# Shipping companies feel the heat as investors shun coal
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-11-12
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Investors Shift Focus Away From Coal Shipping Amid ESG
Meta Description: European firms are reducing exposure to coal transport, impacting the shipping industry. Pressure grows for ESG compliance, reshaping investment strategies.
URL: https://financedigest.com/shipping-companies-feel-the-heat-as-investors-shun-coalhtml

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By Jonathan Saul and Simon Jessop

LONDON (Reuters) – 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’](https://www.financedigest.com/app-based-insurance-cover-for-millennials-possessions-and-experiences-back-me-up-powered-by-ageas.html "APP-BASED INSURANCE COVER FOR MILLENNIALS’ POSSESSIONS AND EXPERIENCES: ‘BACK ME UP’, POWERED BY AGEAS") 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](https://www.financedigest.com/closing-the-sustainable-investment-gap.html "Closing the sustainable investment gap") 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](https://www.financedigest.com/the-senior-management-regime-takes-shape.html "The Senior Management Regime takes shape") at Denmark’s Danica Pension, said it favoured greener shipping firms as they provided the best risk/return characteristics. The [fund has “close](https://www.financedigest.com/galois-capital-flagship-fund-to-close-after-ftx-losses.html "Galois Capital flagship fund to close after FTX losses") 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](https://www.financedigest.com/why-investors-are-looking-closely-at-transport-and-logistics.html "Why investors are looking closely at transport and logistics") 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](https://www.financedigest.com/austrian-regulator-orders-system-relevant-banks-to-up-capital-buffers.html "Austrian regulator orders system-relevant banks to up capital buffers") 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](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc.html "UK shop price inflation hits record 8% in January: BRC") 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](https://www.financedigest.com/citi-pledges-to-cut-emissions-for-more-sectors-including-coal.html "Citi pledges to cut emissions for more sectors including coal") power at U.N. climate talks being held in Glasgow this week; while [Europe and the United States are retiring coal-fired plants](https://www.financedigest.com/germanys-uniper-to-restart-coal-fired-power-plant-as-gazprom-halts-supply-to-europe.html "Germany’s Uniper to restart coal-fired power plant as Gazprom halts supply to Europe"), 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](https://www.financedigest.com/investors-warn-big-consumer-firms-over-price-hikes-as-competitors-gain.html "Investors warn big consumer firms over price hikes as competitors gain") 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.”

CAPESIZE CARGOES

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](https://www.financedigest.com/how-can-the-insurance-industry-avoid-having-a-kodak-moment.html "How can the insurance industry avoid having a ‘Kodak Moment?’"), based on the estimated value of shipping assets.

Leading shipping [financiers more broadly currently provide close](https://www.financedigest.com/fast-track-financial-close.html "FAST-TRACK FINANCIAL CLOSE") to $290 billion of lending to the industry annually, with capital requirements for the dry bulk segment accounting for about $16 billion, according to analyst and Reuters estimates.

The investor pullback, part of a wider shift in the financial industry away from fossil fuels, threatens to drive up the [cost of finance and insurance for some shipping](https://www.financedigest.com/amazon-other-retailers-revamp-free-shipping-as-costs-soar.html "Amazon, other retailers revamp ‘free’ shipping as costs soar") firms in the dry bulk sector, which carries close to half of global seaborne cargo volumes.

London-based specialist asset manager Marine Capital, which owns and operates shipping assets on behalf of [institutional investors](https://www.financedigest.com/institutional-investors-back-shell-board-lawsuit-over-climate-risk.html "Institutional investors back Shell board lawsuit over climate risk"), said it anticipated that funders would not support investments in the largest bulk carriers that typically carry coal, known as capesize vessels.

“When it comes to small bulk carriers below panamax size the amount of coal they carry is relatively modest and our experiences suggest that certainly now institutions would take the view that the relationship with coal is, from their perspective, de minimis,” said Marine Capital CEO Tony Foster.

Tufton Investment Management, another prominent investor in shipping, said it had been increasingly limiting its exposure to coal carriage, especially thermal coal, since 2018 by favouring charterers less likely to [carry the fuel](https://www.financedigest.com/u-s-sanctioned-oil-tanker-stuck-in-indonesia-carries-venezuelan-fuel.html "U.S.-sanctioned oil tanker stuck in Indonesia carries Venezuelan fuel").

For example we choose agricultural houses over miners and utilities,” said Paulo Almeida, the [chief investment officer](https://www.financedigest.com/host-analytics-appoints-chris-labruna-as-chief-revenue-officer.html "Host Analytics Appoints Chris LaBruna as Chief Revenue Officer").

