Shipping companies that transport the world’s coal are in the crosshairs of some financial backers who are cleaning up their businesses in the absence of a truly global drive by nations to renounce the dirtiest fossil fuel.
In a sign of investors taking the initiative, six European firms collectively representing over 5% of the estimated annual $16 billion capital financing requirements of the dry bulk industry told Reuters they were either reducing their exposure to vessels that transport coal or were considering doing so.
Such carriers - titanic vessels stretching up to 270 metres (885 ft) long and able to carry hundreds of thousands of tonnes of cargo - are the cheapest way to transport coal and other commodities like iron ore and grain in large quantities.
Swiss Re told Reuters that from 2023 it would no longer cover the transport of thermal coal via reinsurance treaties, where it covers a portfolio of insurers’ policies. It exited the direct insurance of coal cargoes in 2018.
“There is much more pressure on the insurance companies in terms of ESG,” said Patrizia Kern-Ferretti, head of marine at Swiss Re Corporate Solutions, referring to the sustainable investment sphere. “I hear from brokers they are having difficulty placing coal policies in the insurance market,” she added. “More and more companies are applying direct guidelines.”
Esben Saxbeck Larsen, senior portfolio manager at Denmark’s Danica Pension, said it favoured greener shipping firms as they provided the best risk/return characteristics. The fund has “close dialogue” with firms about their ESG strategies.
“If we are uncomfortable with such answers, we will not invest in the company,” he added, without elaborating on the specifics of the methodology.
Such pressures pose new challenges for the shipping industry, which hitherto largely hasn’t been drawn into the centre of the coal debate by policymakers and investors focused on production and consumption rather than transport of the fuel.
Andreas Sohmen-Pao, chairman of BW Group, which operates a diverse fleet including oil and gas tankers, offshore vessels and dry bulk carriers, said ESG pressures on investors and banks - capital providers to the industry - were growing.
“How that plays out in terms of outcome is a different question. Sometimes, people shun a sector and the returns only get better as supply moderates,” he added.
“Everyone has to do what they think is right. Sometimes, you can have counter-intuitive effects.”
There’s good money be made from delivering coal, which broadly accounts for about 30% of cargo volumes and has hit record prices amid a shortage of fuel including natural gas to provide the power needed by a global economy recovering from a pandemic.
And demand beckons for decades to come after major consumers including China and India failed to join a pact to phase out coal power at U.N. climate talks being held in Glasgow this week; while Europe and the United States are retiring coal-fired plants, Asian nations are building almost 200 more.
Khalid Hashim, managing director of Precious Shipping, one of Thailand’s largest dry cargo ship owners, said investors should target the consumers and producers of coal.
“All we do is deliver it from the point of origin to the point of consumption, like a messenger delivering his message,” he added. “Coming after ship owners seems the easy cop-out route as we have no voice.”
The six firms that spoke to Reuters about their coal concerns collectively own, finance, insure or reinsure more than $1 billion of capital in the dry bulk industry, based on the estimated value of shipping assets.—Reuters
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