Poseidon Principles: helping ocean-going vessels become more sustainable

Named after the Greek god of the sea, the Poseidon Principles are a set of guidelines for banks operating sustainably in the maritime sector. These principles are in line with the guidelines published by the International Maritime Organization (IMO), which aims to at least halve all greenhouse gas emissions from shipping by 2050 relative to 2008. The four principles specifically refer to assessment, accountability, compliance and transparency.

ABN AMRO is one of twenty banks around the world that have endorsed the principles and one of the first signatories at inception in June 2019. Together they represent USD 160 billion in financing in the global shipping sector – more than one-third of the total market.

Transparency is key

“The Poseidon Principles help us assess financed fleets in terms of their sustainability,” says Joep Gorgels, global head of coverage with Transportation & Logistics Clients at ABN AMRO. “This, in turn, allows us to critically examine our portfolio, assess it against our target and report on progress.”

“As a bank, ABN AMRO wants to accelerate the transition to sustainability,” says Florin Boros, senior director of Transportation & Logistics at ABN AMRO. “Obviously, transparency is key. ABN AMRO is one of the world’s largest shipping banks, and our aim is also to be one of the most sustainable financial institutions. That’s why the Poseidon Principles are fully in line with our purpose of ‘Banking for better, for generations to come’.”

Even before the Poseidon Principles were drafted, the bank was helping to clean up the sector. Since 2016, ABN AMRO has been working with RightShip, an independent stakeholder which evaluates ships in terms of the pollution they produce. The biggest polluters have already been excluded from the bank’s financing operations. In addition, ABN AMRO is closely involved in international sustainability initiatives like the Responsible Ship Recycling Standards and the Sustainable Shipping Initiative.

Above the decarbonization trajectory

After signing up to the principles, the bank started to ask its clients to submit fleet emissions data with respect to the year 2019. The annual progress report was first published in mid-December. The result? ABN AMRO’s maritime portfolio is currently 5 percent above the decarbonization trajectory set by the guidelines (which aim to halve emissions by 2050).

“The important thing is that we now have a baseline,” Joep points out. “We also have valuable data and insights which we didn’t have before. These will help us set goals and talk to our clients about sustainability.”

Long-term horizon

Becoming more sustainable means developing cleaner fuels, modernising existing propulsion technologies and ensuring more efficient transport through greater cooperation between cargo and shipowners. It’s a project with a long-term horizon. Joep says, “Eventually we want to move towards ships that generate a lower rate of greenhouse gas emissions, but it won’t happen overnight.”

The figures don’t lie: each day, some 50,000 ocean-going vessels sail the waves, transporting over 90 percent of all goods worldwide. ABN AMRO finances some 1,400 of the vessels included in the Poseidon Principles target group, representing roughly USD 7.5 billion in total.

“Our clients are actively on the lookout for new and improved ship designs, innovations, technical adjustments and operational improvements – all with an eye to their financial feasibility,” Florin continues. “Our aim is to be a partner to them through maintaining a dialogue, exchanging ideas and giving them access to our network. We’re also providing them with financing solutions to help green the sector and reward them with interest rate reductions when they achieve the sustainability objectives agreed. Our role is also to decline funding for projects which fail to contribute to the greening of the shipping sector.”

A first step

Joep continues, “The process is complex, and we have to be realistic. It’s not as simple as electrifying small cheaper assets like cars for instance, which can be made more sustainable by running on electricity for a few hundred kilometres. These are massive cargo ships that sail from Asia to Europe and on to the USA and back and can cost anywhere from USD 20 million to USD 250 million, with a lifespan of twenty to thirty years. Just getting rid of all the non-efficient vessels in one fell swoop would not only be a destruction of capital, but it would also be impossible from a practical perspective. The shift will take decades. The industry is increasingly working collectively to find effective, cleaner fuels in sufficient quantities and availability for the future. All these aspects involve many different stakeholders.”

Florin concludes, “Transparency and reporting are the first step in a long journey, both for us and our clients in the shipping industry. Besides raising awareness, the Poseidon Principles provide valuable data and insights. We firmly believe these will help us jointly take concrete steps towards sustainable shipping.”