European shipping will need to invest massively in the coming years to remain compliant with regulation obliging shipowners to reduce CO2 emissions and make the transition to sustainable production.

To that end Elbe Financial Solutions, a German investment firm based in Hamburg, has set up the first European ESG investment fund focusing on the shipping industry.

Together with its partner Eurazeo, Elbe Financial Solutions has begun attracting investors to shipping projects and has been able to launch their first fund, the Eurazeo Sustainable Maritime Infrastructure Fund (ESMI).

Newbuilds and modernization

The fund is ready to invest in all kinds of maritime newbuilds complying with environmental regulations as well as the retrofitting of existing vessels with new technology in order to meet higher environmental standards.

"It is our aim to support the modernization of the current fleet through the financing of new and greener tonnage but also to enable innovative retrofitting through various existing technologies," says Jens Mahnke, CEO and co-founder of Elbe Financial Solutions.

For a start, however, the fund is focusing on a handful of small-scale investment projects which are already being launched, including investments in river barges, wind farm supply vessels, coasters, ferries and maritime infrastructure through available environmentally friendly technology.

"We are open for any kind of shipping as well as infrastructure such as land power for cruise ships," says Mahnke.

So far, the partners have attracted EUR 115 million to the fund and are well underway to attract another EUR 300 million for maritime newbuilds, says Jens Mahnke, CEO and co-founder of Elbe Financial Solutions.

Starting out with investment in smaller vessels

"Initially, this fund realistically will start with smaller vessels such as wind farm supply ships, coasters and ferries. At a later stage, we will also invest in larger ocean-going ships, however the lack of bunkering infrastructure makes it difficult to invest in large ships at this stage," says Jens Mahnke.

Currently, the fund can handle single investments from five to 30 million Euro.

European shipping, and particularly German shipping, has found it difficult to attract investors in the wake of the 2008 financial crisis, when many shipowners went out of business, inflicting painful losses on their private and institutional investors. ESMI will have to convince investors that shipping can be a stable and healthy business.

"Shipping as such has not had a good reputation as a money-maker. Funding is difficult and equity is even more difficult to find, however, the current market may help change the perception of shipping," says Mahnke, referring to the current boom in container shipping and in the bulk market.

"In general, shipping needs more explanation to potential investors than other sectors," adds Mahnke.

In addition to private investors, two independent investors participate in ESMI. One of them is the European Investment Fund, EIF, while Jens Mahnke is not allowed to disclose the name of the second investor.

Though Elbe Financial Solutions is a German company, ESMI has mainly attracted French and Belgian investors as well as EIF. So far, no German investor has joined the investment venture, however, that is soon going to change according to Jens Mahnke.

"Our partner Eurazeo is based in Paris and initially they have focused on their closest partners. It is only a matter of time before we will widen our effort to German and Scandinavia as well as other regions," says Mahnke.

The process of attracting investors has been slowed down by the Covid-19 crisis. On the other hand, the pandemic has helped create awareness of the environment among investors, says Mahnke.

No investments in scrubbing systems

ESMI's investors have spent quite some time discussing which types of shipping projects they want to support. Scrubbers which serve to clean emissions from ship engines will not receive funding from ESMI's investors. However, another controversial technology, LNG-powered ships, may benefit from ESMI funding.

"It was the general opinion of our investors that LNG is the best solution for now to make shipping more compliant," says Mahnke.

He believes ESMI will be ready to invest in its first project in a few weeks and in ocean-going shipping within the next 6-12 months.

"The transition to sustainability is a trend that cannot be reversed," says Jens Mahnke.

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