Shipping industry sailing into a decarbonised economy
The world’s largest container ship lessor closed the first sustainability-linked loan and sustainability-linked swap in the sector
About 90% of all international trade is seaborne, carried by more than 50,000 merchant ships that are crewed by over a million seafarers1. However, international shipping also accounts for 3.15% of all emissions from the transport sector2, which means that decarbonising ships could contribute significantly towards achieving the Paris Agreement target of keeping global warming well below 2°C and achieve shipping industry’s goal of halving greenhouse gas emissions by 20503.
A pioneer in the shipping sector
New technologies to design, make and propel ships can help reduce emissions4. Seaspan Corporation, the world’s largest container ship lessor, is an industry pioneer in decarbonisation programmes. It has been developing fuel-efficient container ship designs under its Seaspan Action for Vessel Energy Reduction (or SAVER) initiative and has reduced its carbon emissions by more than 25% since 2012.
Underlining the momentum behind decarbonisation efforts, Seaspan recently closed a US$200 million, six-year sustainability-linked loan (SLL), subsequently upsized to US$250 million following a successful syndication process which secured commitments from five participating banks from across North America and Europe. This loan is also hedged through a sustainability-linked derivative (SLD – interest rate swap) with Societe Generale. With the first loan of its kind for a container ship lessor, and the first sustainability-linked swap in the shipping industry, Seaspan has demonstrated real leadership and innovative spirit, charting a course for other shipping companies to follow.
Societe Generale, which has a strategic commitment to supporting clients’ sustainable and positive impact projects, recently executed this breakthrough deal, which shows how decarbonisation goals can be linked with financing for shipping clients. The Bank acted as Mandated Lead Arranger, Bookrunner, Lead Underwriter, as well as Sustainability Coordinator and Hedge Provider in this innovative deal for Seaspan.
Societe Generale is a founding signatory of the Poseidon Principles5, which promote a low carbon future for the global shipping industry by integrating climate considerations into bank portfolios and credit decisions. It was also the first financial institution to join the SEA/LNG coalition, a multi-sector alliance promoting LNG as a marine fuel and set the standard for green shipping finance solutions with the first LNG-fuelled vessel financing for container operator CMA CGM.
Incentives for sustainability in the industry
The loan is part of Seaspan’s core secured BBB-rated US$2 billion debt facility. The SLL and the SLD both incorporate two innovative sustainability-linked targets:
- The first target sets decarbonisation goals for Seaspan’s fleet in line with the Poseidon Principles, which aim to bring commercial shipping’s carbon emissions into line with the International Maritime Organisation (IMO) decarbonisation targets, known as IMO 2050. These Principles aim to reduce greenhouse emissions from shipping by at least 50% by 2050 through building climate considerations into banks’ lending portfolios and credit decisions6.
- The second target is linked to Seaspan’s ability to embed sustainability-related incentives when negotiating with its clients to charter ships. This approach, which extends sustainability principles beyond Seaspan itself and into the ecosystem of its charterers, is also a first in the ship lessor market, and reflects need for a collective effort aiming at decarbonizing the shipping industry.
This transaction is confirmed by Sustainalytics, a leading ESG research, ratings and data firm, to be aligned with the Loan Market Association’s Sustainability-Linked Loan Principles 2019. These principles set out the criteria for incentives to improve borrowers’ sustainability profiles by aligning loan terms with borrowers’ sustainability performance against pre-determined performance targets.
A successful partnership
Seaspan’s innovative approach to decarbonisation has been recognised through awards for environmentally efficient ship design and protection of the marine environment7. Care for the environment is a core value of the company, driving its commitment to meet or exceed compliance with all relevant laws, regulations and voluntary commitments.
Our execution of the SLL and SLD marks the first sustainability-linked financing in the containership leasing space and aligns Seaspan's long-standing commitment to sustainability with our capital structure strategy. Further, our team has been consistently executing on quality growth and capital structure improvement through a difficult period for the global capital markets. We are proud of the partnerships we have fostered over the last 20 years – with both liner customers and financial partners – which have made this milestone possible.
Societe Generale continues to be at the forefront of environmental initiatives in the shipping finance industry. By delivering innovative ship financing solutions with sustainability-linked incentives, we reinforce our strategic commitment to help our clients successfully go through the maritime decarbonization process and spread good practice across the value chain. We are pleased to accompany Seaspan, an ambitious like-minded partner, in this journey.