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Sustainable financing propels MISC’s ESG ambitions

FOCUS on the ESG principles delivered a pivotal year in 2021, with a record $649bn channelled towards ESG-related funds compared to $542bn in 2020, based on Refinitiv Lipper data. ESG funds now account for 10% of worldwide fund assets.

In maritime, ESG’s integration into the long-term decision-making and strategic planning process continues to gain momentum and is key towards shaping a sustainable future for the industry. High on the agenda is the push for rapid decarbonisation to achieve the IMO’s goals for its greenhouse gas (GHG) strategy. The maritime industry is expected to require investments in the order of at least $1trn to meet the IMO’s GHG emissions reduction targets by 2050.

Given the substantial capital expenditure (Capex) required, financial institutions play a critical role in supporting the maritime industry’s transformation and sustainability agenda. The launch of the Poseidon Principles in 2019 marked a significant milestone in establishing the framework for responsible maritime shipping finance that is aligned with the IMO’s climate targets.

That has led to growth in the adoption of green and sustainability-linked financing for the maritime industry. It makes good sense for industry players looking to invest in their future growth to consider the adoption of a sustainable financing framework as part of efforts to holistically embed ESG into their business strategy.

At MISC, the experience in structuring its first sustainability-linked loan (SLL) financing was both meticulous and introspective. The company worked with Standard Chartered to raise a syndicated $527m, 11-year SLL to finance six very large ethane carriers (VLEC) — among the largest of their kind in the world — purchased in July 2020.

Standard Chartered, as structuring bank, worked with other lenders to develop the SLL structure that included two key performance indicators (KPIs) related to environmental and governance targets.

Setting up the KPIs required careful consideration to ensure targets are ambitious yet achievable and aligned with MISC’s long-term business strategy. A unique feature of the SLL is that it motivates the borrower to achieve ambitious, predetermined ESG performance targets. For MISC, this would mean the annual adjustment of the interest rate benchmarked against the agreed KPIs.

For the duration of the loan, the average efficiency ratio (AER) of MISCs Gas Assets & Solutions (GAS) fleet and its anti-bribery and corruption systems will be monitored annually. Both KPIs are benchmarked above leading market standards including the IMO 2050 decarbonisation trajectory and aligned with the calculation methodology of the Poseidon Principles and the ISO 37001 Anti Bribery Management System, with progressively tighter levels aligned with MISC’s net-zero GHG emissions reduction aspirations. The results will be independently verified by a third party over the loan period.

Having a like-minded financial partner is critical in ensuring accountability in setting and meeting ESG goals and alignment with overall strategic priorities. MISC was able to leverage Standard Chartered’s knowledge of sustainable financing, and through its robust engagement with the bankers, the company was able to build deeper understanding in identifying potential sustainable financing solutions.

MISC has committed itself to achieving net-zero GHG emissions by 2050 and has set transitional short to medium term strategic initiatives that are vital to enable it to reach its targets. These includes a medium-term target of reducing 50% GHG intensity from its shipping operations by 2030, benchmarked against the baseline year of 2008.

Building on the experience from its first SLL, MISC will continue to explore potential SLL and green financing solutions to propel its ESG ambitions to drive positive change across the maritime landscape and accomplish a shared sustainable future ahead.

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