11 out of 23 ship finance portfolios are aligned with the IMO’s decarbonization target, according to the Poseidon Principles Annual Disclosure Report 2021. In fact, during 2020, only 20% of reporting Signatories were aligned with this goal.
Results
Namely, eight of the 23 Signatories reported for the first time this year, while the assessment by each Signatory includes emissions data collected from borrowers and portfolio information at the end of 2020, compared to a decarbonization trajectory for the same year.
Three Signatories who joined in 2021 have voluntarily disclosed their results, which was not required of them until the next report. There are currently 29 Signatories of the Poseidon Principles.
I am very encouraged by the strides we have made as we continue with our goal of transparent reporting of our shipping portfolios. Covid-19 has presented challenges for shipping that have distorted some Signatories’ alignment scores. We note the clear call at COP26 and at the IMO to raise the IMO’s ambition to zero emissions and the Signatories will focus on this ambition early next year as we consider the continuing evolution of the Poseidon Principles and the example we are setting for other industries
says Michael Parker, Chairman, Global Shipping, Logistics and Offshore, Citi, and Chair of the Poseidon Principles Association.
The simple average score was 7.0%; the average of all of the reported climate alignment scores calculated with each score being assigned equal importance or weightage. Data on a Signatory’s total shipping debt outstanding was not available to calculate a weighted average, a more appropriate statistic to summarize the distribution of scores given Signatory banks have different levels of debt exposure. Scores ranged from -15.6% to 72.4%, and sixty-one percent had a score of +5% or less.
At the ship level, different vessels perform relatively better or worse compared to their decarbonization trajectories. This can be explained by their age, which in some ship types can sometimes be a proxy for technical efficiency, how they were operated, and the baseline trajectory value per ship type/size category they are starting from.
Revisions to the methodology impacted this year’s reporting
For this year’s reporting, the Poseidon Principles methodology was updated to reflect the IMO 4th GHG Study and the decarbonization trajectories thus differ from the previous year.
However, the framework and assessment still bring important insights to Signatories and continue to inform their decision-making.
According to Paul Taylor, Global Head of Shipping and Offshore, Société Générale, and Vice Chair of the Poseidon Principles Association, 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.
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
Impact of Covid-19
In some of the Signatories’ individual pages, relative to last year’s scores, this year’s climate alignment scores reflect the heterogenous impacts of both the trajectory revisions and Covid-19 induced impacts on shipping both on different ships and ship types.
More specifically, the results of 2020 show signs they have been impacted by Covid-19; most Signatories with worse-than average climate alignment scores cited the cruise and passenger vessel segments as contributing to their misalignment which meant many of these services were suspended from carrying passengers for much of 2020, but still consumed energy (and therefore caused emissions) whilst waiting for the market to return.
Many Reporting results Poseidon Principles. Annual Disclosure Report 2021 of these passenger ships are higher value than freight carrying ships and can be associated with large debt exposure – so even a portfolio with a small number of passenger vessels can be strongly negatively affected overall.
said the report.
This is reflected in distorted climate alignment scores of some reporting banks with high exposure to the segment, but not expected to be a long-term change for the decarbonization of shipping.
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.
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