This report represents the first time Signatories of the. Poseidon Principles disclose the climate alignment of their ship finance portfolios.
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3Foreword This report represen ts the ˜rst time Signatories of the Poseidon Principles disclose the climate alignment of their ship ˜nance portfolios. It m arks a signi˜cant milestone in the joint efforts of the Signat ories, for global ship ˜nance, and for c limate ˜nance as a whole. We commend our fellow Signatories for their pioneering eff orts to be transparent and account able for our role as ˜nanciers in promoting responsible environmental stewardship through the v essels we ˜nance.Since the launch of the Poseidon Principles in June 2019, Signatories have been w orking to bring the Principles from paper to pr actice. We have committed to implemen ting the Principles in our internal policies, procedures, and standar ds, to work in partner ship with our clients to learn from each other, and to assess and disclose the annual climate alignment scores of our ship ˜nance portfolios in this report . We have also grown in numbers, from 11 Signatories at launch, to now banks and export credit agencies which cover over one third of global ship finance. As Signatories, we will continue to re˚ect on collective progress and to allow the Principles to evolve and expand over time. This ensures the Principles remain robust and up to dat e with international goals to limit adverse environmental impacts in the global maritime sector. The ˜rst reporting period of the Poseidon Principles has ended, but the adventure of the Poseidon Principles has only just begun. Financial institutions who are considering becoming Signatories should be inspired by the success of the Poseidon Principles to date. We encourage other institutions to join us, and we invite others to engage in collaborative efforts to support international shipping™s contribution towards the greater goals of society. Michael Parker Chair, Poseidon Principles Association Chairman, Global Shipping, Logistics and Offshore, Citi Paul Taylor Vice Chair, Poseidon Principles Association Global Head of Shipping and Offshore, Societe Generale December 2020
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5Poseidon Principles. Annual Disclosure Report 2020 Table of contents Introduction6The significance ofthe Poseidon Principles 8Climate alignment and decarbonization trajectories12Reporting results 18Fulfilling the Signatory requirements21Key terms 38Acknowledgements 39
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6Poseidon Principles. Annual Disclosure Report 2020 6IntroductionAbout the Poseidon Principles The Poseidon Principles are a framework for assessing and disclosing the climate alignment of ship ˜nance portfolios. They create common global baselines that are consistent with and supportive of society™s goals to better enable ˜nancial institutions to align their portfolios with responsible environmental impacts. The Poseidon Principles establish transparency requirements for Signatories. They are supported by a robust and industry-appropriate climate alignment assessment methodology and carefully considered accountability and enforcement requirements that support data collection and analysis practices. They were developed in an effort spearheaded by global shipping banks Œ Citi, Societe Generale, and DNB Œ in collaboration with leading industry players Œ A.P. Møller Mærsk, Cargill, Euronav, Gram Car Carriers, Lloyd™s Register, and Watson Farley & Williams Œ with expert support provided by the Global Maritime Forum, Rocky Mountain Institute, and University College London Energy Institute/UMAS. The Principles aim to support ˜nancial institutions in integrating climate considerations into lending decisions in line with the climate-related goals of the International Maritime Organization (IMO). They not only serve the Signatory institutions to improve decision- making at a strategic level, but also shape a better future for the shipping industry and society. Scope The Poseidon Principles are applicable to lenders, relevant lessors, and ˜nancial guarantors including export credit agencies. The Poseidon Principles must be applied by Signatories in all Business Activities that are 1) credit products Œ including bilateral loans, syndicated loans, club deals, and guarantees Œ secured by vessel mortgages or ˜nance leases secured by title over vessel and 2) where a vessel or vessels fall under the purview of the IMO (i.e., vessels 5,000 gross tonnage and above engaged in international trade). Climate alignment is currently the only environmental factor considered by the Poseidon Principles. This scope will be reviewed and may be expanded by Signatories on a timeline that is at their discretion.
