The oil and gas transport arm of the global shipping giant, COSCO Shipping Group, dubbed COSCO Shipping Energy Transportation (CSET), has entered into a groundbreaking deal. This venture involves the first-ever shipping loan syndicated in China with a direct and crucial link to Environmental, Social, and Corporate Governance (ESG) performance.
The Sustainability Strategy
This pioneering CNY1.5bn three-year loan comes off the back of an agreement brokered with the Bank of China’s Shanghai Branch and COSCO Shipping Financial Co. The performance that determines the repayment terms of the loan involves CSET’s adherence to ESG targets set by an impartial adjudicator. The mediator of these benchmarks, China Chengxin Green Finance Technology, is an offshoot of China Chengxin International Credit Rating, a key authority in the field.
The sheer scale of CSET’s performance will inevitably influence interest rates, participating banks utilising the recommendations of this ESG report to adjust accordingly. This means that the better CSET performs environmentally, socially, and in terms of corporate governance, the less interest they will be obliged to pay.
COSCO: The Unenviable Track Record
An international sustainability report from 2020 paints a sober picture about the environmental footprints of major transport companies. This report, compiled with contributions from the World Benchmarking Alliance and non-profit CDP, put COSCO Shipping Group, under a negative spotlight. Among the 17 shipping companies scrutinised, COSCO had the dubious honor of being the lowest performer.
The new loan agreement marks a decisive step for COSCO to redeem its reputation. COSCO Shipping Energy Transportation, with an existing fleet of 150+ crude and product tankers, and co-ownership of about 70 LNG carriers, sees this as an opportunity to accelerate the transition towards green and low-carbon shipping practices, while bolstering corporate ESG governance.
The Future of Sustainable Finance: An Emerging Trend?
Sustainable finance has been making waves in recent years, gaining immense traction and interest from institutional investors and funds alike. In particular, these stakeholders have shown an increased willingness to adopt and embed various ESG investing approaches into their operations.
This growing interest in sustainable finance mirrors a broader shift in the banking ecosystem. There is a collective pursuit of not just particularly high long-term financial returns, but also an effective alignment with values. This ethos was underscored earlier this year, when China’s Bocomm Financial Leasing embarked on its first ever ESG-linked ship financing project. It partnered with Standard Chartered Bank and the Industrial and Commercial Bank of China to finance an LNG carrier project, indicating a sustainable trend in the maritime industry.
