The Poseidon Principles Report 2024: Banks Making Strides Towards IMO’s GHG Strategy

The Poseidon Principles group of banks has moved closer to alignment with IMO’s revised GHG strategy to remove emissions from shipping by 2050.

In its fifth annual report, the framework for measuring and reporting the alignment of lenders’ shipping portfolios with climate goals showed a noticeable progression from last year.

The 35 banking signatories, representing nearly 80% of the global ship finance portfolio of about $240bn, reported on average 93.3% of their portfolio activity, with all signatories reporting ship emissions data from at least 70% of their portfolio, 28 of them achieving a reporting rate of 90% or above, and eight achieving 100%.

Last year, 26 of 30 signatories achieved a reporting rate of 90% or above, five achieved 100%, and the simple average proportion of activity reported was 95.4%.

The report noted that while the average this year is slightly lower, this is still viewed as an improvement due to the increasing number of signatories reaching between 90% and 100% of data collection. In addition, five signatories reported for the first time this year, compared to only two last year.

Signatories disclosed their climate alignment scores against trajectories aligned with the 2023 IMO net-zero goal in a well-to-wake CO2 e perspective for the second straight year. Last year, signatories also calculated their climate alignment scores against the initial 2018 IMO ambition for the sake of continuity. However, this year signatories only calculated climate alignment against the two 2023 IMO GHG strategy trajectories (minimum and striving).

The simple average climate alignment score relative to the 2023 IMO GHG Strategy was +19.4% above the minimum ambition of the IMO to reduce GHG emissions from international shipping by 20% in 2030, 70% in 2040, and reach net zero by or around 2050. Scores ranged from -8% to +61.5%, with eight of 35 signatories disclosing a score of +10% or lower. The average climate alignment score improved by 7.8 percentage points.

“The increased number of signatories reporting a score of less than +10% also supports the notion that, while overall scores are misaligned, they have gotten closer to alignment with the minimum ambition,” the report noted.

Meanwhile, on average, climate alignment scores were +25% above the IMO’s striving ambition to cut GHG emissions from shipping by 30% in 2030, 80% in 2040, with net zero by or around 2050. Scores ranged from -3.5% to +69.4%, with four signatories disclosing a score of 10% or below. All in all, the average climate alignment score improved by 7 percentage points, according to the report.

Over the last five years, the Poseidon Principles framework has inspired similar maritime disclosure initiatives like the Sea Cargo Charter and the Poseidon Principles for Marine Insurance, both of which are also hosted by the Global Maritime Forum.

The framework has also enabled signatories to use climate alignment scores to shape financing decisions, guide sustainability-linked lending, support investment in green technologies, and foster closer collaboration with shipowners towards decarbonisation.

“As we celebrate the fifth anniversary of this initiative, we recognise 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 decarbonisation targets for 2030, 2040, and 2050. We must accelerate efforts, addressing key areas of misalignment and ensuring collective ambition turns into transformative action,” said Michael Parker, Poseidon Principles chair and chairman of global shipping, logistics and offshore at Citi.

The report also acknowledged the challenges of aligning with IMO’s ambitious roadmap.

Fleet composition emerged as a primary driver of climate alignment outcomes. Signatories financing segments with higher emissions potential faced challenges in improving their scores, whereas those focused on cleaner technologies or more efficient vessel types reported better results.

Specific vessel types, such as shuttle tankers and LNG bunkering vessels, were mentioned by some signatories as outliers that skew alignment scores due to their unique operational characteristics. Market dynamics, such as fluctuations in freight activity and the pace of newbuild deliveries, also played a critical role in shaping outcomes.

While there are ongoing efforts to replace older ships with more efficient and lower-emission models, signatories have also expressed interest in considering more sector-specific adjustments to the methodology, like correction factors for specific vessel types, to provide a more accurate reflection of operational realities.

One update under consideration to be approved by all members includes splitting the liquefied gas tanker trajectory into two distinct trajectories, one representing LNG carriers and one representing LPG carriers, due to the material difference seen in these vessels.

“Alignment with 2050 net zero goals remains a challenge, in particular for certain vessel types that are facing operational complexities. Now, the Poseidon Principles’ adoption of well-to-wake emissions reporting offers a robust foundation for addressing these challenges head-on,” added Paul Taylor, vice chair of the Poseidon Principles and global head of maritime industries at Societe Generale, emphasizing that the framework will continue to evolve, setting new benchmarks for transparency and commitment to a sustainable future.