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World - Sustainable ship loans set sail

We cannot overstate how crucial oceans are to sustaining human life. They produce over half of the world’s oxygen and absorb 50 times more carbon dioxide than our atmosphere.

Oceans are also critical to the global economy: 76 percent of U.S. trade involves marine transportation and the U.S. ocean economy alone produces $282 billion in goods and services. The maritime shipping sector, however, generates around 2.5 percent of global greenhouse gas emissions, and climate change is causing ocean acidification, killing coral reefs and lowering ocean oxygen levels. Decarbonizing shipping is deeply linked to preserving our oceans.

Staff at RMI’s Center for Climate-Aligned Finance analyzed how financial institutions are helping shape the shipping sector’s decarbonization journey through the Poseidon Principles. The Poseidon Principles, the world’s first climate alignment agreement launched in June 2019, are a framework for responsible maritime shipping finance. They establish a robust framework for quantitatively assessing whether financial institutions’ ship finance portfolios are in line with the climate targets agreed upon by the International Maritime Organization (IMO), the United Nations body that oversees international shipping.

Under the Poseidon Principles, signatories commit to assess and disclose the climate alignment of their shipping portfolios and work to bring their portfolios in line with climate targets. Poseidon-linked loans incentivize borrowers (shipowners) to decarbonize their fleets by lowering their interest rate as they decrease their fleets’ emissions.

Our analysis surfaced two key trends. First, though the market for these new sustainability-linked shipping loans is nascent, it is growing quickly. Second, climate alignment agreements like the Poseidon Principles can help financial institutions implement their climate goals.

For example, banks are beginning to tackle their 2050 net-zero target by using Poseidon to identify and address emissions hotspots in their loan portfolios. Although much work remains, climate-aligned ship finance in the first half of 2021 has the wind in its sails.

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