- The Poseidon Principles are the first global climate alignment agreement between financial institutions and the shipping industry.
- Aim is to cut greenhouse gas (GHG) emissions in shipping by at least 50% by 2050 compared with 2008 levels.
- Banks have invested over USD 400 billion in over 70,000 commercial ships that are currently on the oceans.
- Poseidon Principles enables lenders and banks to continue to approach shipping competitively, while working collaboratively to promote environmental behaviour.
- Banks will not finance to put new assets on the water that are not compliant with the Paris Agreement.
The Poseidon Principles connect financing to emissions standards, aims to cut greenhouse gas (GHG) emissions in shipping by at least 50% by 2050, writes Hunter B. Martin for an article published in the Wartsila website.
Why Poseidon Principles?
The Poseidon Principles came into effect in June 2019. These are the first global climate alignment agreement between financial institutions and the shipping industry.
By connecting financing to emissions standards, their aim is to cut greenhouse gas (GHG) emissions in shipping by at least 50% by 2050 compared with 2008 levels.
Global GHG emissions
James Mitchell, manager of the global climate finance program at the Rocky Mountain Institute said that the international shipping industry produces 2-3% of global greenhouse gas emissions.
Increase in emission rate
As the number of ships on the seas keeps increasing due to demand, the rate of emissions will only go up.
Mitchell said that there is a projection that shipping emissions will increase 50-250% in 2050. “So, we should be decarbonising.”
Banks investments as ‘part of the solution’
According to Paul Taylor, global head of shipping and offshore at Société Générale Corporate and Investment Bank, banks have invested over USD 400 billion in over 70,000 commercial ships that are currently on the oceans.
Taylor said as a capital provider, the banks understand the impact underlying collateral vessels have on the environment. He added that it is good to be part of the solution and embrace the changes that are currently taking place in the shipping sector as part of the energy transition.
About the Poseidon Principles
Taylor is the vice chairman of the Poseidon Principles. The Rocky Mountain Institute was part of the core drafting group that wrote the Principles along with
- University College London,
- the Global Maritime Forum,
- three banks,
- shipowners and
- a classification society.
The Poseidon Principles goal
The goal of the Poseidon Principles is to enable lenders and banks to continue to approach shipping competitively, while working collaboratively to promote responsible environmental behaviour.
Future models
Banks are working together to analyse potential future business models through the lens of climate risks to lending portfolios.
Banks role in climate targets
Taylor said, “As the first bank-led, sector-specific climate alignment initiative, the Poseidon Principles will help establish the huge role banks can play in helping a given sector meet climate alignment targets, consistent with wider bank commitments such as the Paris Agreement, and the Katowice Agreement.”
No financing for non compliant assets on water
The Helsinki of SEA20 meeting was held in june, by Wärtsilä led by Smart and Ecologically Ambitious maritime cities to promote maritime sustainability. In the meet, , Jules Kortenhorst, chief executive of the Rocky Mountain Institute said that maritime finance portfolios need to plan ahead to meet environmentally responsible regulations.
Kortenhorst said that no longer will the banks provide financing to put new assets on the water that are not compliant with the Paris Agreement.
John Hatley, Americas Vice President of Wärtsilä Marine Solutions and Director of Market Shaping, said, “The Poseidon Principles represent a major global step change towards moving the entire marine community environmental stewardship as it’s ‘money that fuels deals’ across commercial investments.”
Poseidon Principles signatories
Currently there are 11 Poseidon Principles signatories from American and European financial institutions. However, Chinese banks control about 25% of all ship finance, according to the Wall Street Journal.
Asia should support
Taylor said, “We expect Asian banks, including Chinese lenders, to be in the next wave of signatories to reflect Asia’s preeminent position in shipping. I am confident that Chinese lenders and export credit agencies will support the Poseidon Principles in the coming months, as will financiers from Japan, Korea and Singapore.”
Making more money available
Both Mitchell and Taylor say that the shipping industry has to learn to plan 5, 10 or even 15 years in advance. This can be difficult considering that many shipping contracts only last six months to a year.
Available liquidity
Taylor said that the Poseidon Principles should ensure that there is greater liquidity available for new investments, including new fuels and technologies.
This will force banks to take more risk in the short term, alongside shipowners.
Impact of The Poseidon Principles
According to John Hatley, The Poseidon Principles have the potential to impact the global shipping sector for decades and significantly lower GHG emissions by involving all parts of the shipping industry.
Hatley added saying that the Poseidon Principles will impact all supporting ecosystem elements including stakeholders and actions; vessel owners, ports, energy supply, capital equipment, ship designs, shipyards and cargo logistics; as well as regulatory institutions.
According to Mitchell, the agreement apart from decarbonising the shipping sector, it will play a tremendous role in forcing companies to think longer term and make robust plans.
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Source: Wartsila
