Environmentalism and Economics

Malcolm Latarche

Malcolm Latarche · 19 February 2020

ShipInsight


Pictures of environmental activists vandalising the lawns of a Cambridge University college would seem to have little to do with shipping, but yesterday’s organised vandalism by what some are referring to as the eco-terrorist organisation Extinction Rebellion does indeed have a shipping connection.

The group cited the college's "ties with fossil fuel companies" and its role in the development of Innocence Farm in Suffolk as reasons for the protest. On the group's Facebook page for its Cambridge branch, Extinction Rebellion wrote: "Trinity College has invested £9.1m in oil and gas companies, the most of any of the 45 Oxbridge colleges. They also own Innocence Farm in Suffolk and want to sell it to Felixstowe Port to build a lorry park for 3,000 vehicles”.

Trinity College does of course actually own Felixstowe Port – or at least the land it stands on – and receives a significant income from it much of which is used to support education in Cambridge and elsewhere as well as supporting students from deprived areas. The proposed lorry park has not been given planning consent and may not proceed but some would argue that it is an opportunity missed.

Felixstowe
Felixstowe Dock Cranes and Container Ships at night.

The college probably did not anticipate how much the value of its investment would grow when it bought the land and the small dock in 1933. The port then could not have accommodated anything like the size of ships that call there now nor could anyone have expected it to grow to be the busiest container port in the UK and a vital economic asset for the country. Its importance could increase as a consequence of Brexit and there is the possibility that it could become a hub port for EU intended cargoes if the EU does decide to include in an EU emission trading scheme and the UK establishes Freeports as it has intimated it may.

Protests at Trinity College will almost certainly not change that institution’s mind about its investments but shipping and related industries are facing obstacles in several other areas especially those related to finance. There is for example the recent development of the Poseidon Principles – the world’s first global sector-specific and self-governing climate alignment agreement among financial institutions.

Several institutions including Citi, DNB, Société Générale, ABN Amro, Crédit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea are involved. Together they represent a bank loan portfolio to global shipping of approximately $100 billion – around 20% of the global ship finance portfolio. In the future these institutions will measure the potential impact on the environment before making finance available for ship purchase. Notably absent from the list are Asian institutions, hedge funds and private equity firms, which tend to provide the majority of finance today.

The aims of the institutions may be laudable but how successful the concept will be remains to be seen. Most of the clients of the banks mentioned are the European blue chip shipping companies rather than those further down the pecking order which normally take on the ships no longer needed by the major players. If obtaining finance for older vessels does become difficult, it will deflate the values of older vessels and that could negatively impact upon the finances of sellers.

Protest

After the 2008 crash when many of the banks involved pulled in their horns, buyers of second hand ships were not left hunting for funds and seemed able to finance acquisitions quite easily – albeit at knocked down prices.

So some shipowners may find themselves forced down a path they might otherwise have preferred to avoid but it is pretty certain that others will not. Who knows there may even be a rise of an Asian version of the old German KG Funds methodology of ship purchase.

Another obstacle that some organisations are experiencing is pressure to divest from oil companies, shipping and other industries perceived as dirty. In truth this will probably have little impact on the companies involved and could even weaken the environmentalists’ hand. When stocks and shares in a company are bought and sold, the original issuing body does not benefit directly.

A wholesale disposal of shares may cause a temporary dip in the affected company’s credit rating, but the shares will normally find ready buyers less affected by their consciences and prices will soon find their proper level again. But once an investor has offloaded any stock, they no longer have any influence over the company.

A vociferous minority may shout loudly for a pension fund or some other institution in which they have an interest to offload shares, but it should not be forgotten that there may be a silent majority whose interests are damaged by the disposal of assets. In the UK, the new Conservative government has plans to enact laws which could stop divestments by pension funds as a means of imposing views on members who might lose out financially. In January Reuters reported that several of Britain’s top pension funds say they would have lost hundreds of millions of pounds had they sold out of oil and gas stocks in recent years, highlighting a potential cost to scheme members as funds face pressure to help fight global warming.

Outside of the UK pension funds have been threatening to move money out of Maersk stocks because of the shipowner’s use of Indian recycling yards for disposing of elderly ships. However, it was reported earlier this week that the pension fund concerned is having second thoughts after having visited the recycling facilities in Alang.

The comments below the news item linked to in the first paragraph probably demonstrate what the views of the majority are, as similar sentiments were expressed on most media sites including those sympathetic to the environmental cause.

If there is a genuine desire among the world population for shipping to decarbonise or alter its behaviour then the silent majority not the converted first need to be convinced. But maybe that is a battle that is unwinnable.

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