Written by Ioanna Tsekoura
In the first and second articles of our three-part series, we examined the Poseidon Principles and their implementation. In this third article, we consider the takeaways of the first Annual Disclosure Report published in December 2020.
The first sector specific climate alignment report1 published by the Poseidon Principles’ Signatories revealed that the carbon intensity of the shipping portfolios held by 15 lenders during 2019 was on average only 1.2% off from the IMO’s decarbonisation goals for 2050. Financial institutions joining the Poseidon Principles in 2020 are not required to report before 2021.
What has become evident is that the portfolios of shipping lenders are largely in line with the agreed decarbonisation goals. However, there are significant individual variations. The assessment by each Signatory consists of emissions data collected from the borrowers/shipowners and each Signatory’s lending portfolio information from 2019, compared to a decarbonisation trajectory for the same year. The trajectory is based on IMO goals to reduce total annual greenhouse gas emissions by at least 50% by 2050 compared to 2008. Out of the 15 lenders, only three banks’ ship finance portfolios appeared to be in line with the UN decarbonisation targets, leaving a majority of 12 banks’ portfolios “off-piste”. The alignment of a ship finance portfolio could be a result of the high number of aligned vessels, the high loan values of these aligned vessels or a combination of these factors. Looking purely at the vessels, their performance against the decarbonisation trajectory was influenced by, among other factors, their age, type, size, and speed as well as their routes and time in port.
A crucial takeaway from the first climate assessment report is the importance of understanding the climate footprint of the Signatories’ ship finance portfolios. This should enable the lenders to work proactively with the borrowers/shipowners on the path to decarbonisation.
Despite the shipowners’ initial concerns surrounding confidentiality of their data as well as the possibility of their data being overanalysed – giving a competitive advantage to rivals – such concerns were considerably reduced by the anonymity that surrounded the use of the data. The focus has now shifted to how the Signatories and the borrowers/shipowners can work together for the benefit of the industry.
At the time of writing, there are 24 Signatories to the Poseidon Principles (compared with 17 when we published our first article in February 2020), jointly representing approximately USD 175 billion in loans to international shipping companies. Four more Asian financial institutions recently signed up to the Poseidon Principles and together with Sumitomo Mitsui Trust Bank, which joined in March 2020, this adds up to a total of five Signatories from Japan. The Signatories remain hopeful that Chinese financial institutions will join the initiative soon, considering China’s climate pledges and their commitment to achieving carbon neutrality by 2060.
Following the example of the Poseidon Principles, the Sea Cargo Charter initiative was born2. Some charterers who were part of the drafting group of the Poseidon Principles voiced the need for a transparent process for reporting emissions related to chartering activities. Launched in October 2020, the Sea Cargo Charter was led by a diverse group of cargo owners and traders – Anglo American, Cargill, Dow, Total, Trafigura – and shipowners – Euronav, Norden, Stena Bulk – with the support of the Global Maritime Forum, UMAS and Smart Freight Centre. It provides a global framework for aligning chartering activities with responsible environmental behaviour to promote the decarbonisation of international shipping. The Sea Cargo Charter, which currently counts 19 Signatories, is consistent with the policies and ambitions adopted by the IMO, including its ambition to reduce greenhouse gas emissions from international shipping by at least 50% by 2050.
Maersk Tankers’ Chief Commercial Officer Eva Birgitte Bisgaard has called the Sea Cargo Charter “ground-breaking in what it can unlock” following the company’s decision to sign up to the emissions reporting initiative earlier this year. Bisgaard added that the Sea Cargo Charter was an “important step” toward decarbonisation.