(2020) 34 A&NZ Mar LJ 15
GREEN FINANCE FOR A SUSTAINABLE MARITIME TRANSPORT SYSTEM:
DEVELOPING A UNIVERSAL VERNACULAR FOR GREEN SHIPPING
One of the greatest obstacles to gr een shipping is the enormous capital costs requir ed for clean er
and more fuel-efficient technologies. This is a pplicable to the financing of both new vessels a nd
the retrofitting of existing vessels, which require shipowners to app roach externa l sources for
capita l. Fina ncial institutions thus have an incentivising role to play, by extending ‘green’ or
‘sustainable’ finance to shipping firms for a number of vessel-related pr ojects which will bring a
vessel in line with interna tional standar ds or even supersede r egulatory requir ements. However,
green finance for shipping does not presently enjoy an existing taxonomy or framework for what
constitutes ‘green’ maritime activities. This Paper looks at the challenges presented by this
taxonomy gap, specifically in rela tion to existing green finance schemes delivered by the Europea n
Investment Bank and Chinese banks. This paper a rgues for a clear and globally recognised green-
shipping vernacular or classification system to incentivise investors and a ddress shipowner
hardsh ip in respect of increasing regula tory demands.
The International Maritime Organisation (IMO) recognises, as part of its v ision for a Sustainable Maritime
Transport System (SMTS), that a SMTS ‘should be supported with available, sound financing for construction of
new ships or conversion or modification of existing ships in order to meet requirements for safety and the
environment, bearing in mind th e cyclical nature of the shipping sector’(emphasis added).1 This is Goal 1 of the
‘Finance, Liability and Insurance Mechanism’ area for action in achieving ‘real opportunities for the Organization
to play a meaningful and important role in facilitating coordination of relevant policies’.2 The IMO recognises
governments, industry, UNCTAD, and financial sectors as its partners in ensuring fair access to sound financing
and to promote financial mechanisms to ensure regulatory compliance. However, only a handful of financial
institutions (state and non-state) have explicitly come on board in respect of implementing green financial policies
with a sectoral focus on shipping. Although the regulatory standards and carbon emission targets of the global
maritime sector are widely supported by stakeholders, there is still a lack of cohesive strategy on how to overcome
the barrier of immense capital costs by strategically providing financing for greener and cleaner technologies and
This Paper contextualises shipping within the overall green finance market to explore existing fram eworks for
accessing finance for green shipping. It notes that few initiatives exist, and where they do, there are
implementation barriers in terms of clear policy or legislative direction. In particular, there is currently no global
and workable taxonomy for what constitutes ‘green shipping activities .’ Is mere regulatory compliance the
objective or are there varying degrees of ‘greenness’ in achieving environmental sustainability? This paper argues
for a clear and intern ationally applicable taxonomy to overcome the challenge of investor reluctance in newer
technologies and shipowner hardship in respect of meeting increasing regulatory demands. This Paper is not
concerned with defining the concept of ‘green shipping’, but rather aims to elucidate the need for clear definitions
in this regard.
Structurally, this Paper first addresses why taxonomies and standards matter for g reen financing as a means of
addressing environmental risk and contributing towards sustainability goals. Second, this Paper evaluates some
of the challenges presented for the maritime transport sector in terms of accessing green finance in both situations
where: 1) green shipping-specific products are available, such as the European Investment Bank’s (EIB) green
shipping schemes; and 2) where shipping is alluded to in broader green finance frameworks without a sectoral-
specific focus, such as the Chinese green financial system. Finally, in addressing these shortcomings, this Paper
* Pia Rebelo is an admitted attorney (non-practicing) from South Africa. She obtained her LLB and LLM (Environmental Law) at the
University of Cape Town. She is currently a doctoral researcher at City Law School, City, University of London. Her PhD research is centred
on private law mechanisms for the implementation of environmental or ‘green’ standards within international shipping.
1 IMO, ‘Concept of a Sustainable Maritime Transport System’ (2013)
TIME%20TRANSPORT%20SYSTEM.pdf> at14 March 2020.
2 Ibid 8.
(2020) 34 A&NZ Mar LJ 16
argues for a sectoral specific taxonomy for green shipping wher eby the no rmative direction for a workable
taxonomy and understanding of ‘green’ is provided by states or relevant organisations and financial institutions
can choose to focus or align their products accordingly.
