Poseidon Principles: 7 out of 28 banks in line with IMO’s GHG reduction target

Out of the 28 financial institutions reporting their emissions data in the third edition of the Poseidon Principles Annual Disclosure Report 2022, seven banks are aligned with the IMO’s ambition of halving shipping’s GHG emissions by 2050.

The Poseidon Principles are a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios pioneered in 2019 by Citi, Societe Generale, and DNB with the support of the Global Maritime Forum. The voluntary regulatory framework aims to accelerate the implementation of the sector’s green agenda while charting a path forward for banks to decarbonize their own portfolios as well.

The framework is applicable to lenders, relevant lessors, and financial guarantors including and export credit agencies. They must be applied by signatories in all business activities that are:

• 1) credit products – including bilateral loans, syndicated loans, club deals, and guarantees – secured by vessel mortgages or finance leases secured by title over vessel or unmortgaged ECA loans tied to a vessel; and
• 2) where a vessel or vessels fall under the purview of the International Maritime Organization (IMO) (e.g., vessels 5,000 gross tonnage and above which have an established Poseidon Principles trajectory whereby the carbon intensity can be measured with data from IMO DCS)

This report collates data reported by 28 signatories for their activities throughout 2021. The data is then compared to a decarbonisation trajectory for the same year to show whether, at that point in time, a ship finance portfolio was compatible with a 50% reduction of emissions by 2050.

The simple average score was +9.7%; the average of all the reported climate alignment scores calculated with each score being assigned equal importance. Signatories’ scores ranged from -12.5% to +57.3%, with 14 having a score of +5% or less.

The results show that four cargo vessel portfolios were aligned with the IMO’s Initial GHG strategy, representing a third of the results. Their simple average score for their cargo vessels finance portfolio was +0.8%.

The banks with the best portfolio alignment include Finnvera (57.3%), SACE (51.0%), Bpifrance Assurance Export (42.8%), Export Finance Norway (31.2 %), Societe Generale (15.4%), Credit Agricole (13.9%) and DNB (13.8 %).

“This year’s reporting is the most granular and extensive yet, and more banks have joined the initiative, which is very encouraging. I am pleased that signatories have been willing to be even more transparent about the makeup of the carbon footprint in their portfolios. Being transparent is the only way we can make change happen and better support clients in the crucial years for shipping decarbonization ahead of us,” says Michael Parker Chairman, Global Shipping, Logistics and Offshore, Citi, and Chair of the Poseidon Principles.

Parker is not discouraged that only a minority of reporting banks are aligned with the 2050 target.

“We are on a multi-year journey, but with this data we can see our performance, and support our decision-making with insight. Reducing GHG emissions has become a priority in the maritime industry, including for ship finance. However, ships have a 20+ year lifecycle. It will take time for this trend to be reflected in our portfolios, even with the banks favouring low-carbon projects,” he says.

More than 70% of the portfolio 

The Poseidon Principles were launched in 2019 with 11 founding members and have since grown to 30 financial institutions covering more than 70% of the global ship finance portfolio. Three signatories joined after December 2021 and are not required to report this year. One bank chose to do so, nevertheless.

“I would like to welcome the five new signatories who are reporting their climate alignment scores for the first time this year. We continue to receive strong support for data sharing and transparency among our clients, a sign that the Poseidon Principles have become an established and recognised initiative,” added Paul Taylor, Global Head of Maritime Industries, Société Générale, and Vice Chair of the Poseidon Principles.

This year’s report also introduces more granularity in the data reported. In addition to their overall portfolio climate score, 14 banks disclosed individual scores for passenger vessel portfolios, cargo vessel portfolios, or both. This data generally shows that COVID-19 continued to have a negative impact on the climate scores because of congestion and the slow recovery in the cruise business with much shorter cruises as the sector started to resume activity.

Future alignment

In September 2022, Poseidon Principles signatories committed to aligning the framework with the ambition of the Paris Agreement to limit global temperature rise to 1.5 degrees above pre-industrial levels by 2100. The banks will measure their climate alignment against this ambition once a Paris-aligned trajectory or trajectories are identified and officially adopted by the signatories.

Once a new trajectory comes into effect, both the current IMO-aligned trajectory and a Paris-aligned trajectory will be used as benchmarks. However, signatories have also committed to evaluating the current trajectory following the expected adoption of the Revised IMO GHG Strategy at MEPC 80 in July 2023, including raising its levels of ambition. It is hoped that the Annual Disclosure Report 2023 will include reporting against both a Paris-aligned and a revised IMO-aligned trajectory.