Influencing Maritime Sustainability through Finance – The Poseidon Principles
In 2018/19, signatories agreed to self-obligation of reducing Greenhouse Gas Emissions through sustainable vessel financing. The leading financial institutions agreed to a framework called the “Poseidon Principles”, which assesses and discloses the climate alignment of ship finance portfolios. In 2021, eighteen financing banks had agreed and signed the principles, whilst several leading shipping companies such as Maersk, Cargrill, and Eurovan were involved in developing the reporting standards.
The framework leans towards the climate goals of the International Maritime Organisation; however, the principles exceed what has been standardised by the IMO. Nevertheless, the current framework only considers climate alignment as the only relevant factor. Still, it is not said if other measurements, such as the principles of ESG, might be adopted in the future.
Responsible Ship Finance
The Poseidon Principles provide a framework for integrating climate considerations into lending decisions to promote international shipping’s decarbonization (poseidonprinciples.org)
Who does it apply? (Source: poseidonprinciples.org)
These Principles apply to lenders, relevant lessors, and financial guarantors, including export credit agencies. All Signatories must use them in all business activities that are:
· Credit products – including bilateral loans, syndicated loans, club deals, and guarantees – secured by vessel mortgages, finance leases secured by the title over a vessel, or unmortgaged ECA loans tied to a vessel
· Where a vessel or vessels fall under the purview of the IMO.
Who does it apply to?
These Principles apply to lenders, relevant lessors, and financial guarantors including export credit agencies. They must be applied by all Signatories in all business activities that are:
…credit products – including bilateral loans, syndicated loans, club deals, and guarantees – secured by vessel mortgages, finance leases secured by title over vessel, or unmortgaged ECA loans tied to a vessel
…where a vessel or vessels fall under the purview of the IMO.
Source: poseidonprinciples.org
The signatories agree upon four main principles:
1.) Assessmentment of climate alignment
“We will annually assess climate alignment in line with the Technical Guidance for all Business Activities” (PoseidonPrinciples.org)
The first principle refers to the fact that carbon intensity data will be generated, which refers to the CO2 footprint of a vessel within Stage 1 Emissions. Such data will then be mapped against decarbonisation trajectories, the technical guidelines that exceed IMO regulations.
After that, the term “Climate Alignment” is coined. Climate Alignment will establish how close the vessel, the product or the portfolio is aligned with the decarbonisation trajectory. In simple terms, can the ship meet its CO2 reduction targets?
Decarbonisation trajectories are a measurement that represents how many grams of CO2 a single ship emits to move a tonne of goods one nautical mile within a specific time.
2.) Accountability
“We recognise the important role that classification societies and other IMO- Recognized Organizations (“RO”) play in providing unbiased information to the industry and the mandatory regulation established by the IMO for the data collection and reporting of fuel oil consumption from ships (the “IMO DCS”). We will rely on such entities and mandatory regulations as explicitly identified in the Technical Guidance for the provision of information used to assess and report on climate alignment.” (PoseidonPrinciples.org)
The signatories agree to the data's exact type and calculation method within the Accountability principle. This is extremely important, as it ensures that companies are appraised and compared and that greenwashing based on wrong calculations can not occur. The system used is based on the IMO Data Collection System, which was started in 2019. All ships over 5.000 gross tonnages which engage in international trade must report in this system.
3.) Enforcement
“ We will require that ongoing compliance with the Poseidon Principles is contractual in our new Business Activities using standardised covenant clauses. We will contribute to updating and adding standardised clauses through the annual review process.” (PoseidonPrinciples.org)
The Enforcement focuses on sharing the data between the signatories and ensuring that the burden is equally shared and fair. Therefore the language and details are unified across the institutions, providing that every lender can equally move from one bank to another and compare the loan agreements and the respective offer.
4.) Transparency
“We will publicly acknowledge that we are a Signatory of the Poseidon Principles, and we will publish the results of the portfolio climate alignment score of our Business Activities on an annual basis in line with the Technical Guidance.” (PoseidonPrinciples.org)
A financial institution which is a signatory must disclose such. At the same time, the signatories will report the overall climate alignment on their portfolio before the 30th of November and provide the scores on the Poseidon principles website.
Signatories commit to implementing the Poseidon Principles in their internal policies, procedures, and standards and to work in partnership with their clients and partners on an ongoing basis to implement the Poseidon Principles.
The Poseidon Principles are intended to evolve over time to include other issues where the collective influence of financial institutions can help improve the contribution the industry and its leaders can make to society.
Further Resources:
Website of the Signatories: www.poseidonprinciples.org / Email: info@poseidonprinciples.org
DNV Services: https://www.dnv.com/maritime/advisory/poseidon-principles.html
Marine Money: Marine Money | The Premier Ship Finance Network
Lloyds Register: Zero-emission vessels: Transition Pathways (lr.org)
IMO Greenhousegas Study: Fourth Greenhouse Gas Study 2020 (imo.org)
