11 major shipping banks, representing a bank loan portfolio to global shipping of approximately $100 billion will for the first time integrate climate considerations into lending decisions to incentivize maritime shipping’s decarbonization.
The Poseidon Principles are a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios consistent with the policies and ambitions of the Initial GHG Strategy adopted in April 2018 by member states of the International Maritime Organization (IMO), a specialized agency of the United Nations responsible for regulating shipping.
The Principles were developed in an effort spearheaded by global shipping banks – Citi, Societe Generale, and DNB – and leading industry players – A.P.Møller Mærsk, Cargill, Euronav, Lloyd’s Register and Watson Farley & Williams – with expert support provided by the Global Maritime Forum, Rocky Mountain Institute and University College London Energy Institute.
The Poseidon Principles establish a common baseline to quantitatively assess and disclose whether financial institutions’ lending portfolios are in line with adopted climate goals. In this way, 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 also aim to support other initiatives developed to address climate, environment, and social risks, such as the Principles for Responsible Banking, Energy Transitions Commission, and the Task Force of Climate-Related Financial Disclosures.
The Poseidon Principles are applicable to lenders, relevant lessors, and financial guarantors including export credit agencies. They are implemented in internal policies, procedures and standards and applied in all credit products secured by vessels that fall under the purview of the IMO.
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% of the global ship finance portfolio. Additional banks are expected to join in the near future, including Asian banks.
“The Poseidon Principles are the starting point for pricing in the climate risk of financial institutions’ ship finance portfolios. The disclosure of a bank’s portfolio climate alignment score is the catalyst for banks to start thinking about why particular ships in their portfolio don’t perform as well as others compared to the climate target. It provides the impetus for determining what solutions can be applied to reduce their carbon footprint in the future and to consider the risk of devaluation if they remain exposed to fossil-fuel dependent assets. This will become increasingly important as the shipping industry moves away from fossil fuels to clean fuels.” Dr Sophie Parker, Principal Consultant, UMAS
“Shipping will shortly undertake a rapid technology and fleet change as it inevitably shifts away from fossil fuels in order to decarbonize. That change exposes many in the shipping industry, but particularly the banks, to risk. If banks discover too late, they have invested in ships that will become undesirable or even obsolete because of this change, they could see valuation write-downs or even defaults in their portfolio. The Poseidon Principles are a tool to demonstrate that these key stakeholders are acting responsibly and allow them to compare climate risk with each other, but also a tool that will allow them to manage critical investment risks, retaining their crucial role in providing the liquidity that enables international trade.” Dr Tristan Smith, Reader in Energy and Shipping, UCL Energy Institute