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Banks Raise Decarbonization Benchmark Standard in Poseidon Principles

Poseidon Principles increases benchmarking standards
Benchmarking and reporting of financial portfolios will expand to include alignment with UN's 1.5 degree goals

Published Sep 22, 2022 4:23 PM by The Maritime Executive

The leading banks that finance the shipping industry along with the marine insurers participating in the Poseidon Principals initiative have agreed to increase the standards by which they measure climate alignment in the maritime industry. They are committing to aligning the Poseidon Principles with the ambition of the UN and the latest available climate science comes as the organization also reported the thirtieth financial institution signatory to the commitment meaning it now includes more than 65 percent of the global ship finance portfolio.

The financial institutions and marine insurers that are signatories to the Poseidon Principles have committed to measuring and reporting the alignment of the institutions' shipping portfolios and marine insurers' hull and machinery portfolios with climate goals. The principles are built on a framework that includes assessment of climate alignment, accountability, enforcement, and transparency. The initiative was announced in 2019 and has begun printing annual reports measuring alignment with the International Maritime Organization's ambition to reduce GHG emissions from international shipping by at least 50 percent by 2050. The Poseidon Principles for Marine Insurance also benchmark against an emissions reduction trajectory in line with a 100 percent reduction by 2050.

"The urgency is clear,” said Michael Parker, Chairman, Global Shipping, Logistics & Offshore, Citi and Chair of the Poseidon Principles for Financial Institutions. “Because of the role that shipping plays in the global economy, we must accelerate our ambition towards the Paris Agreement's 1.5C temperature goal. This new ambition will allow the Poseidon Principles to continue playing our role in incentivizing and supporting the decarbonization of shipping."

Under the new commitment, the 30 shipping banks and 16 marine insurance providers and brokers participating in the Poseidon Principles will add additional trajectories to report climate alignment aligned with net-zero by 2050 and a maximum temperature rise of 1.5C above pre-industrial levels by 2100, to meet the temperature goals of the Paris Agreement. For the second trajectory to be consistent with a 1.5C future, the scope will be expanded to include all greenhouse gas species, and to account for well-to-wake emissions. This new commitment will be incorporated into the measurements once a new trajectory based on credible and well-recognized sources is established.

Even before the tightening of the benchmarking, the Poseidon Principles have become increasingly significant in the industry’s financing and insurance efforts by providing a framework to promote shipping decarbonization by integrating climate considerations into lending decisions. Today, KfW IPEX-Bank, a leading participant in Germany’s export credit market, became the latest financial institution to join the initiative. 

Michael Parker noted that the participants represent approximately two-thirds of the global financing portfolio for the shipping industry. As participation increases, shipping companies need to be able to demonstrate their efforts to align with the decarbonization goals to access financing to maintain and build their operations. Parker notes that they aim to promote responsible environmental stewardship throughout the maritime value chain.