Members will recall, that the Poseidon Principles initiative, launched in 2019 by 11 shipping banks, constitutes the first sector-specific, self-governing climate alignment agreement amongst shipping finance institutions. The Principles establish a global framework to quantitatively assess and disclose the climate alignment of banks’ ship finance portfolios. As of September 2021,       27 financial institutions have now signed up to these Principles, representing over US$185 billion in loans to the international shipping industry (nearly 50% of the global ship finance portfolio).

During an ad hoc meeting of ICS members to discuss the ICS position on the Poseidon Principles last Spring, it was agreed that ICS should continue to remain neutral, neither publicly endorsing nor opposing the Principles. It was nonetheless agreed that alignment of the Principles’ metrics to IMO standards of emissions assessment should be an industry priority, to ensure standardisation of this private initiative to the agreed global regulatory framework and as such, continued engagement with GMF (the Secretariat to the Principles) was necessary to ensure that industry concerns could be raised directly. 

As such, meetings were held between ICS and GMF, during which GMF advised that, due to industry pressure, they would be conducting a review of the technical metrics of the Poseidon Principles. This technical review has now been completed and the outcomes of note are detailed below. 

Update on the Poseidon Principles Technical Metrics

In June, GMF released the Poseidon Principles’ updated technical guidance document (Version 4.0), attached at Annex A. The Secretariat has completed its assessment of the alignment of these metrics to IMO requirements and has concluded the following:

Non-alignment of vessel sizing criteria

The vessel sizing brackets used by the Poseidon Principles are inconsistent with the vessel sizing categories used in the IMO CII Reference Line Guidelines (MEPC 337(76)), which impose requirements on new and existing vessels as of 1 January 2023. Non alignment of vessel sizing categories to the IMO CII Reference Lines size brackets could add additional complexity to ship owners planning for decarbonisation, and may give an incorrect impression that ship owners are not meeting IMO’s GHG requirements. This may in turn adversely affect a ship owner’s ability to raise capital for decarbonisation, or a Lender’s ability to raise funds for shipping related finance. Hence, at precisely the time that ship owners are needing to invest in decarbonisation, the Poseidon Principles may in their present form tend to limit access to capital, despite a ship owner having met the IMO CII requirements for his vessels (CII band rating of C or above). 

Non alignment of decarbonisation trajectories 

The Poseidon Principles target ratings for decarbonisation are not aligned with IMO requirements. They differ as follows:

• IMO’s GHG strategy includes an obligation for total annual GHG emissions from international shipping to be reduced by at least 50% by 2050 compared to 2008. However, for shipowner’s, the ongoing IMO target for CII rating has so far only been confirmed up to 2026. It is widely accepted that to achieve a 50% reduction in GHG emissions by 2050, IMO’s CII ratings will have to reduce at a faster rate after 2026 than before. Hence IMO’s target for carbon intensity is not linear, and the rate of required reduction is expected to increase with time.  


• In comparison, the Poseidon Principles target simply reflects a 50% linear reduction in emissions through to 2050.

This non-alignment will be most pronounced in the early years of Poseidon Principles implementation, where the Poseidon Principles target for carbon intensity reduction will be greater than IMO’s. The chart below, obtained from an MSI Foresight report attached at Annex B, provides an example of this non-alignment of decarbonisation trajectories for the bulk carrier sector. As an example, for vessels below about 160,000 DWT, the Poseidon target is consistently below the Band C IMO requirement (the minimum requirement before IMO requires a corrective action plan to be submitted). 

2023 Compliance Trajectory Values of CII and Poseidon Principles (Version 4.0) for Bulk Carriers 

Implications of non-alignment to IMO decarbonisation trajectories  

Although shipowners may be meeting the IMO CII requirements (C rating or above), it is possible they may not meet the Poseidon Principles target. Associated with this are the following concerns:

a. A signatory lender may seek to enhance their annual consolidated Poseidon Principles rating by restricting finance to vessels that are likely to exceed the minimum IMO CII rating (band C). Hence even though a vessel owner may be meeting the IMO CII requirement, their ability to raise finance may be adversely affected.  

b.If a lender’s annual Poseidon Principles rating falls below target, it may incorrectly suggest to investors that a significant proportion of the vessels within the portfolio are not meeting their regulatory obligations. This may have an adverse effect on a lender’s ability to raise funds and hence finance ships.

Additional Industry Concerns with the Poseidon Principles

Poseidon Principles vs Sea Cargo Charter

In addition to the Principles’ lack of alignment to IMO decarboinsation trajectories, an additional concern raised during ICS/GMF meetings earlier this year, has not been  resolved in this technical update. Namely, the metrics used by the Poseidon Principles (Annual Efficiency Ratio) remain different to those used by the Sea Cargo Charter (which employs an EEOI), despite these two initiatives claiming to be aligned. The use of different metrics to assess ships efficiency may have an adverse impact on shipowners who must comply with two different sets of decarbonisation standards for a single vessel.

Poseidon Principles’ New Initiative for Marine Insurers

The Global Maritime Forum have now begun discussions about a sister-scheme to the Poseidon Principles, designed to apply to marine insurers. According to GMF, this scheme would ‘introduce a traffic light scoring system’ to assess climate alignment in marine insurance, and allow ‘insurance companies in the marine space to support their clients in the transition to decarbonised shipping’.

While the technical details of this new initiative have not yet been finalised, a drafting group was established in early 2021, to develop a framework for this initiative, and GMF have advised that companies including Swiss Re, Gard and Cefor have expressed initial support for the scheme. It is reported that the scheme will be limited to hull and machinery insurers in the first instance, with the intention of expanding it to take in other covers in due course.

Poseidon Principles Ready to Raise Emissions Compliance Standards

During a GMF webinar held last week, the Poseidon Principles chair, Michael Parker, advised that the Poseidon Principles were considering raising their emissions compliance standards from ‘the current IMO target to alignment with the Paris Agreement consistent with [the GMF] Calls to Action’. While the details and implications of this proposed change are still unclear, it remains crucial that the Poseidon Principles align to the fullest extent possible with the IMO requirements on emissions assessment. This will be the basis of any ICS position moving forward.

Next Steps

Given the implications outlined above of the Poseidon Principles non-alignment to IMO standards of emissions assessment, the ICS  is currently drafting a briefing document to use in communication with signatory shipping banks, which will provide an technical overview of the implications of non-alignment to IMO both for industry and ship finance institutions. 

This briefing document will be shared with members for reference when complete, and may be used when communicating with member companies and with shipping banks.

The ICS  intends to engage further with senior representatives of the Poseidon Principles using this briefing note, and will consider conducting further work to assess the implications of the Poseidon Principles Initiative with regards to competition regulation.

If members have any comments of questions on the above information they may be directed to Georgia Spencer-Rowland. ICS Policy Adviser  

email:- georgia.spencer-rowland@ics-shipping.org   with a copy to  martin.cresswell@hksoa.org