POSEIDON Principles signatories are making progress in aligning ship finance portfolios with climate goals despite COVID-19 headwinds, according to the association’s latest annual disclosure report.

The Poseidon Principles establish a framework to assess and disclose whether financial institutions’ lending portfolios align with the International Maritime Organization’s climate ambitions.

The initiative now has 29 institutional signatories, covering over 50% of global ship finance.

Twenty-three of these signatories disclosed their climate alignment scores against a decarbonisation trajectory in the Poseidon Principles Annual Disclosure Report 2021.

Of these 23 institutions, 11 ship finance portfolios aligned with the IMO’s decarbonisation target in 2021. The numbers indicate an improvement since 2020, when only three out of 15 portfolios aligned with the target.

Michael Parker, chair of the Poseidon Principles Association, said the latest report reflects signatories’ leadership in climate finance and a determination to decarbonise global shipping.

“I am very encouraged by the strides we have made as we continue with our goal of transparent reporting of our shipping portfolios,” he said.

Mr Parker observed that the challenges presented by COVID-19 had 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.”

Revisions to the Poseidon Principles methodology impacted reporting in 2021, reflecting the Fourth IMO Greenhouse Gas Study. Decarbonisation trajectories therefore differed from those of the previous year.

Paul Taylor, vice chair of the Poseidon Principles Association, said the overall score of signatories was strongly influenced by this updated methodology and the consequences of COVID-19.

“Misalignment in some cases does not mean that there is no progress made collectively,” Mr Taylor said.

“As a group, we are increasing transparency and having more discussions about tangible next steps for the signatories and their clients.”

The report noted the pandemic’s impact on international shipping led to drastic operational changes in some segments, primarily cruise and passenger vessels. This led to an increase in carbon intensity.

This increase was reflected in distorted climate alignment scores of some participating banks with high exposure to the segment but is not expected to be a long-term change for the decarbonisation of shipping.

Poseidon Principles Association treasurer Stephen Fewster said it is important to consider the inherent challenges of the past two years when reflecting on the report’s findings.

“It is important to take the unprecedented years 2020 and 2021 into consideration,” Mr Fewster said.

“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 decarbonise.”