Germany’s coal-fired power plants and the collapse of KG funds offer valuable lessons on how climate-related transition risks could unfold in shipping, if left unchecked.
- Shipping and Oceans team
- 13 hours ago
- 4 min read
New research by UCL and Strider Carbon shows financiers persistently priced in transition risk late in Germany’s power sector — and warns shipping's banks and investors are exposed to the same blind spot; underestimating the speed at which transition risks materialise.
London, 13th August 2026 - Shipping lenders and investors risk repeating the mistakes made by Europe's electricity utilities and their financiers a decade ago, and the financial fallout could reach far beyond individual shipowners to lenders, investors, cargo owners and other supply-chain stakeholders.
The report, Lessons from electricity sector transitions and historic shipping collapses for understanding shipping stranded asset risks, by UCL Energy Institute's Shipping and Oceans Research Group and Strider Carbon examines how stranded assets actually materialised during the renewable energy transitions in Germany and the UK, and how the resulting losses spread from asset owners to banks, retail investors and other stakeholders. It combines this with analysis of two shipping-sector precedents — the collapse of Germany's KG shipping fund model and the bankruptcy of Hanjin Shipping — to draw out what could happen as shipping decarbonises.
Previous UCL research has estimated that as much as a third of the value of the current and ordered global fleet is at risk of stranding under a 1.5°C-aligned transition. This new report goes further, tracing how that could play out unless actions are taken now to mitigate the risk — and who ends up bearing the losses.
Dr Marie Fricaudet, Senior Research Fellow at the UCL Shipping and Oceans Research Group commented: “Our analysis of past energy transitions indicates that asset impairments often begin well before new technologies dominate the market. For shipping, this suggests transition pressures could affect fossil-fuel vessels while alternative fuels still hold a modest market share”
Key findings and implications for the shipping industry:
Stranded asset risks start earlier than expected: In both the German and UK electricity transitions, asset impairments and early plant closures began when renewables still represented only a modest but fast-growing share of generation — not once low-carbon technology had already taken over. The report suggests shipping could see similar pressure on fossil-fuel-dependent vessels well before alternative fuels reach significant market share.
Financiers are typically slow to price in risk: Equity markets and credit rating agencies in Germany were largely inert until stranded assets had already begun to materialise; Moody's did not flag German-specific stranded asset risk until 2014, almost a decade later from the point at which renewables were gaining traction. The same slow recognition pattern shows up in shipping's own history — most notably in the KG fund collapse, where banks deferred enforcing debt claims to avoid fire sales, a decision that delayed rather than prevented the eventual losses.
Early diversification pays off – waiting until there is certainty doesn’t: UK utilities that invested in renewables early were better shielded from financial losses than German utilities that stuck with incumbent technology. The report suggests shipping companies and investors that diversify early into more efficient, Scalable Zero Emission Fuel-compatible (SZEF as defined in Climate Action in Shipping - Progress towards shipping’s 2030 breakthrough) and SZEF-retrofit-ready or vessel types less exposed to fossil cargo trade may be better placed to manage the transition ahead.
Losses don't stop with shipowners: The KG fund collapse imposed severe losses on retail investors and contributed to major loan impairments at Commerzbank and HSH Nordbank. The 2016 collapse of Hanjin Shipping — the largest bankruptcy in container shipping history — left $14bn of cargo stranded at sea, hit 8,300 cargo owners, and exposed Korean policy and commercial banks both as direct lenders and as beneficial owners of leased vessels. The report finds that sufficiently large devaluations can pass losses through the entire maritime financial ecosystem, even to parties with no direct ownership stake..
Prasanna Colluru, Managing Director at Strider Carbon, said: “Ship finance relies on mechanisms such as seniority, asset collateral and short tenors to mitigate risk. The KG and Hanjin case studies show that these protections, which held through ordinary shipping cycles, proved less reliable in practice once losses became systemic. Transition risk will test these levers in much the same way, as it manifests through several channels — policy and technology, their timing, and their interaction with the freight market. The institutions that fared best in the historical shipping cases recognised losses early and acted on them rather than deferring.”
The report's authors argue that shipowners, financiers and policymakers should not wait for certainty before acting. Public financial institutions — including development banks, state-backed lenders and export credit agencies — are highlighted as bearing a disproportionate share of losses in past shipping crises, underscoring the case for early assessment and disclosure of climate-related transition risk in shipping portfolios.
The report notes important limits to the comparison. Shipping is far more fragmented than the concentrated electricity sector, is governed internationally through the IMO rather than by national policy, and ships (unlike power plants) can in some cases be retrofitted rather than replaced. However, the core financial mechanics — slow risk pricing, the protective value of early diversification, and loss transmission from owners to lenders — hold across both sectors.
