Investors in shipping, which include some of the world’s biggest asset managers such as BlackRock and Vanguard, are said to be heavily exposed to decarbonisation due to the amount of fossil fuels transported by sea, researchers claim.
Coal, oil, and liquefied natural gas make up more than 40% of the annual cargo tonnage of all maritime trade, according to MSI, and if governments fulfil their Paris Agreement climate commitments, these trade flows will shrink.
A worst-case scenario would be if the maritime industry was hit by falling vessel values, lower earnings and depressed market capitalisation, MSI said.
In the event of average global temperature increase being successfully limited to 1.5C degrees, oil tankers built today will command a tiny premium when they are ten to 15 years old. According to MSI, this halving of a tanker’s typical economic lifespan is due to a fall in utilisation rates and the freight earnings the asset can command.
“Both oil tankers and dry bulk ships (carrying coal, iron ore, and grains) face an unprecedented length of market downturn, threatening earnings for investors, and raising the risk of non-payment for lenders,” the report says.
The total value of the world’s dry bulk ships will drop from $195 billion (€174 billion) to $90 billion by 2030, with implications for all major investment banks that own shares in fossil fuel-carrying shipping companies, said MSI. These banks include Morgan Stanley, Citi, Barclays, JP Morgan, Credit Suisse, Deutsche Bank, UBS and Goldman Sachs.
Institutional investors which also hold shares in fossil fuel shipping, such as BlackRock, Vanguard, State of California, and the Norwegian sovereign wealth fund are also exposed to the risks posed by the transition away from fossil fuel energy.
“The maritime sector is heavily exposed to the transformation underway across the global energy sector. Investors will expect companies to do more to pre-empt and address the implications from reduced demand for fossil fuels,” said Stephanie Pfeifer, chief executive of Institutional Investors Group on Climate Change.
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