A new report from the UCL Energy Institute and Strider Carbon finds that while banks seem largely insulated from direct losses when climate transition risks strand individual vessels, industry-wide behaviour may be converting transaction-level credit risk into a deferred, systemic refinancing problem as a result of the energy transition and tightening shipping emission regulations. The report, “Exploring the Financial Impacts of Transition-Related Stranded Asset Risks,” examines how climate-driven devaluations, for example arising because a ship is unable to cost-effectively comply with GHG regulations, can cascade through the most common ship financing structures. The report maps the resulting exposures onto standard banking risk categories and evaluates the mitigation strategies currently being deployed by European financing institutions.

Prasanna Colluru, Managing Director at Strider Carbon, said: “Tracing how transition risks map onto traditional credit risk categories gives banks a supporting lens for assessing their ship finance portfolios and strengthening their climate risk management strategies. This analysis shows where existing debt structures are resilient, and where the architecture of those structures may be creating vulnerabilities that aren’t…