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Shipping and insurance
The maritime sector has provided efficient economic services that have played a key role in enabling the growth of global trade and global economic development. However, this has not been without some adverse consequences unique to the maritime sector. The continued success of the maritime sector is intrinsically linked to the well-being and prosperity of society. Therefore, all industry participants must play a role in addressing adverse consequences.
The Poseidon Principles for Marine Insurance were developed to recognize the role insurers play in the industry to promote responsible environmental stewardship throughout the maritime value chain. The Poseidon Principles for Marine Insurance serve as a framework for creating common, global baselines that are consistent with and supportive of society’s goals. The framework of the four guiding principles – Assessment, Accountability, Enforcement and Transparency – will enable Signatories to better align their portfolios with responsible environmental impacts.
The Poseidon Principles for Marine Insurance are consistent with the policies and ambitions of the International Maritime Organization (IMO), including its ambition for greenhouse gas (GHG) emissions to peak as soon as possible and to reduce shipping’s total annual GHG emissions by at least 50% by 2050 compared to 2008. Steps have also been taken to align the Poseidon Principles for Marine Insurance with the Paris Agreement, to achieve climate neutrality by 2050, and to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels, with the ambition to be fully aligned over time.
What is the IMO, and what did they decide regarding GHG emissions?
The IMO is the United Nations’ specialized agency with responsibility for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. The IMO approved an Initial greenhouse gas (GHG) Strategy in April 2018 to reduce GHG emissions generated by shipping activity. This Initial Strategy sets out the following levels of ambition:
1. To reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008.
2. To reduce CO2 emissions per transport work by at least 40% by 2030, pursuing efforts towards 70% by 2050 compared to 2008.
According to the IMO, the shipping industry’s governing body, the sector currently accounts for 2.2% of global emissions. Left unchecked, shipping emissions are expected to grow by 50-250% by 2050.
While CO2 represented almost all of the industry’s GHG emissions (98%), methane (CH4) emissions from ships increased over this period (particularly over 2009–2012) due to increased activity associated with the transport of gaseous cargoes by liquefied gas tankers due to methane slip. There is potential for this trend to continue in the future if shipping moves to liquefied natural gas (LNG)-powered ships.
Nations pledged in the 2015 Paris Agreement “to achieve a balance between anthropogenic emissions by sources and removals by sinks of GHG in the second half of this century”. This means getting to “net zero emissions” between 2050 and 2100. 2050 therefore represents a key milestone in the Paris Agreement, which the IMO explicitly references in its Strategy.
The Strategy does not alone secure 1.5°C or clearly show that efforts have been pursued to achieve this. The Strategy increases the possibility of being able to keep global average temperature increases within this limit. Immediate measures to implement the Strategy will be required to urgently peak and reduce GHG emissions in line with 1.5°C. The Strategy will be reviewed in light of the United Nation (UN)’s Intergovernmental Panel on Climate Change (IPCC) 1.5°C report in September. Critical to the viability of 1.5°C is whether the Strategy is converted into significant GHG reductions before 2023, and this is dependent on the outcome of future IMO meetings and their ability to agree and then rapidly deploy policy measures.
The Poseidon Principles for Marine Insurance
What are the Poseidon Principles?
The Poseidon Principles for Marine Insurance are a framework for assessing and disclosing the climate alignment of hull and machinery insurance portfolios. The Poseidon Principles for Marine Insurance create common global baselines that are consistent with and supportive of society’s goals to better enable insurance providers to align their portfolios with responsible environmental impacts.
The four Principles are:
- Assessment of climate alignment
What is the objective of the Principles?
The objective of the Principles is to use the knowledge on portfolio climate alignment to guide and support marine insurance clients on how do adopt and align their business with responsible environmental impacts.
The Principles aim to be voluntary, practical to implement, verifiable, fact-based, and effective. Signatories commit to implementing the Principles in their internal policies, procedures and standards.
The Principles are intended to evolve over time following a regular review process to ensure that the Principles are practical and effective, are linked to and support the IMO’s GHG measures developed through 2023, and that further environmental factors are identified for inclusion.
What is the scope of the Principles, and why?
The Poseidon Principles for Marine Insurance offer a framework for insurers to assess and disclose the climate alignment of their hull and machinery portfolios.
H&M represents the second largest part of marine insurance coverage (with Marine Cargo as the largest portion), which means this first step offers the greatest coverage and potential for impact across Marine Insurance. In terms of data availability to measure carbon emissions, H&M offers a comparable starting point to the Poseidon Principles for Financial Institutions as a tangible first step to assess and disclose climate alignment.
