A new set of IMO agreements with financial institutions are making their appearance to foster responsible logistics with the environment. These are known as Poseidon Principles and are going to be a game changer for ship financing.
What are the Poseidon Principles?
The so-called Poseidon Principles are certain financial agreements aimed at sustainable maritime transport. In line with the IMO’s environmental stance, this impetus for responsible shipping by the financial sector is expected to be critical to ensure the proposed 2050 decarbonisation goals.
Eleven major international institutions with operations in the shipping industry are involved in the Poseidon Principles. The specific banks that have already signed the agreement are Citi, Société Générale, DNB, ABN Amro, Amsterdam Trade Bank, Credit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea.
Together, they represent a bank loan portfolio close to 100 billion dollars, in other words, almost 20% of the worldwide ship financing portfolio. However, the agreement does not intend to stay as is and is open to new signatories, which is expected to be completed with other members, particularly Asian institutions. According to Paul Taylor, head of shipping/offshore at Société Générale, one of the signatories, “Any responsible shipping bank should sign and make the Poseidon Principals part of their ship finance policy”.
IMO strategy financial support
However, what exactly is the purpose of this agreement? This is actually not new at all, as it seeks to serve as a support to the IMO strategy to ensure a 50% drop in greenhouse gas emissions by 2050, compared to 2008 levels.
However, we are talking about aid that could be decisive, since the importance of the Poseidon Principles lies in focusing these good intentions on a more specific aspect, namely, ship financing. For the first time, relations with banks will integrate climate considerations how to incentivise decarbonisation, thanks to these agreements. Large ship financing business operators are therefore taking control of green transformation in the sector.
And according to Michael Parker, head of logistics at Citibank in his presentation and one of the major architects of the agreement, “the industry needs encouragement, but also pressure, to make the necessary changes.” Linking loans to the fulfilment of the climate goals, the Poseidon Principles are the best way of putting pressure to convince the sector of the benefits of ecological transition.
The 4 Poseidon Principles, logistics transformation foundations
The agreement that the financial sector wishes to contribute to environmental awareness in the logistics sector has four principles.
- Climate alignment assessment
The signatories will measure the carbon intensity of their ship portfolios annually and evaluate their climate alignment with the established decarbonisation track. - Accountability
The signatories recognise the role of classification companies and other organisations that provide impartial information. Support and rely on the mandatory regulation established by IMO to collect data on fuel consumption of the ships. - Enforcement
The signatories undertake to make the Poseidon Principles compliance contractual in their business activities. They will use standardised clauses and will work with their customers and partners to fulfil this requirement. - Transparency
The signatories shall report annually on the alignment results of their portfolio. These scores will be published annually by the Poseidon Principles Secretariat.
These environmental commitments apply to lenders, relevant lessors and financial guarantors, as well as export credit agencies.
The agreement marks a new beginning for the maritime industry, aimed at progressive change in the coming years. In fact, the Poseidon Principles are designed to evolve over time as the IMO adjusts its policies and regulations.
