Slow Progress Aligning Global Ship Finance with IMO's Climate Goals

The Poseidon Principles for Financial Institutions, a framework for measuring the alignment of financial institutions’ ship financing with climate goals, released its fifth annual report showing what the organizers highlighted as slow progress. Shipping remains behind the trajectory required to meet the IMO’s goals for reducing emissions, but the report shows progress and wider participation and transparency among the world’s leading financial institutions.

Bank lending represents approximately 62 percent of all types of financing for the global shipping industry, and according to the Global Maritime Forum which supports the Poseidon Principles, it serves as an essential, and often the lowest cost, source of capital for shipowners. As the program marks its fifth anniversary, the report highlights the financial institutions participating in the Poseidon Principles now represent approximately $240 billion, or nearly 80 percent of global shipping finance. There are currently 35 signatories from 14 countries, with approximately 70 percent from Europe and North America and 30 percent from Asia-Pacific. 

The goal of the initiative is to provide a framework for measuring and reporting climate alignment in shipping finance. In addition to providing a public “report card” on each institution, the hope is that it will drive participation and provide an incentive for shipping companies to invest in green programs.

“The average climate alignment scores showed a noticeable progression from last year,” the report highlights saying that, “portfolios’ alignment to the IMO’s ‘minimum; and ‘striving’ decarbonization trajectories” is improving. The report shows a seven percent overall improvement in the average but also a wide disparity with the worst performance 70 percent above the trajectory. The average for the portfolios is 25 percent above. Four signatories disclosed a score of 10 percent or below and one is 3.5 percent below the trajectory.

The analysis of the 2023 reports concludes, “The slight increase in the number of signatories reporting a score of less than +10 percent supports the notion that, while overall scores are misaligned, they have gotten closer to alignment with the striving ambition.” The organizers believe the climate alignment scores provide actionable insights.

“As we celebrate the fifth anniversary of this initiative, we recognize both the progress made and the opportunities ahead – this milestone shows how far we have come in five years, but also serves as a reminder that we are now five years closer to critical decarbonization targets for 2030, 2040, and 2050,” said Michael Parker, Poseidon Principles Chair and Chairman of Global Shipping & Logistics, Citi. “We must accelerate efforts, addressing key areas of misalignment and ensuring collective ambition turns into transformative action.”

The report illustrates the progress since the initiative was announced in 2019. They point to an increased level of transparency among the participants and that five additional financial institutions released reports for 2023. Institutions adopting the principles are given a grace period before they are required to begin reporting.

“Alignment with 2050 net zero goals remains a challenge, in particular for certain vessel types that are facing operational complexities,” admitted Paul Taylor, Vice Chair of the Poseidon Principles and Global Head of Maritime Industries, Societe Generale. He however also highlights the continuing evolution of the program and the level of transparency it is providing. “The Poseidon Principles’ adoption of well-to-wake emissions reporting offers a robust foundation for addressing these challenges head-on.”

Chief among this evolution was the 2023 adoption of well-to-wake emissions reporting, encompassing full lifecycle emissions of fuels. The organizers say it is setting a new benchmark for climate reporting in line with the latest climate science and supporting the IMO’s latest ambition.

As the Poseidon Principles enter their sixth year, the organizers said they are celebrating the transformative power of collective action and the tangible progress made toward decarbonizing global shipping. While challenges remain, they believe the shared commitment of signatories, shipping clients, and stakeholders is a testament to what can be achieved through collaboration and transparency.

The full report, including individual report cards on the financial institutions, is available online.