The Benefit of Being Green: Financing for Shipping Assets

Abstract

The growing demand for green finance in shipping reflects a shift in investment behavior, with shipping assets being increasingly financed through green and sustainability-linked instruments. In this study, we explore the benefits of being green in financing for shipping assets. We utilize multi-variant regression to investigate credit spread differences between green, social, and sustainability (GSS) loans and bonds from 2011 to 2024, and to identify the credit spread determinants. We find that GSS deals have lower credit spreads compared to conventional deals. In addition, we find a downward trend in credit spreads over time, regardless of deal type. Moreover, we find that deal issue dates, deal sizes, tenor, assets, leverage, and profitability are the most significant credit spread determinants. Despite the financial cost advantage found for GSS deals, we further explore differences in credit spreads between shipping segments and find that “brown” shipping assets receive a penalty in GSS financing. In this context, “brown” assets particularly refer to dry bulk carriers, gas carriers, and tankers. Interactions between dry bulk and GSS deals, and between tanker and GSS deals, indicate a significant relationship with credit spread. However, this relationship did not turn out to be significant for gas carriers. Additionally, we find no evidence that companies with higher ESG disclosure scores are compensated with lower credit spreads. Overall, our findings suggest that there is a significant benefit of being green, demonstrated through a reduction in credit spreads for GSS loans and bonds collectively. However, the qualitative findings of our study suggest that being green can be costly, particularly due to the costs associated with third-party verifications. Despite growing interest in this topic, the pricing benefits of being green in shipping are rather undiscovered.

The growing demand for green finance in shipping reflects a shift in investment behavior, with shipping assets being increasingly financed through green and sustainability-linked instruments. In this study, we explore the benefits of being green in financing for shipping assets. We utilize multi-variant regression to investigate credit spread differences between green, social, and sustainability (GSS) loans and bonds from 2011 to 2024, and to identify the credit spread determinants. We find that GSS deals have lower credit spreads compared to conventional deals. In addition, we find a downward trend in credit spreads over time, regardless of deal type. Moreover, we find that deal issue dates, deal sizes, tenor, assets, leverage, and profitability are the most significant credit spread determinants. Despite the financial cost advantage found for GSS deals, we further explore differences in credit spreads between shipping segments and find that “brown” shipping assets receive a penalty in GSS financing. In this context, “brown” assets particularly refer to dry bulk carriers, gas carriers, and tankers. Interactions between dry bulk and GSS deals, and between tanker and GSS deals, indicate a significant relationship with credit spread. However, this relationship did not turn out to be significant for gas carriers. Additionally, we find no evidence that companies with higher ESG disclosure scores are compensated with lower credit spreads. Overall, our findings suggest that there is a significant benefit of being green, demonstrated through a reduction in credit spreads for GSS loans and bonds collectively. However, the qualitative findings of our study suggest that being green can be costly, particularly due to the costs associated with third-party verifications. Despite growing interest in this topic, the pricing benefits of being green in shipping are rather undiscovered.