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Poseidon Principles. Annual Disclosure Report 2020 81. The signi˜cance of the Poseidon Principles At the time of launch, the Poseidon Principles became the ˜rst sector-speci˜c climate alignment agreement for ˜nancial institutions. This climate alignment report marks another major milestone Œ the conclusion of the ˜rst reporting period under the Principles. The Poseidon Principles have been made possible due to the evolution of responsible lending. The 11 founding Signatories recognized their role within ship ˜nance to promote responsible environmental stewardship across the maritime ecosystem. The initiative has grown to include 20 Signatories Œ in this report, 15 of these institutions, most of which became Signatories in 2019, publicly disclose the climate alignment of their portfolios for the ˜rst time. By bringing together ˜nancial institutions, shipowners, and expert communities, the Poseidon Principles allow shipping banks to actively integrate climate considerations into lending decisions. From avoiding adverse impacts to active involvement The signi˜cance of the Poseidon Principles must ˜rst be understood in the context of how voluntary efforts by private ˜nancial institutions have evolved over the past two decades. At the end of the 1990s, it was a common belief that ˜nancial institutions should not be linked to potential adverse environmental or social impacts of the companies or projects they ˜nanced. Today, a number of initiatives directly connect ˜nance and the environmental impacts of lending activities. The Principles for Responsible Banking, established by the United Nations Environment Programme Finance Initiative in 2019, are one such initiative. They state that ˜nancial institutions are expected to proactively ficontribute to society™s goals.fl This transition is the result not only of tremendous shifts in public expectations, shareholder demands, and regulatory scrutiny, but also by the proactive responses by leaders in the ˜nancial sector. This shift began in 2003 with the launch of the Equator Principles, which set minimum standards for ˜nancial institutions for assessing and managing the social and environmental risks associated with their investments within project ˜nance. Following the launch of the Paris Agreement over a decade later, ˜nancial institutions began to make and escalate sustainable ˜nance commitments and introduce screening or exclusionary policies around fossil fuel-related ˜nancing. With the launch of the Financial Stability Board™s Task Force on Climate-related Financial Disclosures (TCFD) in 2017, the primary focus of many ˜nancial institutions Œ and now also of regulators Œ became to better understand and manage climate change-related ˜nancial risks. Environmental risk management and transparency elements from the TCFD and Equator Principles were used as an inspiration for the creation of shipping- speci˜c standards in a comparable global framework that would become the Poseidon Principles. The Poseidon Principles play a signi˜cant role in ushering in the next phase of this evolution Œ one where ˜nancial institutions actively drive solutions through transparent disclosure commitments. Previous initiatives established a common understanding of climate change-related risk, provided a risk- assessment approach applied to project ˜nance, and launched disclosure frameworks for ˜nancial institutions. The phase of active involvement is what makes the Poseidon Principles groundbreaking: they are the ˜rst sector-speci˜c initiative which measures and reports real emissions data. Signatories of the Poseidon Principles commit to assess where a ˜nancial portfolio sits relative to a decarbonization trajectory based on the IMO goals, and to then disclose their portfolio-level climate alignment score publicly on an annual basis. This allows responsible shipping banks to disclose their portfolios™ environmental impacts, with the intention that Signatories strive to align their portfolios with the decarbonization trajectory.
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The signi˜cance of the Poseidon Principles 9˜˚˚˛˝˘ ‘ ‘€ ‘’‘ ˜˚…—˝˘ ˜˚…„˝˘˜˚…‚˝˘˜˚…fi˝˘˜˚˜˚˝˘™˘ ˘ ˘ ™˘ ˘ –Ł ˜˚…Œ˝˘˙ˆˇ˘˙ ˜˚˜˚˝˘ˇ˘ Figure 1. Evolving expectations about ˜nance and climate A framework for responsible ship ˜nance The signi˜cance of the Poseidon Principles must also be understood within the context of the maritime shipping industry. Societal demands and environmental regulation and standards are increasing, and the continued success of the maritime sector is intrinsically linked to the well-being and prosperity of the society it supports. Therefore, all maritime industry participants must play a role in addressing adverse impacts resulting from the industry™s activities. This will require deliberate action and collaboration across the maritime, energy, infrastructure, and ˜nance sectors, as well as the support of governments and regulators. One of such challenges is the decarbonization of seaborne trade. The intent and design of the Poseidon Principles recognizes that while ship ˜nance cannot Œ and should not be expected to Œ decarbonize the shipping industry on its own, it can and should play a signi˜cant role through transparent disclosure of environmental impacts of ship ˜nance portfolios. The Poseidon Principles serve as a model for leadership throughout the shipping and ˜nancial sectors, one that has already inspired a similar agreement for cargo owners Œ the Sea Cargo Charter Œ and which is likely to inspire further agreements between ˜nancial institutions in other sectors. The Climate Bonds Initiative launched a set of shipping criteria with a methodology that is aligned with a similar methodology to the Poseidon Principles to support the assessment and certi˜cation of green bonds to be compatible with a low carbon, climate resilient economy.
