Citigroup, Danske Bank, and Société Générale led a group of banks to strike a new framework that considers climate impact while taking loan decisions.
Shipping companies to feel the burn
The group of global banks decided that they will limit lending to shipping companies that do not hold new environmental standards. Failing to reduce greenhouse gas emissions will also become a headache for shipping companies looking for credit. Dubbed the Poseidon Principles initiative, the agreement is due to be signed in New York this Tuesday.
Eleven global banks that jointly account for 20% of the $450 billion global shipping market will be signatories to the agreement. More banks from China and other Asian countries are expected to join the initiative in the next few months.
The accord’s chief architect and global industry head of shipping and logistics at Citi, Michael Parker said that the role of banks in the shipping industry enables them to play a responsible role in environmental stewardship. The move will push the shipping sector to curb its greenhouse gas emissions significantly.
Banks feel the pressure too
Bank shareholders’ pressure is now directing banks to play a larger and pivotal role in pushing for environmental goals. The new framework aligns with the goals of the International Maritime Organization, which intends to reduce the shipping industry’s emissions by 50% (per 2008 levels) by 2050.
Shipping groups could be forced to reduce Sulphur level from their fuel from 3.5% to just 0.5% by next January. This will be a highly ambitious target for an industry that produces as many emissions as Germany. This new move by the bank will help the IMO in enhancing its existing policies to combat growing scrutiny and activism in the shipping industry.
AP Moller-Maersk COO and executive vice president Soren Toft said that meeting the targets set by the IMO will demand zero-emission vessels on the sea by 2030. Shipping companies have only 10 years to develop new marine fuels, infrastructure, and propulsion technologies to meet these needs. Toft also noted that the transition will be catalyzed because of the Poseidon Principles.
Interestingly, the efforts are being led by European banking groups, with Citi being the only US-based bank to sign. The organizers are optimistic about South Korean, Japanese, and Chinese groups joining them soon. Asian export guarantee agencies could also be invited as they play a critical role in shipping finance and trade.