Contracts can drive climate action in shipping, even when regulation lags

When regulation slows down, the climate emergency does not.

The International Maritime Organisation (IMO) has delayed the next round of measures to drive emissions reductions from ships under its 2023 strategy on the reduction of GHG emissions from ships. Some in the maritime sector may see this as a break or a chance for a pause. In reality, it is the opposite.

Delays and rollbacks do not reduce climate risks; they increase them. They widen gaps between jurisdictions and business practices and raise uncertainty. This slows investment and amplifies risk for shipowners, charterers, cargo interests and financiers alike. And under increasing scrutiny, these risks are also now a concern for professionals who advise, contract, finance, or insure maritime operations. As we explain in our article “Climate risk is professional risk,” lawyers and advisers who fail to address foreseeable climate-related risk may fall short of their duties of competence, diligence and care.

The need for climate action in shipping doesn’t vanish with a regulatory delay. It becomes more urgent. Transition risks increase and the opportunity for companies to create a competitive advantage from minimising disruption diminishes. The question is: how can the industry, which accounts for around 3% of global emissions, continue to make progress while regulation catches up?

The answer includes one of the oldest tools of commerce: contracts.

Contracts as tools for climate progress

At TCLP, we have shown that contracts are among the most practical ways to turn climate ambition into action. They’re a well-understood, familiar commercial practice and legal tool that are embedded into and underpin transactions globally in all sectors. They can be written up and put into practice faster than regulation, operate across borders and bind parties to real commitments.

In the next 12 months, contracts may be the most effective mechanism for keeping momentum alive in shipping’s journey to net zero. With the IMO’s delay, the industry has a window to act. Contractual tools are already available to help rewrite charterparties, fuel-supply agreements, and financing and logistical contracts so they embed climate objectives and prepare for transition risks. Contracts give the industry a practical way to manage transition risk. First movers can use them to innovate, set best-practice transition norms, and gain the commercial advantages of disruption and early adoption. Used thoughtfully, contracts can:

• Reduce uncertainty by setting clear obligations that align with anticipated future standards.
  
• Align incentives between owners, charterers, cargo owners, ports, fuel suppliers and financiers.
  
• Build readiness now, so when regulation arrives, the industry is prepared. Having systems, fuel chains, data flows and cost-sharing frameworks in place will create more resilient supply chains, less exposed to sudden shocks.
  

Contracts can help keep the transition moving even if regulation slows.

Three practical areas for contractual focus

The IMO strategy groups its measures into technical, operational and economic elements. For commercial practitioners, these boil down to 3 practical domains where contractual language could play a role:

1. Ship engines and onboard technology: improving efficiency, enabling fuel flexibility.
   
2. Bunker fuel sourcing: shifting to lower or zero-greenhouse gas (GHG) emitting fuels, and verifying emissions.
   
3. Supply-chain operations and logistics: coordinating ports, charterers and cargo flows to reduce wasted fuel.

Let’s explore each and consider how contracts might help.

1. Upgrading the fleet: contracts to encourage retrofit and efficiency

Improving vessel efficiency often means expensive upgrades or new technology. Contracts could help share those upfront risks and costs and ensure upgrades actually happen.

For example, a charterparty or finance agreement might include a retrofit cooperation clause. Under this clause, the owner agrees to upgrade propulsion or energy-saving systems within a set timeframe. The charterer contributes through adjusted hire once fuel savings are verified, and both parties share in the benefits. In addition, long-term contracts could benefit both parties by reducing risk and ensuring mutual benefits. Contracts might also require the vessel to maintain a minimum performance rating (such as under the IMO’s Carbon Intensity Indicator (CII)) or trigger remedial action if the rating drops.

These are not yet standard, but they could turn silent retrofit commitment into a visible part of commercial risk allocation. For lawyers and advisers, including such clauses is part of managing both commercial climate risk and professional risk – clients will expect the contract to reflect known transition challenges.

2. Changing the fuel and contracting for cleaner energy

The IMO plans a goal-based fuel standard to cut the GHG intensity of marine fuels. While that standard is not yet fully in force, the industry can prepare now, and contracts can help.

Fuel-supply agreements or charterparties might include a fuel specification clause requiring a maximum emissions-intensity (for instance, grams CO₂e per MJ) and certifications of lifecycle (“well-to-wake”) emissions. They might also include a premium-sharing mechanism for cleaner fuels. If the alternative fuel costs more than conventional bunkers by a set amount, the extra cost can be shared between the owner and charterer according to a pre-agreed formula. An alternative-fuel option clause might allow a charterer to request a cleaner fuel for certain voyages, subject to availability and agreed cost-sharing.

