Making waves with first Certified green shipping loan under the global Climate Bonds Standard
A first-of-its-kind green loan for the shipping industry will help New Zealand’s KiwiRail to commission and progressively upgrade two hybrid electric/diesel ferries that will carry the country towards its ambitious sustainability goals.
KiwiRail, which operates and maintains New Zealand’s rail network, has broken new ground in the shipping industry and completed the first-ever shipping green loan awarded Certification under the Climate Bonds Standard.
The pioneering NZD350 million (approximately EUR210 million) loan is a high-profile transaction in a hard-to-abate sector for which the technology and fuels for full decarbonisation do not yet exist; and one that combines innovative financing with future-proof design and engineering.
The proceeds will finance KiwiRail’s order of two new state-of-the-art ferries that carry rail wagons, road transport and people across the Cook Strait and are a vital link between New Zealand’s North and South Islands and a critical part of the country’s economy. The two ferries will add extra capacity while reducing carbon emissions by 40% compared to the current fleet by using a combination of diesel, battery and shore power. The hull and machinery space of the vessels has been designed to enable them to add battery power (or other low-carbon fuel sources) as they become available over time.
KiwiRail has targeted a 30% reduction in its carbon emissions by 2030 and to achieve net zero carbon by 2050, in line with New Zealand’s commitment to the Paris Agreement. As the country’s energy generation mix already includes 85% renewables, the ferries will make a significant contribution toward the net zero target of KiwiRail.
Societe Generale acted as Green Loan Coordinator on the transaction and the bank also arranged an NZD interest rate swap to manage currency risk for the loan. Critically, Societe Generale supported its client to achieve Climate Bonds Certification, which requires adherence to strict decarbonisation goals, both when the ships enter service in 2025 and 2026 and on a decreasing scale that aligns with the transition to net zero emissions by 2050.
No current ship design has been able to meet these Criteria, but the KiwiRail ferries’ hybrid design enables them to use electric power in port and near to shore, only switching to diesel engines when at sea. But the key to this Certification is that the ferries will be upgraded with greater battery capacity as the technology becomes available, ultimately phasing out emissions-intensive diesel power. KiwiRail has committed to carrying out these upgrades as a requirement of the loan.
“We are delighted by the Climate Bonds Certification which is further endorsement of KiwiRail’s commitment to hitting our carbon emissions reduction targets,” said Greg Miller, CEO of KiwiRail. “This once-in-a-generation investment will generate significant tourism, economic and environmental benefits for the whole of New Zealand.”
"KiwiRail and their partners have taken a leadership position in the shipping industry. This initial Certification signals a turning point for operators and investors, opening new pathways for capex and investment in mitigating emissions from global shipping,” said Sean Kidney, CEO, Climate Bonds Initiative.
"Rapid decarbonisation of transport is vital for emissions reduction, with shipping being a critical part of the sector. This world-first Certification for shipping by KiwiRail and their partners marks the adoption of international best practice for green finance, and they are to be congratulated," he added.
Critical infrastructure for a lower-carbon future
Capable of carrying passengers, wheeled transport including trucks and cars, as well as rail wagons, the “passenger roll-on, roll-off” (Ro-Pax) ferries will upgrade a key piece of New Zealand’s transport infrastructure, doubling current passenger capacity and trebling rail freight between New Zealand’s two main islands.
“KiwiRail’s success sends a strong signal to shipping providers globally, demonstrating the possibilities for innovative vessel design and a resourceful approach to securing financing for essential projects in a decarbonising world,” said Gwenael Delattre, Head of Shipping & Offshore Finance, Asia Pacific at Societe Generale.
This financing builds on Societe Generale’s track record in financing lower-carbon deals for the shipping sector, beginning with its role as Sustainability Coordinator on last year’s sustainability-linked loan (SSL) for Seaspan, the world’s largest container ship lessor1.
Financing maritime decarbonisation initiatives in APAC and worldwide is part of Societe Generale’s commitment as a founding signatory of the Poseidon Principles, which promote a lower-carbon future for the shipping industry.
“We are proud to offer innovative solutions to our clients that enable them to deliver Positive Impact. This financing constitutes an important milestone in the decarbonization journey of the shipping industry while contributing to New Zealand’s net zero carbon target,” said Yasmine Djeddai, Head of Sustainable Finance, Asia Pacific at Societe Generale.