Poseidon Principles signatories release their 1st green financing report

The first disclosure report from the 15 signatories of the Poseidon Principles shows that the ship finance portfolios of three banks are aligned with the UN decarbonization targets while those of the remaining 12 banks are not.

Illustration; Image by Offshore Energy

The climate assessment offers banks new insight into their lending decisions and the climate alignment score of their ship finance portfolios.

The portfolio assessment builds on 2019 emissions data from shipping clients compared to a decarbonization trajectory for the same year.

The average score was +1.2%, with scores ranging from -44.92% to +32%. The average climate alignment score of reporting signatories was broadly in line with the 4th IMO GHG study, while of the misaligned signatories, half had a score of +5% or less.

A ship finance portfolio can be aligned as a result of a high volume of aligned ships, high loan values associated with aligned ships, or a combination of these factors.

To the extent that ships within a particular ship type resemble its global fleet peer equivalent, a bank’s portfolio score would be influenced by a higher exposure to ship types that performed better (or worse) than other ship types on average.

Additionally, a smaller number of ships in a portfolio increases the sensitivity of high or low climate alignment scores of individual ships, particularly if those ships also have a higher debt outstanding. On this basis, some financial institutions found that a limited number of vessels accounted for a significant portion of their overall score.

The report also includes commentary from financial institutions on key takeaways from their climate assessment and reflections on how it will inform their business activities and decision-making in the future.

The Poseidon Principles Annual Disclosure Report 2020 is being released a year after leading shipping banks announced the establishment of the global framework.

The key four principles include:

  • assessment of the climate alignment of signatories’ shipping portfolios relative to established decarbonization trajectories
  • accountability- committing to using IMO DCS* data and service providers approved by the IMO to calculate their shipping portfolios’ climate alignment
  • enforcement mechanism via a standardized covenant clause
  • transparency-reporting on the overall climate alignment

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The general idea behind the framework is for the signatory banks, as capital providers, to support the objectives of the International Maritime Organization (IMO), the primary issue being climate change.

The core trajectory being followed is the IMO target of cutting the shipping industry’s greenhouse gas (GHG) emissions by 50 percent by 2050 when compared to 2008 levels.

“This report marks a significant milestone for global ship finance and for climate finance reporting as a whole. I commend my fellow Signatories for their pioneering efforts to be transparent and accountable for their role in promoting responsible environmental behavior. I encourage other serious banks and export credit agencies to join us in supporting global seaborne trade in a sustainable manner,” says Michael Parker, Chairman, Global Shipping, Logistics and Offshore, Citi, and Chair of the Poseidon Principles Association.

The 15 signatories include ABN Amro, Amsterdam Trade Bank, BNP Paribas, Bpifrance Assurance Export, CIC, Citi, Credit Agricole CIB, Danish Ship Finance, Danske Bank, DNB, Eksportkreditt Norge, ING, Nordea, Sparbanken Vest, and Societe Generale.

Out of these, ING, Export Credit Norway and Bpifrance Assurance Export had their portfolios aligned with the IMO’s targets.

“Decreasing the carbon footprint of our cruising portfolio falls within a larger set of measures taken by the French government to encourage transition towards greener industries, and the Poseidon Principles represent an efficient way to provide actual figures enabling all the players of this specific industry to better set and reach their decarbonization objectives,” François Lefebvre, General Manager at Bpifrance said.

Financial institutions joining the Poseidon Principles in 2020 are not required to report before 2021.

Overall, 20 financial institutions have joined the Poseidon Principles, representing over $150 billion in loans to international shipping – more than a third of the global shipping finance portfolio.

The principles were developed by global banks – Citi, Societe Generale, and DNB – in collaboration with A.P. Møller Mærsk, Cargill, Euronav, Gram Car Carriers, Lloyd’s Register, and Watson Farley & Williams – with expert support by the Global Maritime Forum, Rocky Mountain Institute, University College London Energy Institute, and UMAS.