Well, this week is when the banks participating in the Poseidon Principles have announced their Year 1 results. Compliance with decarbonization targets is a long term project- it does not happen overnight. The Principles create an objective framework, the stuff that “quants” would love, to evaluate, and then disclose whether lending portfolios of “Signatories” (shipping finance providers) are actually in line with climate goals set by, the International Maritime Organization (IMO)- the arm of the United Nations concerned with shipping. The IMO’s initial GHG strategy, in turn, seeks to align reductions in total annual greenhouse gas emissions by at least 50% by 2050 (compared to a base level of 2008), in line with broader climate change goals set out by the Paris Agreement.
This is laudable (my sometimes snarky writing style should not be confused with disapproval in any way) but it’s also very ambitious. If you hang around climate geeks long enough, the word “ambitions” seems to loom larger and larger. Just to remind readers- the data crunched by the banks (reflecting vessel itineraries during 2019) come from the same data reported to the IMO. But, not surprisingly, not all of the banks reporting (at least 15 reported, out of 20 “Signatories”) were on optimal trajectories downwards. The trajectories are subject to interpretation, as they do not have the benefit of the most recent data on shipping carbon data. Yes- some fine-tuning is needed, but the initial numbers are in.
What has emerged is that that three banks reporting on the decarbonization progress of their shipping loan portfolios (reporting is at the individual vessel level) were actually “on target”, while another 12 reporting did not. The Poseidon Principles define the target as follows: “A decarbonization trajectory is a representation of how many grams of CO2 a single ship can emit to move one tonne of goods one nautical mile (gCO2/tnm) over a time horizon. There is one decarbonization trajectory for each ship type and size category. This ensures that ships are compared on an apples-to-apples basis given carbon intensities vary as a function of ship type and size.”
Statistics 101 emphasizes the importance of variances; and the portfolios of shipping banks are far from uniform- when it comes to leverage ratios, and- duh, to the types of ships. So- the first crack at the reporting is going to be far from perfect. Officially, when the scores were tallied, the average of the 15 banks reporting was a little over 1 percent above the desired marker on the trajectory glidepath. The three banks with portfolios that came in with the best ratings were Eksportkreditt Norway, with a carbon intensity of 44.92% below the target, Bpifrance Assurance Export (43.43% below) and ING, which was just 0.36% above the target.
The comments of the best performer, Eksportkreditt Norway, provide cautions to readers looking beyond headlines and seeking to interpret the Poseidon Principles’ first data dump. They note that: “Export Credit Norway is mainly financing new builds. The portfolio’s alignment with the IMO trajectory for reaching the 2050 goal is good.” However- they caution that: “The 2019 score is good, however given that there are fewer new builds delivered in 2020 the score is likely to go down next year.”
The influence of the participating institutions cannot be overstated. ING, which came in basically right in line with the target, noted that: “Our clients are prepared to share data in an open and transparent manner which is proven by the high disclosure rate. We expect that such information sharing and
discussion will become ever more important especially as other institutions join the Poseidon Principles.” While detective work and sleuthing has its moments, transparency would be better.
