Half of Poseidon Principles' Bankers Met Climate Goals in 2021

Some of the world’s leading banks and financial institutions appeared to have slipped in their commitments to align their portfolios to support decarbonization in the shipping industry as the Poseidon Principles released its second annual report. The group cited the impact of the pandemic on the shipping industry as well as changes in the methodology saying that they remained committed to the goals of transparency and driving decarbonization laid out when the initiative was launched in June 2019.

The second Poseidon Principles Annual Disclosure Report 2021 shows that just half, 11 of the 23 financial institutions reporting this year, were considered to be are aligned with the IMO’s decarbonization target. That represents an advancement from last year when only a fifth of the institutions, three out of 12 reporting, were in alignment with the goals. 

The assessment by each signatory to the principles includes emissions data collected from borrowers and portfolio information at the end of 2020, compared to a decarbonization trajectory for the same year. With the changes and issues at play, however, the group as a whole shows that it is now seven percent above climate targets versus last year when the report said the institutions were just over one percent above target.

“The overall score for the signatories to the Poseidon Principles was strongly influenced both by the updated methodology and the consequences of the Covid-19 pandemic,” comments Paul Taylor, Global Head of Shipping and Offshore, Société Générale, and Vice Chair of the Poseidon Principles Association. “However, misalignment in some cases does not mean that there is no progress made collectively. As a group, we are increasing transparency and having more discussions about tangible next steps for the signatories and their clients.” 

Announced in June 2019, the Poseidon Principles are a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping loan portfolios. Spearheaded by the world’s largest banks, the objective was to establish a common baseline to quantitatively assess and disclose whether financial institutions’ lending portfolios are in line with adopted climate goals and integrate climate considerations into future lending decisions.

According to the organizers, Covid-19’s impact on international shipping meant drastic changes in operation for some segments leading to increasing carbon intensity. They cited cruise and passenger vessels where leverage was greatly increased which resulted in distorted climate alignment scores of some reporting banks with high exposure to the segment. For this year’s reporting, the Poseidon Principles methodology was also updated to reflect the IMO 4th GHG Study and the decarbonization trajectories as a result differ from the previous year.

“It is important to take the unprecedented years 2020 and 2021 into consideration. For some of us, this brought a positive change to our ship finance portfolio while for others, it increased emissions and the overall score we report. However, we do not believe that these events will alter the long-term ambition of the Poseidon Principles to encourage and help the industry to decarbonize,” comments Stephen Fewster, Managing Director and Global Head of Shipping, ING, and Treasurer of the Poseidon Principles Association.

Despite what appears to be a setback on paper, the financial institutions said the framework and assessment still bring important insights to the organizations and continue to inform their decision-making. They also pointed to progress with expansion of the number of institutions reporting, three that chose to report voluntarily during their first year as a signatory, and a total of 29 institutions now participating in the association.

Michael Parker, Chairman, Global Shipping, Logistics and Offshore at Citi, and Chair of the Poseidon Principles Association said in announcing the results that he was very encouraged by the strides made toward the goal of transparent reporting of the shipping portfolios. As an organization, he said they are responding to the clear calls to raise the IMO’s ambition to zero emissions. He said the participating financial institutions will focus on the calls to accelerate the industry’s decarbonization and early next year consider the continuing evolution of the Poseidon Principles to reflect the calls on the shipping industry.