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After attacks on ships in the Red Sea and other scandals drew attention to the plight of seafarers, leading banks want to restrict financing to ship owners who endanger the welfare of their crew.
Executives from eight banks, including ING and Citigroup, plan to meet starting in October to discuss how they can track their customers’ security commitments and limit lending to those who do not meet their standards.
The move follows a previous agreement between these banks, which lend money for large investments such as shipbuilding, to report the environmental impacts of ship owners in their portfolios, although this initiative has produced mixed results since 2019.
This development underscores growing concerns about the working conditions of the world’s 1.9 million seafarers who keep trade flowing but spend much of their time in international waters, far from the control of on-shore authorities.
This year, some ship owners have continued sailing through the Red Sea despite rocket attacks from Yemen’s Houthi militias, who say they support Palestinians in the Gaza Strip during Israel’s war against Hamas. The heightened security concerns come shortly after thousands of sailors were stranded at sea without significant support as countries closed their borders during the Covid-19 pandemic.
“Can you imagine sailing down the Red Sea not knowing if you’re going to be hit by a missile?” says Stephen Fewster, head of shipping finance at ING, who will chair the meetings of the banks, which also include ABN Amro, UBS, DNB, Nordea, SMBC Bank and SEB.
“The crew members typically come from low-income families. They don’t have the luxury of saying: I’m not going. They have to feed their families.”
Although some ship owners are contractually obligated to go where their clients send them, Fewster said ING was concerned about any ship owner who decided to sail through the danger zone near Yemen. He added: “Nobody wants to finance a company whose crew is constantly getting injured.”
Banks could require shipowners to agree to disclose a range of information before granting loans, including the number of days of work lost by staff due to injury and the level of support offered to families. Fewster said lenders could also require them to offer psychological support and internet access on board, thus “cutting off the supply of finance” to shipowners who do not meet their standards or offering better interest rates to those who do.
They will also consider how to measure shipowners’ performance on biodiversity, ethical ship recycling and gender equality. Just under one percent of seafarers are female, and the highly publicised allegations of sexual assault on board a ship owned by shipowner AP Møller-Maersk recently highlighted the vulnerability of these women.
The eight banks will decide which of these ideas to pursue before submitting proposals to the remaining 35 lenders who previously signed up to the Poseidon Principles, a 2019 agreement to track and disclose the alignment of their shipping portfolios with climate targets.
However, some have questioned the impact of this initiative, which was largely backed by Western banks, on a highly international and lightly regulated industry. About a third of lenders reported in 2023 that their portfolios were in line with their initial target of halving carbon emissions by 2050.
A senior executive at a leading ship broker said the Poseidon Principles were “a good slogan” for banks, but smaller, private ship owners continued to put their staff at risk and operate highly polluting vessels while still gaining access to finance and “making a hell of a lot of money”.
Paddy Crumlin, president of the International Transport Federation, welcomed the banks’ move.
“There are shipowners who believe they do not have to answer for respecting human rights, and yet they are rewarded. (These) shipowners must be economically disadvantaged.”
But he warned that many still evade control by registering their vessels in countries that are lightly regulated and far from their headquarters. He added that meaningful change must come through legislation. Labour rights “should be mandatory for all, with tough sanctions for non-compliance and no room for criminal companies to hide”.
