Today, 60% of the finance being supplied to the shipping industry comes from banks that are signed up to the Poseidon Principles — a global framework for responsible ship finance.
In essence, the principles set a benchmark for assessing and disclosing the climate impact of the shipping portfolios managed by the major global trade finance banks.
This article is part of a series written by people across shipping in response to this question about how to deploy a hypothetical TradeWinds Sustainable Shipping Fund:
How, where and why would you invest $1bn for the best return in sustainable shipping, as the industry grapples with the need to cut carbon emissions, improve efficiency and keep cargoes moving in a world facing multiple economic and political challenges? The investment will be made now and ideally held for the next seven years to the end of the decade. As an added bonus, give one policy or regulation you would like to implement from 1 January 2023 to benefit shipping?
Financial institutions moved to get ahead of impending regulations by launching the Poseidon Principles in 2019. Many of the major banks involved in maritime are based in Europe and are subject to the European Union’s Sustainable Finance Action Plan, comprising 10 key points adopted by the European Commission to leverage financial markets in order to address sustainability challenges.
With the EU’s Sustainable Finance Disclosure Regulation (SFDR) already made public, the asset managers of financial institutions are preparing to implement these regulatory standards, which will come into effect in 2023. These standards will soon require maritime companies to disclose more information on their environmental, social and corporate governance (ESG) credentials.
In fact, some financial institutions in Europe are determining favourable versus punitive capital treatment based on a company’s ESG credentials, with some banks considering discontinuing treasury relationships with corporates from unsustainable industries.
So, what are the incentives for the maritime industry to ‘go green’? Ultimately, regulation will drive changes in business practices, but would it not be better if we adopted a carrot approach to accompany the stick?
A billion dollars is not enough to solve the big-industry issues such as investment in alternative ‘greener’ fuels, but could this cash be put to good use to inform and educate chief financial officers and treasurers in the maritime industry so they fully understand the longer-term benefits of decarbonisation and adopting a sustainable business model?
Companies which do not get onboard quickly enough will be left behind and find their access to the financial markets severely limited. Their working capital and borrowing will become more expensive as banks embed ESG metrics into their risk assessments.
More needs to be done to encourage, educate and inform the financial decision makers in maritime. The billion-dollar Poseidon Principles Institute will enable these individuals to understand that turning green equals longevity — and the sooner they embark on the sustainability journey, the more competitive they will become.
