Shipping banks make GHG reduction part of lending decisions

Michael Parker, Global Industry Head of Shipping & Logistics at Citi and Chair of the Poseidon Principles drafting committee

A group of leading international banks, including Citi, Societe Generale, and DNB, aim to promote greener shipping by making climate considerations a part of shipping, lending decisions.

The banks will use a framework called the Poseidon Principles for assessing and disclosing the climate alignment of ship finance portfolios. The Poseidon Principles create common global baselines that are consistent with and supportive of society’s goals to better enable financial institutions to align their portfolios with responsible environmental impacts.

So far, eleven leading banks, jointly representing approximately $100 billion in shipping finance, have signed up to use the principles and are the initial members of the Poseidon Principles Association.

“As banks, we recognize 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 & Logistics at Citi and Chair of the Poseidon Principles drafting committee.

Here’s what the principles are:

Principle 1: Assessment of climate alignment

• Signatories will, on an annual basis, measure the carbon intensity and assess climate alignment – carbon intensity relative to established decarbonization pathways – of their shipping portfolio using the methodology established by the Poseidon Principles.

Principle 2: Accountability

• Signatories will rely on classification societies or other IMO-recognized organizations, and mandatory standards established by the IMO for the provision of un-biased information used to assess and report on climate alignment.

Principle 3: Enforcement

• Standardized covenant clauses will be made contractual in new business activities to ensure access to high-quality data.

Principle 4: 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 & Offshore at Societe Generale Corporate & Investment Banking and Deputy Chair of the Poseidon Principles drafting committee.

“We encourage all our colleagues to join us in leading industry-wide change by becoming signatories of the Poseidon Principles,” says Kristin Holth, Executive Vice President, Global Head of Ocean Industries at DNB and member of the Poseidon Principles drafting committee.

The Poseidon Principles are consistent with the policies and ambitions of the Initial GHG Strategy adopted in April 2018 by IMO member states. The strategy prescribes that GHG emissions from international shipping must peak as soon as possible and that the industry must reduce the total annual GHG emissions by at least 50% of 2008 levels by 2050, with a strong emphasis on zero emissions.

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 IMO adjusts its policies and regulations and when further adverse environmental and social impacts are identified for inclusion.

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 are subject to IMO regulations.

MORE