04-05-2022 12:02

Sustainable finance propels shipping’s green transition

Shipping accounts for between 2-3% of total global emissions, and the industry’s emissions have increased rather than subsided in recent years. With demand for global seaborn trade set to grow, pressure to tackle the decarbonisation challenge is mounting from multiple sources, including companies themselves, industry bodies such as the International Maritime Organization (IMO) and the financial industry.
Shipping boats at the harbor

The sustainable debt market has grown significantly in recent years. This growth reflects companies’ recognition of the need to invest in in decarbonisation, and the financial industry’s ambition to facilitate the development of more environmentally sustainable activities. Sustainability-linked debt, unlike green or social debt formats, makes it possible to use proceeds for general corporate purposes and is thus commonly being used to fund transitional activities. This is particularly relevant for the shipping industry, where low- and zero-emission infrastructure and technologies are not always at the stage of commercial viability.

Sustainability-linked financing ties a company’s financing solutions to one or more chosen KPIs. Such KPIs should be considered both material to the company’s transition strategy and sufficiently ambitious. As a well-understood and recognised material issue, decarbonisation has been the focal point for sustainable finance instruments in the sector. Although defining relevant carbon-related KPIs, such as carbon intensity or GHG emissions, can be a straightforward exercise, calibrating the ambitiousness of targets is not always so clear.

IMO decarbonisation targets: a unified starting point, but questions about ‘ambitiousness’

Being in the unique position of having a common UN-level regulator in the International Maritime Organization (IMO), much of the shipping industry’s sustainability efforts have been centrally coordinated. As shipping was not originally covered by the 2015 Paris Agreement, in 2018 the IMO published its own commitment to decarbonize global shipping, including both absolute and intensity-based emissions reductions targets.

The IMO’s Initial Strategy on the reduction of GHG emissions from ships outlines two emission reduction ambitions:

  • An intensity target to: Reduce CO2 emissions per transport work by at least 40% by 2030, pursuing efforts towards 70% by 2050 compared to 2008.
  • An absolute target to: Reduce shipping’s total annual GHG emissions by at least 50% by 2050 compared to 2008.

In addition to providing these common targets, the IMO has taken gradual steps to make decarbonisation efforts mandatory across the industry. Starting as early as 2011, the IMO required new ships to increase their emissions efficiency. Ten years later, in June 2021, the same requirement was extended to the existing fleet, facilitating the achievement of the initial strategy’s ambitions.

Although this centralised push for improvement is undoubtedly positive for the sustainability performance of the shipping industry, it can present a challenge when defining what is considered sufficiently ambitious in relation to sustainability-linked debt targets. While some may argue that the rising bar of the IMO’s targets is already ambitious, others may state that sustainability-linked targets must exceed industry regulation to be considered ambitious.

Despite guidance from sources such as ICMA’s Sustainability-Linked Bond principles (SLBPs)  and the LMA Sustainability-Linked Loan Principles (SLLPs), it is not yet clear how corporate ambition levels will be benchmarked as the use of sustainability-linked financing expands. Early issuers of sustainability-linked debt have used targets that exceed those set by the IMO. While this may appear to be an argument for setting the standard for what is considered ambitious beyond the IMO targets, leaning too heavily on the influence of a handful of first movers may risk denying access to sustainable debt financing to parts of the industry that are in most urgent need of transition.

Carbon intensity targets: Sustainability-linked bond targets currently exceed those set by the IMO

In January 2021, Norwegian tanker operator Oddfjell SE became the first shipping company to issue a Sustainability-Linked Bond (“SLB”) (which was also the first SLB issued in the Nordics across all industries). The company linked their NOK850m financing to a target of reducing the carbon intensity for their controlled fleet by a minimum of 50% by 2030 compared to 2008. Since then, the sector’s two other SLBs have targeted similar reductions (see table below) and also cited the material improvement their targets promote compared to the IMO’s 2030 target.

Table 1: Sustainability-linked bonds in the shipping sector have so far included carbon reduction targets that exceed the IMO target of 40% reduction by 2030.




January 2021

Oddfjell SE

50% reduction compared to 2008 levels

March 2021


60% reduction compared to 2008 levels

April 2022

Wallenius Wilhelmsen

52% reduction compared to 2008 levels

All three companies recognise that although efficiency-increasing measures such as hull and propulsion upgrades will promote reduced emissions intensity, sustained long-term reduction can only be achieved through diversification of fuels and continued efforts to optimize vessels and supporting systems. The companies also had already achieved impressive results with their decarbonisation efforts due to mature sustainability strategies and long-term efforts. This maturity and the willingness to commit to targets, which can only be achieved through improving multiple areas of operation simultaneously, set these companies apart from some of their peers who may not have the same proactive stance or resources available.

Acknowledging these differences within the sector is necessary when discussing the ambitiousness of targets, particularly when first-movers might set unattainable benchmarks for the laggards.  

Criteria for tomorrow: targeting net zero trajectories for shipping

While the IMO’s 50% absolute emissions reduction target already requires large – arguably ambitious – shifts in the global shipping industry, voices stressing the need for faster decarbonisation are mounting. A recent industry-led Call to Action for Shipping Decarbonization, coordinated by the Getting to Zero Coalition, amassed more than 200 signatories and outlined a range of current efforts that can support full decarbonisation of the shipping industry.

Similar considerations are taking place in the finance sector, with Norway’s municipal pensions company, KLP, teaming up with the Norwegian government and other Nordic financial institutions to publish a transition finance guideline. The guideline, published through the Green Shipping Programme, is aimed at creating transparency and comparability for shipping’s sustainable finance landscape and follows the same method as the Climate Bonds Initiative’s Shipping Criteria. Notably, the guideline pushes the envelope by setting a net-zero 2050 target, thus committing to a higher ambition level than that currently pursued by the IMO.

Sustainable finance targets for the shipping sector: Three main takeaways

Use of sustainable finance instruments has only recently picked up speed in the shipping industry, and the journey is far from over. Considering developing practices, evolving industry guidance and growing pressure from financial institutions and other stakeholders, the following are important points to keep in mind:

  • Firstly, for large parts of the shipping industry, the IMO targets already represent large and costly adjustments, often representing a daunting challenge for smaller actors, or companies with relatively new fleets, where optimization efforts can only contribute to limited improvement in efficiency.
  • Secondly, early adopters of sustainable finance instruments have set the bar high, with an increasing number of actors endorsing more ambitious sector-wide targets. Although the positive effects of net-zero targets are clear, the downside might be the closing off of sustainable finance options to the actors most in need of transition.
  • Finally, although having common benchmarks and market standards allows for comparison and transparency, sustainable finance benefits from flexibility and understanding of each actor’s individual journey. There simply is no “one size fits all” when it comes to transition.

Don't miss our interview with Andrew Stephens, Executive Director of the Sustainable Shipping Initiative, on the transitional impact of sustainable finance on the shipping industry.



Eivor Oellingrath
Nordea Sustainable Finance Advisory
David Ray
Nordea Sustainable Finance Advisory

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