Poseidon Principles – Global framework for responsible ship finance
Major international shipping banks have recently launched a collaboration for integration of climate considerations into their lending decisions. The "Poseidon Principles" establish a common, global baseline to quantitatively assess and disclose whether financial institutions’ lending portfolios are in line with adopted climate goals.
The principles apply to lenders, relevant lessors and financial guarantors (including export credit agencies) who chose to participate. They apply globally for all credit products (including bilateral loans, syndicated loans, club deals, and guarantees) which are secured by vessel mortgages or finance leases secured by title over vessels of 5,000 gross tonnage or more engaged in international trade.
The four principles comprise the following commitments from each signatory financial institution:
- Assessment of climate alignment: Signatories will, on an annual basis, measure the carbon intensity and assess climate alignment (carbon intensity relative to established decarbonization trajectories) of their shipping portfolios.
- Accountability: For each step in the assessment of climate alignment, signatories will rely exclusively on the data types, data sources, and service providers identified in a common technical guidance.
- Enforcement: Signatories will agree to work with clients and partners to covenant the provision of necessary information to calculate carbon intensity and climate alignment.
- Transparency: Signatories will (i) publically acknowledge that it is a signatory, (ii) on an annual basis report the overall climate alignment of its shipping portfolio and supporting information to a secretariat and (iii) publish the overall climate alignment of its shipping portfolio in relevant institutional reports on a timeline that is appropriate for that signatory.
For borrowers it is worth noting that the signatory financial institutions have committed to use their best efforts to include a standard covenant clause in their financing documentation. This intends to ensure that the appropriate data and information are provided by ship-owners to the relevant signatories, the appropriate consents are given for the sharing of data, the data is shared, and appropriate privacy protections are established. The signatories have further committed to contribute to the update and addition of standardised clauses through the annual review process.
The Poseidon Principles are consistent with the policies and ambitions of the International Maritime Organization, including its ambition for greenhouse gas emissions to peak as soon as possible and to reduce the total annual greenhouse gas emissions by at least 50% by 2050 compared to 2008. Climate alignment is currently the only environmental factor considered by the Poseidon Principles, but the signatories recognise that the principles are intended to evolve over time and contribute to further adverse impacts being identified for inclusion in due course. Furthermore, it is recognised that some signatories may go above and beyond the goals set by the Poseidon Principles.
Whilst IMO's ambition of reducing the greenhouse gas emissions from shipping by 50 % within 2050 is an important contribution to the global combat of climate change, it is currently not clear how the industry will reach this goal. Although the Poseidon Principles does not involve a commitment to reduce the carbon footprint in the portfolio of the participating institutions, it may contribute to accountability and transparency which are important factors in an effort to achieve such reductions. We see the Poseidon Principles as a great example of how financial institutions use their position in the industry to promote responsible environmental stewardship throughout the maritime value chain and incentivise maritime shipping's decarbonisation.
For more interesting reads, see our latest Shipping Offshore Update (June 2019).