A selection of the world`s largest banks have partnered with the Global Maritime Forum and other industry leaders to develop the Poseidon Principles, a global agreement unprecedented in the world between financial institutions seeking to decarbonize shipping. Will it work? This close cooperation from November 2017 to June 2019 resulted in the development of an agreement that not only creates a level playing field, but is also effective, pragmatic and efficient for a global and diverse group of signatories. You can learn more about Poseidon`s principles on www.poseidonprinciples.org. This model has the potential to provide a secure pathway to other sectors of our modern economy and ensure the prosperity of those who work and benefit from them. We congratulate the first signatories of the Poseidon Principles and are optimistic about the future of the agreement and the initiatives it inspires. A final innovation of the Poseidon Principles is that they are structured as a dynamic and autonomous agreement. In their original form, the principles apply to lenders, lessors and financial guarantors and apply to an environmental problem: climate change. The agreement will be updated and extended by the signatories to ensure that the principles remain relevant and effective. Expert advisors, including the Rocky Mountain Institute and University College London Energy Institute, will support this process. The World Maritime Forum will act as the secretariat of the Poseidon Principles Association, which will regulate the agreement in the future. The Poseidon Principles are the world`s first self-managed, sector-specific climate adaptation agreement between financial institutions. As a signatory to the Principles, SMBC Group will continue to improve its measures to address the risks of climate change by conducting its business in a way that contributes to both the growth of its customers and society as a whole. The Poseidons Principles, announced in June 2019, are a framework agreement to bring shipping investors into compliance with IMO 2050 requirements.
If maritime financial players are willing to take over to fight for a cleaner shipping industry, the maritime sector will be forced to do the same. The success of the cover is an important step forward for the Poseidon Principles as it brings the agreement into force. More important, however, is how the signatories began using the agreement. In their disclosures, the signatories have repeatedly noted that the Principles have contributed significantly to overcoming data-related barriers to understanding the climate impact of shipping portfolios and are a useful tool for understanding the overall climate direction of portfolios. “This agreement is not static; it will continue to grow,” Mitchell said. “Basically, for this deal to work, it has to be global, and it won`t be global without Chinese financial institutions on board.” Under the agreement, banks will commit to ensuring that every credit decision they make takes into account various climate considerations. Dr Tristan Smith, a lecturer in energy and maritime transport at UCL`s Institute of Energy, says the aim is to address the long-term risk of climate change with the short-term decisions that are typically made in the sector. In 2020, two more Poseidon-inspired initiatives were launched in the shipping industry. Poseidon`s success as a climate adaptation agreement between shipping financiers was followed in October by the launch of the Sea Freight Charter – a framework for ship charterers to assess and disclose the climate orientation of charter activities. The Poseidon Principles enable global reach by creating a level playing field. They consist of four individual principles – assessment, accountability, law enforcement and transparency – that have been carefully crafted to define how climate direction is measured and how it is disclosed. Internal transparency mechanisms are also built into the agreement to ensure data accuracy and trust between signatories.
The Poseidon Principles provide a framework for assessing and disclosing the climate orientation of ship financing portfolios. Simply put, climate guidance is defined as the extent to which greenhouse gas emissions associated with a financial institution`s portfolio are consistent with a consistently reduced trajectory towards the IMO`s 2050 climate target. The design of the principles makes this agreement much more than a typical voluntary disclosure agreement. Here`s why: “This agreement will not only decarbonise the shipping sector. We need stronger policies to achieve this, but it will play a huge role in forcing companies to think longer term and make solid plans,” Mitchell said. “This is the leading agreement in the field of climate change. This agreement is made by industry for industry, and we think it`s a model that should be replicated [in other industries]. Under the Framework Agreement, signatories such as lenders, lessors and financial guarantors will assess the sustainability of ships within their existing and future shipping portfolios using an annual efficiency rate (“OER”) of grams of CO2 per tonne-mile. Signatories must indicate whether their portfolios are in line with the climate objectives of the Framework Agreement. This effectively means that “bank liquidity is a priority for customers who support IMO target levels1”, meaning that shipowners seeking external financing will have to deal with decarbonisation. Banks will become the companion With the new agreement, banks will collect information on departure time, fuel consumption, quantity of goods, etc.
This information is used for an internal rating – or climate score – for each shipping company. These numbers are then collected again to get a final score that becomes public. The deal is the first of its kind, said Michael Parker, who heads the ship lending department at U.S. bank Citigroup and is one of the main initiators of the deal. The Poseidon Principles are a new type of climate protection agreement whose importance is difficult to overestimate. As the first global, sectoral and self-managed agreement on climate adaptation between financial institutions, these principles redefine the role of banks in the maritime sector and provide a clear path for the financial sector as a whole to make significant new contributions to global decarbonisation. Competition is the biggest challenge for any bank, investor or other financial actor that wants to “align” with an objective such as the Paris Agreement or the IMO Agreement. For example, if a single bank tries to align with a climate agreement, it may need to rebalance its portfolio away from carbon-intensive industries.
If it chooses to maintain its role in carbon-intensive industries, it runs a significant risk of losing customers and projects to competitors. Either way, the world continues largely as it was. The Poseidon Principles, which came into force in June 2019, are the first global climate adaptation agreement between financial institutions and the shipping industry. By linking funding to emission standards, they aim to reduce greenhouse gas emissions from shipping by at least 50% by 2050 compared to 2008 levels. The new historic agreement is called The Poseidon Principles. Simply put, these principles are a climate score for ship loans that banks can use to pressure ship owners. That is, if a fleet of ships is not green enough, the financial flow is interrupted. Over the past 18 months, the Rocky Mountain Institute (RMI) has worked behind closed doors with an unprecedented coalition to establish the Poseidon Principles.
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