Eleven banks with a combined shipping finance portfolio of $100bn have pledged to disclose how successfully the assets are aligned with the IMO's emissions reduction strategy
Eleven major banks with significant holdings in the global shipping industry have today signed up to an extensive set of guidelines designed to accelerate decarbonisation efforts across the industry.
Christened 'the Poseidon Principles', the new rules commit signatories to disclosing the extent to which their shipping portfolios align with the International Maritime's Organization's (IMO) objective of reducing emissions by 50 per cent by 2050. Designed with insight from expert bodies such as the UCL Energy Institute and the Rocky Mountain Institute, they new principles will launch today alongside an in-depth framework for assessing a portfolio's alignment with the IMO's Initial GHG Strategy, which contains the 2050 target and was adopted in April 2018 by IMO member states.
Some of the world's largest banks have signed up to the initiative, including Citi, Societe Generale, DNB, ABN Amro, Amsterdam Trade Bank, Credit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea. Together the banks represent around 20 per cent of the global ship finance portfolio, jointly holding assets worth more than $100bn.
"As banks, we recognize that our role in the shipping industry enables us to promote responsible environmental stewardship throughout the global maritime value chain," said Michael Parker, global industry head of shipping and logistics at Citi and chair of the Poseidon Principles drafting committee. "The Poseidon Principles will not only serve our institutions to improve decision making at a strategic level but will also shape a better future for the shipping industry and our society."
The overarching principles commit signatories to "annually assess climate alignment in line with the Technical Guidance for all Business Activities", which is laid out in the initiative's framework. A series of further principles governing accountability, enforcement, and transparency are designed to ensure shipping firms provide investors with adequate information to inform their decisions.
The principles are applicable to lenders, relevant leasors, and financial guarantors including export credit agencies, and will be implemented in internal policies, procedures and standards, and applied in all credit products secured by vessels that fall under the purview of the IMO, the framework states.
Dr Tristan Smith, Reader in Energy and Shipping at the UCL Energy Institute, argued there was a compelling business case for banks to ensure their shipping assets are working to meet the IMO targets.
"Shipping will shortly undertake a rapid technology and fleet change as it inevitably shifts away from fossil fuels in order to decarbonize," he explained. "That change exposes many in the shipping industry, but particularly the banks, to risk. If banks discover too late, they have invested in ships that will become undesirable or even obsolete because of this change, they could see valuation write-downs or even defaults in their portfolio. The Poseidon Principles are a tool to demonstrate that these key stakeholders are acting responsibly and allow them to compare climate risk with each other, but also a tool that will allow them to manage critical investment risks, retaining their crucial role in providing the liquidity that enables international trade."
As well as managing their own risk, it is hoped that by prioritising climate readiness the financial institutions help catalyse commitments and action by IMO members themselves. Aviation and shipping are the only two industries to operate outside the framework of climate targets established by the Paris Agreement, but while the International Civil Aviation Organisation (ICAO) has produced detailed plans for an international carbon offsetting scheme, the IMO is widely regarded to have made slower progress, amid criticism of opaque practices that impede attempts to hold the industry accountable for carbon footprint.
In this context, the 2018 strategy - which prescribes that emissions must peak as soon as possible - was seen as a major step forward. Moreover, some of the world's largest shipping firms have committed to produce deep decarbonisation strategies and step up investment in greener technologies. And at the same time a growing number of multinationals have called on the shipping operators they use to develop credible climate strategies.
But many operators continue to lack clear emissions goal and are committed to operating ageing and polluting ships for years to come. Environmental campaigners have been disappointed by the subsequent lack of progress from the IMO in agreeing a path towards fulfilling its overarching emissions targets, accusing it of failing to fast track sufficiently ambitious policies. For example, at the most recent IMO summit, held last month in London, calls to institute new mandatory speed limits were kicked down the road despite 100 shipping CEOs signing a letter in support of the motion. The issue will be taken up again at the next GHG working group summit, scheduled for November.
However, campaigners will now be hoping that top investors can succeed where policymakers have struggled in encouraging more shipping firms to embrace credible emission reduction strategies.
Carbon targets, border taxes, and a climate bank: Von der Leyen promises overhaul of EU net zero efforts
Ahead of key vote, European Commission nominee presents ambitious decarbonisation plans as she seeks to secure backing from MEPs
Independent RSA Commission warns current farming system has exacerbated deforestation, soil degradation, and pollution - but change is possible
Seventy per cent of major firms did not report their land use impact to CDP, increasing likelihood of deforestation
In what could be his last speech as Environment Secretary, Gove will warn there is a political, economic, and moral imperative to tackle the environmental crisis