Banks active in ship finance may be significantly underestimating the long-term financial risks tied to the maritime energy transition — not at the level of individual loans, but across the broader financial system, according to new research published by the UCL Energy Institute and consultancy Strider Carbon, as reported by Ship & Bunker.
The Structural Gap at the Heart of Ship Finance
According to Ship & Bunker, the study acknowledges that conventional ship finance structures offer banks a degree of natural protection. Conservative loan-to-value ratios mean that when vessels lose value — whether due to stricter emissions regulations or shifts in fuel demand — it is typically the shipowner’s equity that absorbs the blow first.
However, the research identifies a critical structural mismatch: ship loans generally run for five to seven years, while the vessels they finance remain in operation for 20 to 25 years. This gap means individual lenders can exit their exposure well before climate-driven asset devaluation fully sets in.
The Fire-Sale Scenario
The real danger, the study argues, is what happens when multiple banks make the same calculation at the same time. Ship & Bunker reports that if a broad pullback from shipping finance occurs simultaneously in the mid-to-late 2030s, many vessels could find themselves unable to secure refinancing. The resulting pressure to sell assets quickly could trigger depressed market conditions — and under such a scenario, recovery values could fall below outstanding loan balances, generating losses across the sector even for institutions that individually managed their risk responsibly.
Barriers to Effective Climate Risk Management
The report also outlines a range of obstacles that currently limit banks’ capacity to price and manage transition risk effectively. As noted by Ship & Bunker, these include inconsistent data disclosure practices, conflicting green classification frameworks, and the inherent difficulty of modelling complex, long-term transition scenarios.
The study further highlights an imbalance in how banks are approaching the issue: most institutions are focused on supply-side risks — such as vessel fuel efficiency and regulatory compliance — while giving comparatively little attention to demand-side risks, including the potential for declining global fossil fuel trade volumes.
A Call for Coordinated Action
To avoid disorderly outcomes for shipping and its financiers alike, the research points to the need for coordinated responses. Ship & Bunker reports that the study specifically references the potential role of public finance support and instruments such as an IMO Net Zero Fund as mechanisms to de-risk the transition at a systemic level.
As Dr. Nishatabbas Rehmatulla of UCL noted in the report: “Climate risk modelling in shipping is complex.”
Gulf Bunkering does not provide operational or security guidance. This article is for informational purposes only. Operators should consult flag state authorities, P&I clubs, and relevant advisories for decisions relating to transit planning.
Sources: Ship & Bunker
