On 15th December 2021, six of the world’s leading marine insurers have publicly launched Poseidon Principles for Marine Insurance to keep the focus on the shipping industry’s progress towards decarbonization. In fact, this ground-breaking initiative makes marine insurance unique to establish a sector-specific methodology to support the reduction and elimination of carbon emissions. Moreover, this is an accelerated move towards a decarbonized industry.

Six founding signatories of the principles include Swiss Re, Gard, Hellenic Hull Management, SCOR, Victor International, and the Norwegian Hull Club. It is expected that additional marine insurers will join the initiative in the near future. The affiliate members supporting the principles are Willis Towers Watson, Cefor, and EF Marine.

What is “Poseidon Principles”?

The Poseidon Principles agreement was first launched in New York on 18th June 2019, being an accord reached between the financial sector and the shipping industry to integrate the International Maritime Organisation’s (IMO) policies on climate change into ship finance decisions making processes. The principles apply globally and enlist maritime financing and financial institutions in addressing global environmental issues, whereby financiers would take account of efforts to cut CO2 emissions when providing loans to shipping companies. Concisely, signatories to the principles have to ensure that their ship finance portfolios are aligned with the targets set out in the IMO’s Initial Green House Gas (“GHG”) Strategy introduced in April 2018. 

Drafted by a group of global shipping banks such as Citi, Société Générale, and DNB – with the support of A.P. Møller Mærsk, Cargill, Euronav, Lloyd’s Register and Watson Farley & Williams – and expert support provided by Global Maritime Forum, Rocky Mountain Institute and University College London Energy Institute, Poseidon Principles for Marine Insurance constitutes the second expansion of the Poseidon Principles launched in 2019. 

Decarbonization trajectories 

Under the new principles, the Signatories to the new Poseidon Principles for Marine Insurance have committed to assess and disclose the climate alignment of their hull and machinery (H&M) portfolios and benchmarking them against two trajectories: 

  1. First trajectory: linked to a 50% reduction of annual CO2 emissions by 2050 (with 2008 as the base year), in line with the IMO Initial GHG Strategy; 
  2. Second trajectory: linked to a 100% reduction of emissions by 2050.

The decarbonization trajectory specifies how many grams of CO2 a single ship can emit to move one tonne of goods one nautical mile over a time horizon. The vessel’s annual carbon intensity is compared with the decarbonization trajectory for its respective ship type and size class. 

As per the studies published by IMO, maritime transport emits around 940 million tonnes of carbon annually, and the share of shipping emissions in global anthropogenic emissions has increased from 2.76% in 2012 to 2.89% in 2018. 

The Poseidon Principles for Marine Insurance aims to support the UN lead Net-Zero Insurance Alliance (NZIA), launched in the summer of 2021. Moreover, it is anticipated that soon will be introduced the third trajectory and align the full decarbonization trajectory with zero-lifecycle GHG emissions to contribute to commitments under the NZIA as well. 

Four Individual Principles of Poseidon Principles for Marine Insurance

As discussed, the Poseidon Principles for Marine Insurance are a global framework for assessing and disclosing the climate alignment of insurers H&M portfolios. They enable the insurance sector to implement a global baseline to assess whether the portfolios are in compliance with IMO’s stated targets. The Poseidon Principles rely specifically on the Annual Efficiency Ratio (AER) as the carbon intensity metric and comprise of four individual principles for assessment, as follows. 

Principle 1: Assessment of climate alignment 

Based on the first principle, the Signatories are committed to measuring the carbon intensity relative to established decarbonization trajectories and assessing the climate alignment of their H&M portfolios on an annual basis. Meanwhile, affiliate members will support signatories by sharing knowledge about the Assessment principle and climate alignment methodology with relevant stakeholders, in line with the Technical Guidance, which provides the particularities for the assessment of climate alignment. 

Principle 2: Accountability

To guarantee that information provided under the Poseidon Principles for Marine Insurance is useful, unbiased and accurate, the signatories will exclusively rely on the data types, data sources, and service providers identified in the Technical Guidance. Particularly, the signatories are committed to providing information in compliance with IMO DCS (Data Collection System) and accordingly be granted a Statement of Compliance or a Verification Letter by a Recognized Organization to calculate the shipping portfolio’s climate alignment. 

Principle 3: Enforcement 

This principle aims to create an equal burden for the signatories to ensure that the appropriate data/information is provided by shipowners. There are two supporting methods to assist in the collection and sharing of data for the Poseidon Principles in Marine Insurance: (1) to implement a Standard Covenant Clause in policy agreements, (2) A form of letter to be sent by signatories to shipowners to request the necessary data. The principle also refers to the affiliated members encouraging them to work with Signatories, shipowners, other marine insurance providers, brokers and business partners where possible to support Signatories by sharing knowledge about the Enforcement principle and standardized clauses. 

Principle 4: Transparency

The intent of the transparency principle is to ensure both the awareness of the Principles for Marine Insurance and that accurate information can be published by the Principles for Marine Insurance Secretariat in a timely manner. Each Signatory undertakes to (1) publicly acknowledge that it is a Signatory to or Affiliate member of the Poseidon Principles for Marine Insurance, (2) report the overall climate alignment of its shipping portfolio and supporting information no later than 30th November and (3) publish the overall climate alignment of its shipping portfolio in relevant institutional reports on an appropriate timeline. 

To summarise the above mentioned, it is undeniable that the Marine Insurance sector plays an important role in the shipping industry. The Poseidon Principles for Marine Insurance, while recognizing the role of the insurance companies, aim to promote responsible environmental stewardship throughout the maritime value chain. 

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Shehab Mamdouh

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