Poseidon Principles: Quarter of Banks Aligned with IMO’s GHG Goals

The Poseidon Principles released its 2022 report on the alignment of ship finance portfolios with the IMO’s current goals for reducing greenhouse gas emissions for the international shipping sector. The much celebrated effort was designed to provide transparency and encourage alignment but shows in its third annual report that only a quarter of the financial institutions participating have achieved the goals, which is down from half the institutions in 2021. Organizers of the program said the report visualizes the hard road ahead to reduce emissions.

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, it started with 11 financial institutions as signatories and has grown today to cover more than 70 percent of the global ship finance portfolio. The goal is to integrate climate considerations into lending decisions of the financial institutions in line with global climate-related goals and encourage the industry in its efforts toward net-zero emissions.

Out of the 28 financial institutions reporting their emissions data this year, only seven banks are aligned with the IMO’s ambition of reducing greenhouse gas emissions from international shipping by at least 50 percent by 2050. One bank chose to voluntarily report while two others that had also joined the initiative more recently were exempt from this year’s annual report.

The quarter of portfolios that were found to be aligned with the emissions goals compares with half in the 2021 annual report. A year ago, the report showed that eight of the 23 signatories were aligned with the goals. Organizers had said they were “very encouraged by the strides we have made,” highlighted in the 2021 annual report.

Michael Parker Chairman, Global Shipping, Logistics and Offshore, Citi, and Chair of the Poseidon Principles said he 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-plus-year lifecycle. It will take time for this trend to be reflected in our portfolios, even with the banks favoring low-carbon projects,” he says

Organizers are also highlighting that the program is evolving with this year’s report includes a more granular disclosure of emissions data which will allow financial institutions to better understand their carbon footprint. In addition to their overall portfolio climate score, 14 signatories disclosed individual scores for passenger vessel portfolios, cargo vessel portfolios, or both. According to the organizers, 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.

“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,” said Parker.

Going forward they have planned further changes for the program. 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. They have also committed to evaluating the current trajectory following the expected adoption of the Revised IMO GHG Strategy at MEPC 80 in July 2023.