These kinds of contract language remain suggestions rather than standard practice today. But including them sends a signal: the market is preparing, and the supply chain is shifting. Advisers drafting or negotiating such contracts are helping their clients manage transition risk and avoid being caught off guard.

3. Greening the supply chain and turning collaboration into commitment

Decarbonisation in shipping isn’t just about engines and fuel. Operational behaviour and supply-chain coordination matter a great deal. Congested ports, inefficient routing, idle time, and lack of data all waste fuel and create emissions. Contracts could help turn cooperation into commitment.

Time and voyage charterparties might include voyage-planning and optimisation clauses. For example, requiring the parties to cooperate to reduce idle time, facilitate just-in-time arrivals, coordinate with port authorities, exchange voyage data, and monitor vessel performance metrics. Cargo-owner contracts could include a clause requiring the carrier vessel to meet a defined minimum CII score (or a specified emissions benchmark) and to provide verified data after each voyage. Across the chain, data-sharing clauses could require consistent fuel and emissions reporting in a format aligned with the IMO’s Data Collection System (DCS).

These suggestions do not impose new regulations, but they give legal form to operational improvements that reduce emissions and reduce risk. From a professional-risk perspective, advising clients to include this sort of clause helps them stay ahead of regulatory, investor and insurer pressure.

Managing risk and reward through contracts

One of the great strengths of contract‐based action is that it treats climate and transition risk the way shipping treats other commercial risk: by allocating it, pricing it, and tracking performance with corresponding rewards and disincentives.

With regulatory programs moving at different speeds around the world (for example, the EU Emissions Trading System now covering shipping, while other jurisdictions lag), industry is already exposed to regulatory divergence. Contracts can help bridge those gaps. For instance, a change-in-law clause might provide for cost pass-through if a carbon levy or new fuel standard is introduced during the charter term, so neither party is caught unprepared. Similarly, a just-transition provision might require parties to cooperate in training crews for new fuels. It could also prioritise upgrades on vessels operating in developing-country trades, reflecting the IMO’s ambition for a fair global transition.

For legal professionals, these are not just novel ideas – they are ways to co-opt existing legal tools and repurpose established contractual mechanisms and practices to help clients manage risk in a warming world. As our resources on climate risk explain, lawyers, advisers and in-house counsel who ignore foreseeable transition risks may fail to meet their professional obligations. Encouraging stakeholders in the maritime sector to consider retrofit, alternative fuel, data, and supply-chain clauses now helps them manage the commercial risks of transition. It also allows them to capitalise on opportunities by challenging norms and being early movers in adaptation. And supporting lawyers to identify and manage climate risks emerging from regulatory uncertainty enables them to fulfil their professional duty to advise competently.

A call to action for industry leaders

Contracts are not a substitute for regulation, but they can help lead the way and ensure you don’t get left behind. When the industry shows that higher ambition is workable, regulators gain confidence to act.

That means this coming year is more than just a pause. It is a chance to prove leadership and realise the climate and commercial gains of adapting early.

The world’s major shipping companies, and the large brands whose goods they carry, are in a position to make a meaningful difference. Every charter, freight agreement and contract signed this year can either reinforce the status quo or begin to shift expectations.

What you might consider:

• Shipowners and operators: consider including clauses that support fuel transition, retrofit and data reporting in your contracts. Thinking ahead helps share risk and unlock opportunity.
  
• Charterers and cargo owners: you might ask your carriers to meet specific fuel- or emissions-standards, and include cost-sharing or verification language.
  
• Financiers, insurers and port/terminal operators: you could tie your lending, underwriting or service agreements to climate-readiness criteria, data transparency and retrofit plans.
  

At TCLP, our open-source library of climate-aligned contract clauses is available now and could provide the base from which clauses covering data-sharing provisions, retrofit-cooperation clauses and alternative-fuel terms could be drafted and implemented.

We invite maritime professionals, on board[s], on shore and in the law firms, who are interested to get in touch. We can come alongside you to co-develop these tools, adapt them to your context, and start addressing these risks now. Together, we can turn contract language into operational change, and operational change into credible climate progress.

Regulation may have slowed. The need for climate leadership has not. Let’s use contracts to stay on course.

This article used ChatGPT for sourcing, Gemini for fact-checking, and was reviewed by 3 (human) subject matter experts.