Report: Exploring methods to assess financiers’ exposure to stranded assets in shipping

This publication is from the UCL Energy Institute

Meeting the temperature targets outlined in the Paris Agreement requires a swift transition to a low carbon global economy, requiring coal, oil and gas demand to decline sharply. The anticipated decrease in fossil fuel trade would therefore lower demand for transporting these commodities, referred to in this report as “demand-side risks”. With over one third of the global shipping capacity used to transport fossil fuels, the global shipping sector faces significant risks of stranded assets as the decarbonisation of the global economy accelerates. However, there is limited understanding as to who ultimately bears this risk exposure and how these risks would cascade from ships to companies and their financiers if they were to materialise. In other industries, such as fossil fuel extraction and power generation, these risks have been assessed in detail. In contrast, the exposure of shipping financiers to stranded-asset risks remains largely opaque, owing to poor transparency in maritime finance and the difficulty of linking vessels to specific financial transactions. 

The objective of this report is to address this gap by developing and applying a methodological framework that uses publicly available and commercial information to assess financiers’ exposure to transition risks in shipping. The approach first compiles a dataset containing various financial transactions provided to shipowners (equity/shares of publicly traded shipowners, ship lease, shipping loans and bonds) from five existing data sources. It then links individual ships to their owners and financiers and estimates the residual value

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  Exploring methods to assess financiers' exposure to stranded assets in shipping final.pdf

Authors

• Marie Fricaudet
• Dr Nishatabbas Rehmatulla
• Professor Tristan Smith