UCL Framework Scores Vessel Climate Risk for Shipping Investors

Researchers at University College London have developed a framework to help vessel investors assess how a ship may be affected by different regulatory and market outcomes during shipping's transition to cleaner fuels. The Climate Resilience Framework produces a risk score reflecting a vessel's exposure to scenarios that could emerge across the sector over the next decade. It evaluates each ship against 384 combinations of assumptions on regulation, fuel price and technology costs, drawing on more than 2,000 commercial vessels, and is intended to bring transparency and comparability to investment decisions amid significant uncertainty over future climate policy.

 

How the Framework Works

 

The framework was developed by UCL's Shipping and Oceans Research Group to offer a forward-looking view of vessel risk. It generates a risk score that reflects a particular ship's exposure to a range of possible future scenarios. These scenarios cover regulatory and market outcomes that could take shape in shipping over the coming decade. The score is designed to capture how well a vessel might withstand the sector's move toward cleaner fuels and technologies. This provides investors with a structured way to gauge transition risk.

The methodology rests on a substantial body of data and modelled assumptions. Each vessel is evaluated against 384 combinations of assumptions covering regulations, fuel prices and technology costs. The analysis draws on a sample of more than 2,000 commercial vessels from the Clarksons World Fleet Register. This breadth allows the framework to compare risk across many different ship types and design choices. The scale of the modelling is central to the tool's claim to consistency and repeatability.

 

Purpose and Underlying Approach

 

The researchers stress that the framework is not intended to forecast specific outcomes. According to Professor Tristan Smith, the tool is not about predicting winners in the transition. Instead, it aims to give the industry simple, transparent and repeatable ways to compare risk across asset and design choices. The goal is to support evidence-based conversations across shipping's value chain. This framing positions the framework as a decision-support tool rather than a predictive model.

The approach builds on earlier work while adding an economic dimension to vessel adaptability. UCL says the framework extends existing stranded-asset analysis by assigning quantifiable economic value to a vessel's ability to adapt. This includes options such as fuel switching, retrofitting or deferring investment, rather than treating them merely as a hedge. The method draws on the real option theory of strategic management. This allows flexibility itself to be valued as a measurable asset characteristic.

 

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Context of Stranded Asset Risk

 

The framework emerges from UCL's prior research on financial risk in shipping's climate transition. That work concluded that shipping faces substantial financial risk from stranded assets. This risk stems from stricter greenhouse gas regulations and a broader global shift to a low-carbon economy. On the demand side, fossil fuel demand is expected to decline, while on the supply side, carbon-intensive vessels risk becoming obsolete. These pressures form the backdrop against which the new tool was developed.

UCL's earlier findings also pointed to the role of financing in shaping this risk. The group's past research suggested that banks' lending practices could worsen the risk of stranded assets in shipping. UCL argues that all investors must actively address these risks through strategic choices and planning. This includes energy efficiency measures and proactive investment decisions. The framework is presented as a practical means of putting that principle into effect.

 

Findings on Vessel Resilience

 

The framework identifies retrofit readiness as a central protective factor for vessels. It assumes that retrofitting is a viable route for ships to improve their risk profiles. A conventional vessel that cannot be converted ranks among the riskiest assets the framework evaluates. This underscores why the ability to adapt is treated as a key determinant of resilience. Vessels lacking that flexibility are therefore exposed to greater long-term risk.

Current results point to particular vessel types as lower-risk investments under present conditions. UCL says older conventional or LNG dual-fuel efficient vessels currently represent a lower climate-risk investment. This is especially true for ships with wind-assisted propulsion, given ongoing uncertainty over the International Maritime Organization's Net-Zero Framework. Lead author Dr Marie Fricaudet noted that the industry has lacked a consistent way to compare transition risk across vessels or portfolios. The framework is intended to fill that gap for owners, charterers and financiers.

 

Industry Response and Next Steps

 

The framework has drawn a positive response during early engagement with the sector. UCL said it was well received during initial consultation with the shipping industry. It also featured in a roundtable discussion with shipowners, charterers and financiers held during London's International Climate Action Week. The framework remains under review as the researchers refine its methodology. This staged engagement is intended to test the tool against real industry perspectives.

The group also observes that recent ordering patterns appear broadly consistent with its findings. UCL notes that the shift toward conventional and LNG dual-fuel vessels reflects owners responding rationally to the absence of clear policy signals. This behaviour preserves flexibility while regulatory uncertainty around the IMO's proposed framework remains unresolved. The researchers intend to further test areas such as vessel age, energy efficiency and retrofit flexibility with stakeholders. Interested parties are invited to contact UCL for a preview of the tool ahead of its release in the coming months.