The Principles are consistent with the ambitions of the International Maritime Organization’s (IMO) to reduce shipping’s total annual greenhouse gas emissions by at least 50 % by 2050 compared to 2008. Currently, the Principles only consider climate alignment, however, they are intended to develop over time. The signatories to the principles (the Signatories) have agreed to contribute to a review process to ensure that the Principles are practical and effective, and that further adverse impacts are identified for inclusion as factors in the framework.
The Signatories have agreed to apply the principles in any credit product – including bilateral loans, syndicated loans, club deals, and guarantees – that is secured by vessel mortgage(s) or any finance lease secured by title over vessel(s) and where such vessel or vessels fall under the purview of IMO (i.e. vessels 5,000 gross tonnage and above and on international voyages). Furthermore, the Signatories have committed to implement the principles in their internal policies, procedures and standards.
The requirements fall under the following four principles:
1. Assessment of climate alignment
Signatories are required to, on an annual basis, to measure the carbon intensity and assess climate alignment of the shipping portfolios. The climate alignment is defined as the degree to which a vessel, product or portfolio’s carbon intensity is in line with a trajectory that meets the IMO ambition of reducing emissions.
2. Accountability
Signatories will rely exclusively on the data types, data sources, and service providers explicitly identified in the technical guidance (i.e. from classification societies and other IMO- recognized organizations).
3. Enforcement
Signatories will work with clients and partners to covenant the provision of necessary information to calculate carbon intensity and climate alignment, together with mechanisms and consents allowing information to be shared. For the purpose of meeting the requirements, Signatories will use its best efforts to include a standard covenant in relevant documentation for new business activities.
4. Transparency
Portfolio climate alignment will be reported and results will be published on an annual basis.
By establishing and living up to the principles, financial institutions take a step towards more climate friendly portfolios. The Signatories will in the longer term be more selective as to which ships and customers they include in their portfolios.
The inclusion of a standard covenant in relevant documentation will play an important role in allowing the compliance and monitoring of the Signatories’ clients. We expect that a standard covenant is introduced in the market within a short timeframe. Major players in the shipping industry have already supported these initiatives and it is important that such companies, which often are able to resist the financial institutions’ standard covenants due to their strong bargaining position, contributes to establish a fair standard covenant, allowing the Principles to work in practice.