Energy Institute and Strider Carbon highlights stranded asset risks from both supply and demand sides. Vessels could become uncompetitive due to regulatory costs or face declining employment opportunities as fossil fuel trades weaken.

The UCL Energy Institute is part of University College London. Strider Carbon is a consultancy based in Rotterdam focused on decarbonization strategies.

Carbon-intensive tankers and LNG carriers may suffer higher compliance costs while charter markets soften, accelerating asset value decline or leading to premature scrapping.

The report analyzed loan structures including bilateral, syndicated, and ECA-based facilities, noting that banks' senior positions often protect them from direct losses. Equity investors and secondary debt holders are more exposed.

An Export Credit Agency is a government-backed institution that provides financing, guarantees, or insurance to support domestic companies in exporting goods and services.

Banks may sidestep risk because shipping loans typically run five to seven years, which is shorter than vessel lifespans. However, refinancing stress could trigger fire sales if lenders restrict shipping exposure due to transition concerns.

The European Banking Authority recognizes ESG (Environmental, Social, and Governance) factors as amplifiers of existing risks. European banks are focusing on efficiency and compliance to mitigate supply-side risks, while demand-side risks loom larger for oil tankers and LNG carriers.

The study found that LNG carrier loans accounted for more than half of US$21 billion in deals, while oil tanker loans made up about 40 percent of $35 billion transactions. If banks tighten lending in the 2030s, recovery values could fall below loan balances, generating losses across the banking system.