Simon Ring, Global Head of Maritime Trade Technologies & ESG at Pole Star, explores how real-time vessel emissions monitoring provides the best route to green finance.


The regulatory drive to reduce maritime carbon emissions is triggering a wave of innovation in green trade finance, but unless banks, lenders and carriers have accurate, real-time sustainability monitoring of vessels, these important initiatives will struggle to get going.

This pressure increases with every bout of extreme weather and every new climate change report, such as the recent Intergovernmental Panel on Climate Change, dubbed a “code red for humanity”. The maritime sector, responsible for 3% of global greenhouse gas emissions, is firmly in the sights of regulators.

As it stands, not only has the world’s shipping fleet quadrupled in size since the 1980s, but all 50,000 merchant vessels on the seas today are powered by fossil fuels. As a result, overseas manufacturing and transoceanic shipping are having detrimental consequences on our climate, as well as causing huge environmental and health problems for communities around the world.

But while many pledges have been made, a sustainable future will only be achieved when significant action has been taken. This requires investments to be made throughout supply chains, from governments all the way through to the private sector. Green finance is required to drive that transition within the maritime sector, and support businesses in taking full advantage of the opportunities of decarbonisation, but to do this, every financial decision needs to take climate into account.

The push for increased sustainability is leading to preferential financing rates for transactions that are transparently green and clean. Charterers and operators showing evidence of their compliance will, therefore, have a distinct advantage in terms of access to finance

The problem, of course, lies in the administrative burden and the challenges of obtaining the right intelligence and information about vessels, their respective compliance and sustainability status, and routes in real-time. Even more complex is the ability to quantify the environmental impact of the commodity that a vessel is transporting. These are substantial tasks for already overworked risk, compliance and legal departments.


Why now?

Climate change is not only affecting the environment and our health, but it also poses significant risks to the financial system due to the physical risks of natural catastrophes and widespread environmental degradation, as well as those associated with the adjustment period of transitioning to a sustainable economy. These include the enforcement of new regulations and public policies, disruptive technology developments, and major shifts in consumer and investor preferences too.

It is now widely understood that finance is the key to unlocking a sustainable future and, with banks having still focused on financing fossil fuels over climate-friendly projects in recent years, 2021 could finally be a critical tipping point. According to Bloomberg data, 2021 has seen green debt issuance keep up with oil, gas and coal-related finance for the first time ever.

If this continues to be the case, climate action within the financial sector can help to unlock huge economic growth and the creation of new jobs, particularly as the world aims to repair the impact of the pandemic. With this in mind, the financial sector could be leading the way towards a more sustainable economy, with global regulators, the maritime industry, and companies worldwide following suit.

To prevent exceeding the 1.5 degree temperature increase from pre-industrial levels, the need for decarbonisation is urgent, but there are many other benefits to transitioning to a sustainable economy sooner rather than later. For instance, the cost of transitioning gradually will be significantly less for companies than the consequences of non-compliance after new regulations have been introduced. Moreover, investor and client interest will peak when companies are adhering to ESG programmes and reducing their supply chain emissions. Ultimately, this also pays off transitional expenses.

In contrast, a delayed transition could bring about sudden policy implementation, forcing the rapid decarbonisation of the economy and, in turn, creating severe financial and economic disruptions.


Early steps towards decarbonisation

The EU has already included shipping in its Emissions Trading System (ETS) as part of its determination to reduce carbon emissions by 55% by 2030 (compared with 1990), while the IMO is aiming for a 40% reduction by 2030 against a 2008 benchmark.

Meanwhile, the Poseidon Principles, launched in June 2019, are an attempt to connect ship financing with environmentally friendly behaviour and decarbonisation. Applicable to lenders, lessors and financial guarantors including export credit agencies, they have established a global baseline in relation to climate goals.

The Poseidon Principles Association employs a “decarbonisation trajectory” according to ship type, size, technical and operational specification, representing how many grammes of CO2 a ship emits to move a tonne of goods one nautical mile in line with the IMO’s threshold.

However, benchmarks that use annual evaluations to assess vessels’ carbon output omit crucial activity that occurred within that timeframe, including choice of fuels, retrofitting, speed and routes used. What the industry needs is real-time, detailed information about the current status of a vessel. Regulation is changing rapidly and operators and charterers need to show they have kept up.


New opportunities to obtain more favourable financing rates

What banks and lenders need is integration of timely and accurate data and insights into their workflows so they can make financing decisions with greater confidence and rapidity than with conventional methods. Charterers and operators, on the other hand, need more advanced digital solutions, to not only make better, greener decisions, but also to demonstrate they are doing the right thing and in real-time, including choosing the right ships and selecting the best routes in the most efficient and compliant manner, and using fuels that meet sustainability criteria.

The only way to achieve this cost-effectively and comprehensively is to have an automated process that monitors emissions sustainability right along the supply chain.

Carbon emissions measurement is now conducted by expert companies using recognised techniques, with outputs fully integrated into workflows to provide high-quality data with minimum hassle. By integrating this vessel information into existing systems, banks and charterers can easily rate a vessel, its peer group, and its carbon tonne per mile – all within a matter of seconds, while also producing an essential audit trail. The audit trail provides banks’ legal, risk and compliance departments with immediate access to the evidence they need when reviewing a transaction.


Pole Star leading the way with end-to-end screening and monitoring

In the past year, Pole Star has formed two key partnerships to redirect the maritime trade supply chain towards more environmentally conscious decision-making. By integrating both Vasanda EcoSphere and CarbonChain’s emissions calculations into our sanctions screening and compliance platform, PurpleTRAC, Pole Star is providing customers with a 360-degree view of regulatory and sustainability risk.

Vasanda EcoSphere aggregates raw environmental impact data to ascertain key risks associated with any actively traded commodity, supplier, grower or miner. This data is then used to determine the environmental or social risks associated with a transaction and categorises them by environmental or climate impact risks, social conditions of the supply chain, and governance metrics of the supplier, producer or miner. Similarly, CarbonChain brings emissions calculations on over 76,000 vessels to the table, providing greenhouse gas emissions data and a vessel’s environmental impact rating in comparison to their competitors.

By forming this groundbreaking collaboration and incorporating these functionalities into PurpleTRAC, the platform becomes an end-to-end solution covering the full spectrum of risks across sanctions, compliance and sustainability in global maritime and commodities trade.