NYK issues first green bond from the shipping sector – green enough for now but not for long
What’s it all about
Global transport and shipping giant, Japan’s Nippon Yusen Kaisha (NYK) closed the first green bond in the shipping sector on 24 May 2018. The JPY10bn (USD92m), 5-year bond benefits from a second party opinion from Vigeo Eiris.
Decarbonising shipping is crucial. Shipping currently accounts for c2.5% of global emissions, but left unchecked shipping emissions are expected to grow by 50-250% by 2050.
Proceeds from NYK’s green bond finance and refinance LNG-fuelled ships, LNG-bunkering ships, ballast water management systems and SOx scrubber systems. From a climate perspective, we focus on the LNG-fuelled ships and bunkering ships.
We take a closer look
This Climate Bonds special briefing offers in-depth analysis of the environmental credentials of NYK’s green bond.
The short summary: NYK’s green bond is included in the Climate Bonds database
The assets financed by NYK’s bond are currently the lowest-emission asset option for long-haul shipping, provided methane slip is kept to an absolute minimum. Annual reporting will be crucial to provide assurance that the expected levels of emission cuts are achieved in practice.
Fuel efficiency optimisation is important, particularly when designing the vessels, but also during operation. While renewable fuels are not yet commercially viable for long-haul shipping, best practice would be to incorporate flexibility at the initial design stage of the ships to easily retrofit the ships to run on renewable fuel in the future.
Where to from here?
The Climate Bonds Taxonomy and Climate Bonds Standard are based on climate science and limiting global warming to below 2-degrees target as set in the Paris Agreement and also takes commercial viability into account.
The governance process includes sector-specific Technical Working Group (TWG) and Industry Working Group (IWG) in the development of Criteria that apply under the umbrella Climate Bonds Standard.
The groups are composed of recognised subject matter experts, scientific, academic and international agency representatives, NGOs and industry stakeholders. The TWG is responsible for developing the criteria, while the IWG provides feedback on the proposed criteria.
The Taxonomy and Standard are flexible to adapt to increasing ambition. As renewable alternatives start becoming available and viable for long haul shipping – expected in the next 3-5 years or so – new green bonds in the shipping sector will have to offer more drastic emission reductions than we see in this initial green bond from NYK to qualify for inclusion in our green bond database.
Climate Bonds to form Shipping Criteria development process
As advised in our last Newsletter, we’re in the process of establishing a Shipping TWG and also an IWG to develop specific eligibility requirements for shipping-related green bonds.
The Working Groups will consider options at the operational level as well as the asset level, and establish a clear baseline to measure emission reductions against.
NYK has foreshadowed they will be member of the IWG.
If you would like to join the TWG or IWG contribute with your expertise and send us your feedback. Please send your submissions and comments to Katie House, Senior Research Analyst (email@example.com).
The Last Word
‘Till next time