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Sector speci˜c disclosure initiatives and standards How can the maritime industry collectively inform its decision- making to better align its activities to be environmentally responsible? Climate and ˜nance initiatives How can ˜nancial institutions understand climate risk and ˜nancial risk together in order to manage and disclose this information? Equator Principles Establish a minimum standard for assessing and managing environmental and social risk.Taskforce on Climate-related Financial Disclosures Mainstream expectations of climate-related disclosure. UNEPFI Principles for Responsible Banking Expect banks to set targets in line with society™s goals. The Poseidon PrinciplesA framework for responsible ship ˜nance.Sea Cargo Charter A framework for assessing and disclosing the climate alignment of chartering activities to promote international shipping™s decarbonization.Climate Bonds Initiative Shipping Criteria A succinct set of decision rules for determining when shipping projects and assets are compatible with a low carbon, climate resilient economy, and therefore should be certi˜ed under the Climate Bonds Standard. The signi˜cance of the Poseidon Principles 10 Figure 2. How the Poseidon Principles came to be These developments and initiatives make it clear that the evolution of aligning climate considerations and responsible ˜nance has just begun. Working with their clients, ˜nancial institutions can proactively contribute to the transition to a low carbon future. The Poseidon Principles also offer Signatories insight into their portfolios and provide the opportunity to further investigate their environmental impact, to work with their clients to address them, and thus to proactively shape the strategic direction of their ˜nancing activities. The Principles focus on establishing a global baseline; ˜nancial institutions must continue to compete as businesses for clients and projects. To this end, the Poseidon Principles are not envisaged to be static. They are designed to be improved and strengthened over time with the availability of new data, new research, and new globally agreed goals. With the requirements of the Poseidon Principles as a starting point, it should be recognized that some Signatories may choose to go beyond these obligations and be more ambitious. Some Signatories may choose to additionally assess their portfolios relative to the Paris Agreement™s well-below 2°C objectives, which requires a steeper decarbonization trajectory. It is recommended that, where possible, these additional efforts rely on the four foundational Principles: assessment, accountability, enforcement, and transparency. While not included in this report, their supplementary activities are included in their own institutional reporting.
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The signi˜cance of the Poseidon Principles 1120 leading banks, jointly representing approximately USD 150 billion, or one third of global shipping ˜nance, have come together to commit to the Poseidon Principles.Steering Committee ABN Amro Œ Joep Gorgels, Managing Director, Global Head Transportation and Logistics, and Florin Boros, Associate Director, Global Transportation and Logistics, North Europe Citi Œ Michael Parker, Chairman, Global Shipping, Logistics and Offshore (Chair) Crédit Agricole CIB Œ Thibaud Escoffier, Credit Suisse Œ Mark Bamford, DirectorDanish Ship Finance Œ Michael Frisch, Director, Chief Commercial OfficerDanske Bank Œ Tom Erik Vågen, Business Manager DNB Œ Christos Tsakonas, Head of Global Shipping ING Œ Stephen Fewster, Managing Director and Global Head of Shipping (Treasurer) Societe Generale Œ Paul Taylor, Head of Shipping and Offshore (Vice Chair)SuMiTrust Bank Œ Koichi Onaka, Global Head of ShippingSee all Signatories here.The Signatories
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