By Michael Parker and Johannah Christensen
Around 90% of global trade by volume is carried by ships – making the maritime industry a vital player in economic growth, but at a cost. If it were a country, shipping would equal Germany for greenhouse gas (GHG) emissions.
The Intergovernmental Panel on Climate Change says limiting global warming to 1.5°C “would require rapid, far-reaching and unprecedented changes in all aspects of society” and a failure to do so “would include a dramatic rise in sea levels, extreme weather and damage to the ecosystem which together could be irreversible if emissions are allowed to grow in an uncontrolled and unaccountable way.”
Given trade growth, the maritime industry must play its part in the global transition towards a low-carbon economy. This is what led Citi, DNB and Société Générale to work with the Global Maritime Forum, Rocky Mountain Institute, University College London and shipping industry leaders to develop the Poseidon Principles – the world’s first global sector-specific and self-governing climate alignment agreement among financial institutions.
Founding signatories include Citi, DNB, Société Générale, ABN Amro, Crédit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea. Together they represent a bank loan portfolio to global shipping of approximately $100 billion – around 20% of the global ship finance portfolio. Signatories will integrate climate considerations into lending decisions with the objective to incentivize shipping’s decarbonization. We expect many more banks to join in the near future.
The Poseidon Principles provide banks with an industry-specific methodology for assessing and disclosing the climate impact of their shipping portfolios. They are supportive of the goal set by the International Maritime Organization (IMO), a UN agency responsible for regulating shipping globally, to reduce its total annual GHG emissions by at least 50% by 2050 compared with 2008 levels.
The four key points in the Poseidon Principles are:
1) Assessment of climate alignment
Signatories will measure the carbon intensity and assess the climate alignment (relative to established decarbonization trajectories) of their shipping portfolios on an annual basis
Signatories will only use data types, sources, standards and service providers established by the IMO
Signatories will work with clients and partners to standardize covenant clauses into contracts to ensure access to high-quality data
Signatories will publicly acknowledge their signatory status, and portfolio climate alignment scores will be published annually
These Principles apply to lenders, relevant lessors and financial guarantors including export credit agencies. They must be applied by all signatories in all business activities that are credit secured by vessel mortgages or finance leases secured by title over vessel, and where a vessel or vessels fall under the purview of the IMO.
The Poseidon Principles have been created to improve the role of maritime finance in addressing global environmental issues. Working with other climate-focused commitments and organizations such as the Task Force on Climate Related Financial Disclosures (TCFD), the Principles for Responsible Banking, CDP (formerly the Carbon Disclosure Project) and the Energy Transitions Commission, they establish a common baseline that provides a standard for banks to work towards their sustainability goals.
As the Poseidon Principles begin to play a larger role in maritime finance, collaborations and alignment will prove crucial in the transition to a low-carbon economy. The Poseidon Principles are designed to expand to include other important issues such as recycling and scrapping of vessels and other areas where the collective influence of the signatories can help improve the contribution the industry and its lenders can make to society.
The establishment of the Principles is intended to be the first step of a partnership between the industry and its lenders to get fair recognition of what the industry contributes to the global economy, so that the finance needed to accelerate shipping’s decarbonization is positively promoted.
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