Tuesday, February 9, 2021

Financiers of Ocean Shipping and Vessel Operators Have Common Environmental Goals

Poseidon Principles and Sea Cargo Charter Both Aspire to Hit IMO Emissions Targets
Shipping News Feature

WORLDWIDE – Everyone along the maritime supply chain has the reduction of emissions in their sights and the tanker segment now has two aligned schemes which aim to evidence the work being undertaken to achieve this goal.

The Poseidon Principles, on the drawing board two years earlier, were launched in June 2019. These clearly laid out a framework for assessing and disclosing the climate alignment of ship finance portfolios. They were drawn up, not by ship owners or operators, but by a conglomerate of eleven international banks (now twenty two), responsible for $165 billion in shipping finance.

These included ABN AMRO, BNP Paribas, Citi, Credit Agricole, Credit Suisse, Societe Generale and various others. The four Principles are Assessment of climate alignment, Accountability, Enforcement and Transparency. By aligning their requirements the financiers can integrate climate considerations into lending decisions in ship finance, consistent with the climate-related goals of the International Maritime Organization (IMO).

In October 2020 we saw the launch of the Sea Cargo Charter, an initiative supported by some of the world’s largest bulk cargo owners including such as Shell, Anglo American, Louis Dreyfus, Norden, Occidental, Ørsted and Total. The plan here is to establish a framework for assessing and disclosing the climate alignment of chartering activities in the bulk sector, once again in line with the IMO’s ambition to cut shipping’s total annual GHG emissions by at least 50% by 2050.

In addition to this, it is it is intended that the Sea Cargo Charter provides support to a number of other sustainable initiatives including the UN’s Sustainable Development Goals, the Global Logistics Emissions Council (GLEC) Framework, the Carbon Disclosure Project and the Energy Transitions Commission to name but a few.

Toby Royal, a partner in law firm Watson Farley & Williams which specialises in such matters, published a piece this week illustrating the scope of the Sea Cargo Charter and pointing out that it is being envisioned to also apply to parties contracting for the sale and purchase of commodities where their counterparties at some point in the contractual chain are expected to become charterers.

Royal states that the alignment of the Poseidon Principles and the Sea Cargo Charter is no accident, and that the focus of the Poseidon Principles is on climate alignment in asset finance whereas the focus of the Sea Cargo Charter is on climate alignment in the operational space.

Signatories of the Sea Cargo Charter are obliged to apply its principles to all of their bulk chartering activities that involve on time and voyage charters, including contracts of affreightment and parcelling, with a mechanism to allocate emissions from backhaul and ballast voyages; voyages carried out by dry bulk carriers, chemical tankers, oil (crude and product) tankers and liquefied gas carriers; and a vessel or vessels of at least 5,000 gross tonnage which are engaged in international trade.

Examples cited in the technical guidance to the Sea Cargo Charter include FOB sellers and DAP buyers. It is expected that on becoming a signatory to the Sea Cargo Charter, such a party will use its best endeavours to ensure that their counterparties will comply with the Sea Cargo Charter.

Photo: Image courtesy of Sea Cargo Charter.