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SAFETY4SEA

Poseidon Principles for Marine Insurance

by Toby Royal, Mike Phillips and Jame Fitzjohn
May 18, 2022
in Green Shipping, Opinions
Poseidon Principles for Marine Insurance

Credit: MOL

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WFW experts provide an overview of the Poseidon Principles for Marine Insurance, which entered into force in early May,  with the aim to establish a framework to engage with the shipping industry and support net-zero insurance.

The Poseidon Principles for Marine Insurance (the “Principles”) were officially launched in December 2021, initially supported by Swiss Re, Gard, Hellenic Hull Management, SCOR, Victor International and Norwegian Hull Club. In March 2022, Fidelis Insurance became the first company from the London market to join the group. In May 2022, Navium Marine and AXA XL signed up to the Principles, taking the total number of full members to nine,

Brokers, clubs, and other critical stakeholders in marine insurance can also join the Principles as Affiliate members. Three Affiliate members initially signed up to the Principles, namely Willis Towers Watson, Cefor and EF Marine. Just last month (April 2022), both Cambiaso Risso Group and Lockton joined their big-name peers to become the fourth and fifth marine insurance players to gain affiliate status. International Union of Marine Insurance is a supporting partner.

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Inspired by the work of the Poseidon Principles for Financial Institutions and the Sea Cargo Charter, the Principles establish a framework to engage with the shipping industry and support net-zero insurance. They apply globally, to all shipping activities where a vessel or vessels fall under the purview of the International Maritime Organisation (the “IMO”), setting a benchmark for what it means to be a responsible marine insurer and providing actionable guidance on how to achieve this. This enables insurers to quantitatively assess the carbon footprint of their underwriting portfolios and track progress against various industry-wide targets.

WHAT IS THE AIM?

As a trio of initiatives, the Poseidon Principles for Financial Institutions, the Sea Cargo Charter and the Poseidon Principles for Marine Insurance complement one another to establish a common global framework for aligning the marine industry with society’s goals. Whilst they all use different evaluative methodologies, they are all designed to mirror one another in terms of structure, including the alignment of business activities with climate concerns; accurate and unbiased information; standardised enforcement for all stakeholders; and public and timely disclosure. Through fostering collaboration and dialogue throughout the maritime value chain, the frameworks provide major industry players with tools to improve strategic decision-making, encourage transparency within global seaborne trade, facilitate knowledge sharing between signatories and address the impact of climate change for all.

More specifically, the Principles aim to assess climate alignment in marine insurance and serve institutions as well as clients to quantitatively assess and disclose the climate alignment of their insurance portfolios. Designed to inform decisions and incentivise insurers to actively promote activities that reduce emissions, the framework offers a common global baseline that is consistent with and supportive of society’s goals to better enable insurers to address and disclose their portfolio alignment with climate goals.

As the initiative continues to gather momentum, it will continue to send a strong signal in support of responsible environmental stewardship and maritime decarbonisation.

THREE KEY POINTS
Through their actionable methodology, the Principles specifically focus on marine insurers, particularly their hull and machinery (H&M) portfolios. Under the new framework, signatories will:

  1. Measure and report emission data of their H&M portfolios against ESG areas of concern: This is a vital first step towards a sustainable maritime industry as it enables tracking progress over time and building a fact-based strategy for reaching climate ambitions. By providing insurers with a common tool to monitor progress towards net-zero insurance, the framework enables insurers to credibly report their alignment with ESG areas of concern using real data.
  2. Publicly report their climate alignment score: Signatories commit to annual declarations of the climate alignment of their H&M portfolios, thus promoting accountability and transparency on carbon emissions in the maritime industry and incentivising the industry’s transition to a more sustainable future. Meanwhile, affiliate members will support signatories by sharing knowledge about climate alignment methodology with relevant stakeholders, in line with the Technical Guidance, which provides particularities for the assessment of climate alignment; and
  3. Benchmark the score against two trajectories: one linked to a 50% reduction in annual CO2 emissions by 2050 (compared to 2008) and one to a 100% reduction of annual CO2 emissions in the same time: In this way, the framework is consistent with the IMO’s GHG strategy whilst also taking steps towards alignment with the Paris Agreement. A third trajectory will also be introduced to align the second trajectory with zero-lifecycle GHG emissions, making marine insurance the first line of business to establish a sector-specific methodology to support the ambition of net-zero commitments such as the Net-Zero Insurance Alliance and to reach international shipping’s total decarbonisation.

CONCLUSION

In June 2019, the Poseidon Principles for Financial Institutions started with 11 banks as signatories who promised to integrate climate considerations into lending decisions. That framework now has 27 backers, published its first annual disclosure report last year and is significantly influencing what kind of maritime projects can get financing – and which can’t.

Given the unique position that marine insurers find themselves in within the shipping ecosystem, the Principles have great potential to follow this lead. Whilst the framework is currently limited to H&M insurers, it is expected to expand to take on other covers in future. As the initiative continues to gather momentum, it will continue to send a strong signal in support of responsible environmental stewardship and maritime decarbonisation; a challenge that can only be achieved through cross-value chain collaboration.

 

Above article has been initially published in Watson Farley & Williams (WFW) website and is reproduced here with kind permission.

The views presented hereabove are only those of the author and do not necessarily those of SAFETY4SEA and are for information sharing and discussion purposes only.

Poseidon Principles for Marine InsurancePoseidon Principles for Marine Insurance
Poseidon Principles for Marine InsurancePoseidon Principles for Marine Insurance
Tags: Environmental Social Governance (ESG)green financemarine insurancePoseidon PrinciplesPoseidon Principles for Marine Insurance
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Toby Royal

Toby Royal

Toby has a wealth of experience in the maritime sector advising shipowners, operators, private equity funds, investors and financial institutions across the full spectrum of non-contentious shipping work. His practice has a particular emphasis on commercial contracts and environmental matters ranging from newbuildings, sale & purchase (including back-to-back re-sales and green recycling/disposal), charterparties, ship management agreements and commercial and environmental due diligence. Toby was part of the core WFW project team helping in the development of the Poseidon Principles, providing legal oversight and drafting input to the group of major banks and other leading industry players to support the IMO’s goal to reduce shipping’s total annual greenhouse gas emissions by at least 50% by 2050

Mike Phillips

Mike Phillips

Mike Phillips is a partner in the dispute resolution group of WFW. Mike specialises in shipping, contentious ship finance and ship and offshore vessel construction. Mike’s clients include shipowners, traders, insurers, banks, funds and shipyards. With over 20 years’ of practice in the marine and international trade sector, Mike has a wealth of knowledge and experience which he brings to bear to help clients resolve their most complex and difficult problems. Representing some of the largest and most well-known companies in the marine and international trade sector, Mike is known as both an exceptional lawyer and a clever strategist. Equally at home in London arbitration or multi-jurisdictional Court proceedings, Mike has a strong record of success for clients in a wide range of matters from shipping and cargo claims, groundings and vessel fires through to complex multi-vessel finance enforcement. On the construction side, Mike represents shipyards and buyers on a range of construction projects from super-yachts through to complex offshore vessels and rigs.

Jame Fitzjohn

Jame Fitzjohn

James is a paralegal in the asset and structured finance group of WFW. James supports the team on cross-border asset finance transactions within the maritime sector, advising banks, borrowers and financial institutions.

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