11 major shipping banks will integrate climate considerations into their lending decisions for the first time in an effort to decarbonise maritime shipping.
The newly released Poseidon Principles lay out a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios. Citi, Societe Generale, DNB and other leading international banks are committing to the promotion of greener global shipping through the new principles.
“As banks, we recognise that our role in the shipping industry enables us to promote responsible environmental stewardship throughout the global maritime value chain. The Poseidon Principles will not only serve our institutions to improve decision making at a strategic level but will also shape a better future for the shipping industry and our society”, says Michael Parker, global industry head of shipping and logistics at Citi and chair of the Poseidon Principles drafting committee.
The Poseidon Principles are the world’s first sector-specific, self-governing climate agreements amongst financial institutions. They establish a framework for assessing and disclosing the climate alignment of ship finance portfolios, which is consistent with the policies and ambitions of the International Maritime Organisation (IMO).
The principles state the sector’s ambition for greenhouse gas (GHG) emissions to peak as soon as possible and to reduce shipping’s total annual GHG emissions by at least 50 per cent by 2050 – with a strong emphasis on zero emissions. The four principles are:
- Assessment of climate alignment - Signatories will, on an annual basis, measure the carbon intensity and assess climate alignment (carbon intensity relative to established decarbonisation pathways) of their shipping portfolio using the methodology established by the Poseidon Principles in line with the Technical Guidance.
- Accountability - Signatories will exclusively rely on classification societies or other IMO-recognised organisations, and mandatory standards established by the IMO for the provision of information used to assess and report on climate alignment.
- Enforcement - Standardised covenant clauses will be made contractual in new business activities to ensure access to high-quality data.
- Transparency - Portfolio climate alignment scores will be published on an annual basis.
“The Poseidon Principles offer significant benefits to the global shipping industry and society and they allow us as banks to align and de-risk our portfolios in line with shipping’s green transition”, says Paul Taylor, global head of shipping and offshore at Societe Generale Corporate & Investment Banking and deputy chair of the Poseidon Principles drafting committee.
The principles are consistent with the policies and ambitions of the initial GHG strategy adopted in April 2018 by member states of the International Maritime Organisation (IMO) – a specialised agency of the United Nations responsible for regulating shipping. They establish a common baseline to quantitatively assess and disclose whether financial institutions’ lending portfolios are in line with adopted climate goals, they also serve as an important tool to manage critical investment risks.
The principles are intended to evolve over time as the IMO adjusts its policies and regulations, and when further adverse environmental and social impacts are identified for inclusion. They are applicable to lenders, relevant lessors, and financial guarantors including export credit agencies and are to be implemented in internal policies, procedures and standards and applied in all credit products secured by vessels that fall under the purview of the IMO.
“Urgent action is needed to advance maritime shipping’s decarbonisation. The Poseidon Principles are a groundbreaking achievement that will help ensure shipping remains a foundational component of our global economy. The Principles also represent a leading example for other sectors to follow into the low-carbon future”, says Jules Kortenhorst, CEO of Rocky Mountain Institute.
Founding Signatories include Citi, Societe Generale, DNB, ABN Amro, Amsterdam Trade Bank, Credit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea, and represent around 20 per cent of the global ship finance portfolio. Additional banks are expected to join in the near future, including Asian banks.