International shipping accounts for approximately three per cent of global energy-related carbon dioxide emissions, a relatively low figure when compared to the environmental impact of land transport.
Despite being the most energy-efficient way to carry cargo, the shipping industry has generally lagged behind other industries in energy efficiency, sustainability targets and technological advancement.
The consequence of these market realities, coupled with a general increase in vessel fleets and tonnage, is that carbon dioxide emissions in shipping have increased year after year.
There is, however, increasing awareness by the shipping community of the need to shape the way in which the shipping industry operates, and this as a means of contributing towards the mitigation of the environmental damage brought about by climate change.
Indeed, there is a broad acceptance that all sectors of the economy must take more responsibility for the negative impact caused on the environment, through the introduction of measures directed at limiting environmental harm.
One notable example of what has been implemented in recent years is the introduction of the International Maritime Organisation (IMO) global sulphur cap on fuel under the International Convention for the Prevention of Pollution from Ships (MARPOL Annex VI), in virtue of which sulphur content in marine fuel has been reduced from 3.5 per cent to 0.5 per cent across international markets.
Other notable measures include (i) the EU Ship Recycling Regulation which is aimed at reducing the negative environmental impacts linked to the recycling of ships by ensuring proper dismantling of vessels and the safe disposal of all ship components, (ii) the Ballast Water Management Convention, which requires shipowners to implement a ballast waste-water management for all international sea-going vessels and (iii) the IMO Energy Efficiency Design Index and Plan, which introduced a newbuilding standard ensuring that ship designs achieve a certain level of efficiency and simultaneously decrease carbon emissions.
Efforts will need to be significantly accelerated if climate change mitigation targets are to be achieved- Peter Grima
These minimum standards have established a mechanism for shipowners which enables them to improve the energy efficiency and pollution prevention measures of both newly- built and existing ships, allowing the shipping industry to move in a more sustainable direction, and one which is more conducive towards achieving global climate change targets.
Notwithstanding the encouraging measures that have been taken in recent years, it is generally accepted that efforts will need to be significantly accelerated if climate change mitigation targets are to be achieved.
It was this understanding that gave rise to the publication of the Poseidon Principles which establish a framework for the collection and reporting of data and the disclosure of the climate alignment of ship finance portfolios against the IMO’s emissions target of at least 50 per cent by 2050 (against the 2008 carbon emissions baseline).
The reporting requirements typically involve data on the fuel oil consumption of vessels and occurs on an annual basis, enabling financiers to assess the carbon footprint of the financed vessel as well as the overall carbon rating of their ship finance portfolios.
To date, the Poseidon Principles have been endorsed by 29 leading banks, jointly representing approximately $185 billion in shipping finance, and have established a common baseline to quantitatively assess and disclose whether such banks’ portfolios are in line with the IMO’s climate goals.
The significance of the Poseidon Principles is best gauged from the cooperative and collaborative approach undertaken by financiers and shipowners, and their common understanding of the need for a transparent method of reporting on the environmental issues currently facing the shipping industry.
Although there is much more that needs to be done to achieve more aligned, effective and binding climate scores, the reporting process advocated by the Poseidon Principles is certainly a step in the right direction which will continue to expand as a key feature in the shipping space in the years to come.
The Poseidon Principles are expected to evolve over time with the aim of improving the contribution of the maritime industry towards climate change efforts and facilitating the availability of finance for green and sustainable projects.
To achieve these goals, banks and other financial institutions are required to allocate higher percentages of their ship finance portfolios to green and sustainability projects that will simultaneously serve to improve the overall carbon rating of banks and financial institutions under the Poseidon Principles.
This article is part I of a two-part series of articles on green measures and green financings in the maritime sector.
Peter Grima is a senior associate within the ship finance department at Fenech & Fenech Advocates. The author would like to thank Diane Cutajar, student intern at Fenech & Fenech Advocates, for her invaluable help in drafting this article.