Banks to help lower shipping emissions with new principles based on UCL Energy research
17 June 2019
Eleven leading international banks – including Citi, DNB and Société Générale – have promised to include climate considerations when lending to the shipping industry.
Together, the banks who have signed up to the new pledge represent loans to the industry worth around $100 billion, meaning their lending decisions should now provide a major incentive for companies to decarbonise.
The framework for this initiative is a set of guidelines called the Poseidon Principles. These have been developed by The Global Maritime Forum (GMF) – a non-profit organisation that brings together stakeholders from industry, NGOs, academia and governments. The UCL Energy Institute has worked with the GMF to provide the technical basis for the Principles and the targets that underpin them.
The Poseidon Principles
What are they?
The Poseidon Principles are a global framework for assessing and disclosing the climate alignment of financial institutions’ shipping portfolios. They are based on the initial greenhouse gas strategy agreed by the UN’s International Maritime Organization (IMO), which regulates global shipping. This has set the industry a target of reducing greenhouse gas emissions by at least 50% of 2008 levels by 2050, with a strong emphasis on zero emissions.
Dr Sophie Parker, Principal Consultant at UMAS, explains the significance of the new Princicples:
“The Poseidon Principles are the starting point for pricing in the climate risk of financial institutions’ ship finance portfolios. The disclosure of a bank’s portfolio climate alignment score is the catalyst for banks to start thinking about why particular ships in their portfolio don’t perform as well as others compared to the climate target. It provides the impetus for determining what solutions can be applied to reduce their carbon footprint in the future and to consider the risk of devaluation if they remain exposed to fossil-fuel dependent assets. This will become increasingly important as the shipping industry moves away from fossil fuels to clean fuels.”
Why are banks taking action now?
Dr Tristan Smith, Reader in Energy and Shipping, UCL Energy Institute, explains why the Principles are so important for the banks:
“Shipping will shortly undertake a rapid technology and fleet change as it inevitably shifts away from fossil fuels in order to decarbonize. That change exposes many in the shipping industry, but particularly the banks, to risk.
“If banks discover too late that they have invested in ships that will become undesirable or even obsolete because of this change, they could see valuation write-downs or even defaults in their portfolio. The Poseidon Principles are a tool to demonstrate that these key stakeholders are acting responsibly and allow them to compare climate risk with each other, but also a tool that will allow them to manage critical investment risks, retaining their crucial role in providing the liquidity that enables international trade.”
Signatories to the Poseidon Principles:
- Société Générale
- ABN Amro
- Amsterdam Trade Bank (ATB)
- Crédit Agricole Corporate and Investment Bank (Crédit Agricole CIB)
- Danish Ship Finance
- Danske Bank
- Find out more about Shipping research at the UCL Energy Institute
- Download the press release from the Global Maritime Forum
- Visit the Global Maritime Forum website
Mentions in the media
- The New York Times
- Thomson Reuters
- Lloyd's List
- Tanker Shipping & Trade
- Hellenic Shipping News Worldwide
- The Maritime Executive
- Natural Gas Intelligence
- Environment Social Governance Forum (The Asset)
- Tanker Operator Magazine