The International Maritime Organization (IMO), the UN agency responsible for regulating shipping, has set the ambitious goal of cutting greenhouse gas emissions from ships by 50% from 2008 levels by 2050. Around the world, engineers, ship owners and managers, universities, and governments have been working to develop the new technologies to make meeting this target possible.
As of last summer, support for cutting shipboard emissions has come from a very different source — big banks and financial institutions. A group of leading banks, key industry representatives, and experts have developed the Poseidon Principles, an attempt to tie the banks’ shipping portfolios to the IMO emissions targets. The Poseidon Principles are the first global climate alignment agreement between financial institutions and the shipping industry. So far, the signatories to the principles represent a combined bank loan portfolio of approximately $100 billion – roughly 22% of the total value of all shipping asset portfolios.
Michael Parker, Chairman, Global Shipping, Logistics & Offshore, Citi and Chair of the Poseidon Principles drafting committee explains, “As banks, we recognize that our role in the shipping industry enables us to promote responsible environmental stewardship throughout the global maritime value chain. 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.”
How will it work? Patrick Kingsland in Ship Technology writes:
As part of the agreement, banks will pledge to make sure that any lending decision they make takes into account a variety of climate considerations. Dr Tristan Smith, reader in energy and shipping at UCL’s Energy Institute, says that the goal is to bridge the long-term risk of climate change with the short-term decisions that usually get made within the sector.
“The Poseidon Principles are a mechanism to try and incorporate that long-term risk within the shorter-term time frame in which mortgages and loans are established and reviewed by financiers,” says Smith, who is on the advisory council of the Global Maritime Forum, an international non-profit organisation. …
It is hoped that once banks start factoring climate mitigation into their lending decisions, shipping companies will be incentivised to adopt more environmentally friendly technologies.
If a ship owner is asking for a seven-year mortgage, for example, a lender signed up to the Poseidon Principles will want to make sure that asset will not become a future liability from a carbon emissions perspective, even if it is compliant at the time the loan is issued.
“That enables the shipowner to justify a longer return on investment, and throw in a piece of technology that might need more than the next two years to pay off because they can use that as a justification in order to get the finance that they are approaching the bank for,” says Smith.