Separately, at least two major ports are making big shifts; Antwerp has turned its [back on coal](https://www.financedigest.com/back-to-black-germanys-coal-power-plan-hits-hurdles.html "Back to black? Germany’s coal power plan hits hurdles"), for example, while Peel Ports is redeveloping its former Hunterston coal import terminal in Scotland to be able to handle offshore wind, dry docking for ships, aquaculture and the recycling of energy.

‘APPLYING LIPSTICK’

Some bulk shipping players are looking to get ahead of the climate curve by refocusing their businesses away from [fossil fuels](https://www.financedigest.com/eu-approves-effective-ban-on-new-fossil-fuel-cars-from-2035.html "EU approves effective ban on new fossil fuel cars from 2035"). Others, who have seen patchy profits in recent years, are loathe to the [turn away from the returns](https://www.financedigest.com/certainty-in-an-uncertain-world-post-brexit-investors-turn-to-commercial-property-and-fixed-returns.html "Certainty in an uncertain world – post-Brexit investors turn to commercial property and fixed returns") on offer from coal.

Monaco-based Eneti is in the former camp, and it has shifted entirely out of dry bulk shipping this year into providing specialist vessels for the [offshore wind](https://www.financedigest.com/norway-to-ramp-up-offshore-wind-in-drive-to-go-green.html "Norway to ramp up offshore wind in drive to go green") sector.

An important consideration when we exited the dry bulk sector was thermal coal,” managing [director David](https://www.financedigest.com/david-murray-joins-veraviews-as-demand-director.html "David Murray joins VeraViews as Demand Director") Morant told Reuters, saying trying to clean up coal transportation was “only applying lipstick.

As a publicly-listed company, renewable energy through offshore wind is higher growth, environmentally responsible and [attractive to our investor](https://www.financedigest.com/5-ways-that-start-ups-can-attract-investors.html "5 Ways That Start-Ups Can Attract Investors") base.

Similarly Purus Marine, which has leading U.S. investment [company Entrust Global](https://www.financedigest.com/incentive-fm-group-wins-contract-with-global-events-company.html "Incentive Fm Group Wins Contract With Global Events Company") as its founding shareholder, says it is focused on more environmentally friendly ocean industries.

Our [business model is to own vessels and maritime infrastructure involved in offshore renewable energy](https://www.financedigest.com/europe-burns-cash-to-help-businesses-in-deepening-energy-crisis.html "Europe burns cash to help businesses in deepening energy crisis"), seafood, ferries and the climate-aligned sectors of industrial shipping,” said CEO Julian Proctor.

[HIGHER SHIPPING PRICES](https://www.financedigest.com/wall-street-seen-opening-higher-but-u-s-recession-priced-in.html "Wall Street seen opening higher but U.S. recession priced in")

The impact of higher prices for shipping [coal would be felt most in Asia, which consumes 80 percent of global coal supply](https://www.financedigest.com/factbox-europe-ramps-up-coal-imports-as-energy-supply-fears-grow.html "Factbox-Europe ramps up coal imports as energy supply fears grow") and is more reliant than elsewhere on coal-fired power.

Even though emissions from burning coal are the single biggest contributor to climate change, the priority for many developing countries is to provide [power to a rapidly growing population rather than converting to renewable plants](https://www.financedigest.com/edpr-brings-iberias-first-wind-solar-power-plant-on-stream.html "EDPR brings Iberia’s first wind-solar power plant on-stream").

An abrupt transition from coal would drive up logistics costs for producers and consumers, said Vuslat Bayoglu, [managing director of South African investment firm](https://www.financedigest.com/poor-user-experience-plaguing-wealth-management-firms-warns-radical-company.html "Poor user experience plaguing wealth management firms, warns Radical Company") Menar, which holds stakes in South African thermal coal, anthracite and manganese producers.

The worst-case scenario is to see countries being plunged into darkness and manufacturing being hit hard, thus heralding a [global economic crisis](https://www.financedigest.com/global-economic-crisis-strangling-progress-for-poor-warns-u-n-development-chief.html "Global economic crisis strangling progress for poor, warns U.N. development chief") of sort,” he added. This would be highly irresponsible, as many countries are crawling out of long periods of [recession and COVID-induced decline.”](https://www.financedigest.com/decline-in-german-services-sector-eases-raising-hopes-for-milder-recession-pmi.html "Decline in German services sector eases, raising hopes for milder recession -PMI")

(Additional reporting by Carolyn Cohn in London and Helen Reid in Johannesburg; Editing by Simon Webb, Veronica Brown and Pravin Char)


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