2 Financing Environmental Objectives: The Importance of Definitions
One of the major driving factors for states has been the G20 initiative of aligning financial systems with
sustainable development.3 The G20 Green Finance Study Group is co-chaired by Chin a and the United Kingdom
to ‘identify institutional and market barriers to green finance, and based on country experiences, develop options
on how to enhance the ability of th e financial system to mobilize private capital for green investment’.4 One of
the major findings of the G20 Synthesis Report is that green finance lacks a set of cohesive principles and uniform
understandings of scope. The 2016 G20 Green Finance Synthesis Report states that, ‘[i]n many countries and
markets, the lack of clarity as to what constitutes green finance activities and products (such as green loans and
green bonds) can be an obstacle for investors, companies and banks seeking to iden tify opportunities for green
investing.’5 This is lar gely because green financing initiatives h ave emerged incrementally from varying actors,
based on principles of en vironmental and social governance (ESG) or corporate social responsibility (CSR).
Therefore, there are varying taxonomies and scopes of what constitutes ‘green’ in various government frameworks
and within private governance structur es. Generally , ‘Green Finance’ is a concept d efined by the International
Trade Centre as ‘all the initiatives taken by private and public agents (e.g. businesses, banks, governments,
international organizations, etc.) in developing, promoting, implementing and supporting projects with sustainable
impacts through financial instruments.’6 This means that all agents adopting green strategies for the provision of
financial services are required to justify their decisions on the added basis of environmental risk and sustainability.
One of the earliest and most well-known green banking initiatives is the Equator Principles, which launched a
framework initiative in 2003 for determining, assessing and managing environmental and social risk in projects
and established minimum standards fo r due diligence and mon itoring to support sustainable decision-making.7
Subsequently, the Loan Market Association’s Green Loan Principles and the Sustainability Linked Loan
Principles have also advanced the concept of green financing globally.
How banks will raise the capital for ‘green’ or ‘sustainable’ loans i s entirely up to the bank, but in addition to
accessing the capital markets, ban ks can issue green or sustainable bonds. These bonds are premised on the idea
that the issuer offers a set of environmental criteria, and then undertakes to use the capital raised through issuing
the green bonds for projects or purposes which fall strictly within that specified criteria. This will give fin ancial
institutions access to an investor base which is concerned with environmentally sustainable development , as well
boosting public im age through a commitment to environmental stewardship. 8 Accountability is achieved b y the
fact that an investor will not tolerate being misled by the issuer if the issuer fails to abide by the strict set of criteria
and will have adequate legal recourse. Definitions are therefore equally important for ‘green’, ‘sustainable’ or
‘climate’ b onds, which should shar e an identical taxonomy to the loan agreements which disburse the cap ital
Both the EIB and the People’s Bank of China have acknowledged some of the shortcomings with the language
used in green financing globally.9 A joint resear ch report by the EIB and the Green Fin ance Committee of China
Society for Finance and Banking, calls for a ‘common language’ for green finance as a ‘lack of clarity as to what
constitutes green finance activities prevents a univocal definition for the use of proceeds’.10 Secondly , the report
argues that referring to different taxonomies hampers accountability and comparability cannot be achieved.11
Primary indicators for similar activities cannot be established and market participants cannot clarify whether a
product is comparably aligned with policy objectives.12 Bot h the Organisation for Economic Co-operation and
Development (OECD) and the High-Level Expert Group on Sustainable Finance have stated that the absence of
a comm on definition of ‘ green’ is broug ht up frequently in investor surveys when asked to identify the main
3 G20 Green Finance Synthesis Report 2017 _Synthesis_Report_EN.pdf>
at 1 April 2020.
5 G20 Green Finance Study Group, G20 Green Finance Synthesis Report (5 September 2016), 10.
6 ITC, ‘What is Green Finance?’
-is-green-finance/> at 15 November 2019.
7 Equator Principles at
/> at 27 September 2019. The Equator Principles (EP) apply to four financial
products; 1) Project Finance Advisory Services 2) Project Finance 3) Project-Related Corporate Loans and 4) Bridge Loans.
8 Caroline Flammer, ‘Corporate Green Bonds’ (2020) Journal of Financial Economics (JF E), Forthcoming, Available at SSRN:
9 European Investment Bank & Green Finance Committee of China Society for Finance and Banking, The need for a common language in
Green Finance: Towards a standard-neutra l taxonomy for the environmental use of proceeds, White Paper Phase I Report (2017).
10 Ibid 12.