Jonathan Saul & Simon Jessop

LONDON (Reuters), – Some financial backers are trying to clean up the businesses of shipping companies transporting the coal around the globe. This is in spite of a global effort by countries to renounce this most harmful fossil fuel.

Six European companies representing more than 5% of $16 billion annual capital finance requirements for the dry bulk sector, told Reuters that they are either reducing or considering lowering their exposure to ships transporting coal.

This is the most cost-effective way to transport heavy commodities, such as coal and iron ore in large quantities.

Swiss Re (OTC) informed Reuters it will no longer provide transportation of thermal coal through reinsurance treaties. This is where the policy covers a range of insurance policies. In 2018, it ceased direct coal cargo insurance.

“There is more pressure on the insurers in terms ESG,” said Patrizia KERN-FERTI, the head of marine at Swiss Re Corporate Solutions. She was referring specifically to sustainable investing. Brokers tell me they have difficulty placing coal policies into the insurance market,” she said. Direct guidelines are being used by more and more businesses.

Esben Saxebeck Larsen is senior portfolio manager for Denmark’s Danica Pension. He said the Danica Pension favours greener shipping businesses because of their better return/risk ratio. The firm has a “close relationship” with the fund about ESG strategies.

He said, “If such answers are not acceptable, we won’t invest in the company,” without going into detail about the method.

These pressures present new challenges to the shipping sector, which has not been dragged into the center of the debate about coal by investors and policymakers who have tended to be more concerned with production and consumption than transportation 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 providers to the industry – were growing.

It is not clear how that will play out for the outcome. He said that sometimes people will avoid a particular sector, and that the returns are only better if supply is moderated.”

Everyone must do the right thing. You can sometimes have counterintuitive results.”

The delivery of coal can make you a lot of money. This is because it accounts for 30% of the cargo volumes.

And demand beckons for decades to come after major consumers including China and India failed to join a pact https://www.reuters.com/business/cop/cop26-coal-deals-take-aim-dirtiest-fossil-fuel-2021-11-03 to phase out coal power at U.N. climate talks being held in Glasgow this week; while Europe and the United States are retiring coal-fired plants, Asian nations are building https://www.reuters.com/business/energy/cop26-aims-banish-coal-asia-is-building-hundreds-power-plants-burn-it-2021-10-29 almost 200 more.

Precious Shipping’s managing director Khalid Hashim said that investors should focus on the producers and consumers of coal.

“All we do it is transport it from the source to the destination, just like a messenger sending his message,” he said. As we don’t have a voice, it seems easy to go after shipowners.

CAPESIZE CAMGOES

Reuters interviewed six businesses about their coal concern. They collectively have, finance, reinsure, or insure over $1 billion in capital in the dry bulk sector based on estimated shipping assets.

The industry is currently supported by leading shipping financiers who lend approximately $290 billion annually. Dry bulk capital needs are estimated at $16 billion according to analyst and Reuters estimates.

Part of the wider financial industry shift away from fossil fuels is the investor pullback. This could drive up insurance and finance costs for shipping companies in the dry bulk sector. It carries nearly half the world’s seaborne cargo volume.

Marine Capital, a specialist asset manager based in London, stated it expects that institutional investors will not be interested in investments into the biggest bulk carriers, also known as capesize vessels, that carry coal.

Tony Foster, CEO of Marine Capital, stated that “small bulk carriers that are smaller than panamax sizes carry relatively little coal. Our experiences indicate that institutions will view their relationship with coal as de minimis.”

Another prominent investor in shipping is Tufton Investment management. It stated that it has been reducing its exposure to thermal coal since 2018, by favoring charterers more likely to transport the fuel.

Paulo Almeida (chief investment officer) stated, “For instance we prefer agricultural houses to miners or utilities.”

Two major ports have made big changes. Antwerp is abandoning coal and Peel Ports in Scotland is rebuilding Hunterston, a former coal import terminal. This will allow them to deal with offshore wind, dry docking, ship-to-ship shipping, aquaculture, the recycling of energy, as well as other aspects.

“APPLYING LIPISK”

Many bulk shipping firms are seeking to shift their business away from fossil-fuels in order to be ahead of the climate curve. Other bulk shipping companies, which have made few profits over the past years, do not want to give up on the coal returns.

Monaco-based Eneti can be found in the latter camp. It has completely shifted from dry bulk shipping and is now providing special vessels for the offshore sector.

According to David Morant, managing director of Reuters, “Thermal coal was an important consideration as we left the dry bulk sector.” He said that trying to clean-up coal transport was like “only applying lipstick”.

Renewable energy via offshore wind, which is publicly listed, offers greater growth potential, environmental responsibility, and appeals to investors.

Purus Marine has Entrust Global (a major U.S.-based investment firm) as its founding shareholder.

Julian Proctor, Chief Executive Officer, said, “Our business model is that we own ships and maritime infrastructure involved with offshore renewable energy and seafood. We also have the ability to provide services for climate-aligned industrial shipping sectors.”

HIGHER SHIPMENT PRICES

Asia will feel most the effects of increased shipping prices of coal. Asia consumes 80 percent global coal supply, and has a greater dependence on coal-fired electricity than any other region.

Although carbon emissions from coal burning are the biggest cause of climate change, many developing countries prioritize providing power for a fast growing population over converting to renewable energy.

Vuslat Bayoglu is the managing director at Menar South African Investment Firm, which has stakes in South African anthracite, thermal coal and manganese manufacturers.

He said, “The worst case scenario would be for countries to go into total darkness with manufacturing hit hard. This could signal a worldwide economic crisis.” It would be very irresponsible to do this, since many countries have been able to emerge from long periods in recession or COVID-induced fall.