By following the framework and common baseline, valuable asset- and policy-level climate alignment data is available for Signatories to better enable the alignment of their portfolios with responsible environmental impacts.
Climate alignment is currently the only environmental factor considered by the Poseidon Principles for Marine Insurance. This scope will be reviewed and may be expanded by Signatories on a timeline that is at their discretion.
Who has been involved in developing the Poseidon Principles for Marine Insurance?
The Poseidon Principles for Marine Insurance were developed in an effort spearheaded by global shipping insurers, leading industry players – brokers, shipowners and classification societies – as well as the Global Maritime Forum, Swiss Re Corporate Solutions, Swiss Re Institute, and University College London Energy Institute and UMAS. The drafting group included Gard, Cefor, Willis Towers Watson, Mærsk, Star Bulk, and Lloyd’s Register. The Net Zero Insurance Alliance and IUMI were regularly consulted.
Were shipowners involved in the discussions of the Poseidon Principles for Marine Insurance?
The Poseidon Principles for Marine Insurance were developed with the involvement of shipowners. This was to ensure that the Principles were developed and shaped in a way that considered the shipowner perspective as the clients of the Signatories and Affiliate members. How the Principles will affect clients was prioritized throughout the process, to ensure that shipowners are supported in the best way.
Have international groups and NGOs been involved?
The Global Maritime Forum, UMAS, and Swiss Re Institute have been part of this work since its inception. They have also been working with other initiatives – such as the Poseidon Principles for Financial Institutions and the Sea Cargo Charter – to ensure that various initiatives within the shipping sector are compatible. A broader group of NGOs and other stakeholders have been kept informed throughout the process, like the UNEPFI and the NZIA, as well as IUMI.
Becoming a member
Who can be a Signatory?
Under the current scope, the Poseidon Principles for Marine Insurance are applicable to insurers with H&M policies. However, the ecosystem of key players extends beyond this limit, and the framework must be inclusive of these perspectives and their support. Therefore, Affiliate membership is applicable to insurance brokers and collective groups (such as insurance associations, unions, and P&I Clubs), and such support is welcome. Activities and requirements for Affiliate members are available throughout the Technical Guidance where appropriate.
It is the intent that over time and with increasing access to reliable data and information for public disclosure of climate alignment, the scope of the Principles will expand to include more Affiliate members as Signatories.
How can my institution become a member of the Association?
The potential Signatory or Affiliate member must complete and send the formal declaration and application to the Secretariat.
What is the process of becoming a Signatory or Affiliate member?
Institutions wishing to become a Signatory or Affiliate member of the Poseidon Principles for Marine Insurance must submit the Standard Declaration together with the Signatory Application to the Secretariat of the Poseidon Principles for Marine Insurance. Once accepted into the Association, the new member will have five months to complete and submit the Self-Assessment to the Secretariat. All documents are available from the Secretariat.
What is the purpose of the Standard Declaration?
The Standard Declaration is the formal commitment required of insurance providers to become a Signatory, or for other institutions to become an Affiliate member. It announces the intent of the institution to follow all requirements of the Principles. The Standard Declaration is available from the Secretariat.
What is the purpose of the Signatory Application?
Along with the Standard Declaration, an institution wishing to become a Signatory or Affiliate member must complete the Application. This document outlines who is responsible for contact, reporting, invoicing, and other necessary functions to implement and maintain the Poseidon Principles for Marine Insurance within the insurance provider. The Application is available from the Secretariat.
What is the purpose of the Self-Assessment?
The purpose of the Self-Assessment is to ensure that each member has made appropriate arrangements to fulfill its obligations under the Poseidon Principles for Marine Insurance and identified any challenges to doing so. The Self-Assessment is as brief as possible to reduce the administrative burden, while still addressing the core responsibilities of Signatories to the Poseidon Principles for Marine Insurance. The questions focus on ensuring that Signatories are aware of timelines and obligations under the Poseidon Principles for Marine Insurance, have engaged internal stakeholders, have engaged clients, and have a plan for engaging the necessary service providers to complete their climate alignment assessment. The Self-Assessment questions are available from the Secretariat.
How does this fit with other sustainable insurance initiatives?
The Principles support the transition of global shipping, as well as the work of the NZIA and the Partnership for Carbon Accounting Financials (PCAF). As such, the Principles set a pioneering framework for reporting emissions for the shipping industry, thus enhancing accountability and transparency and creating a global baseline to support and work towards the greater goals for our society and the goal to align our maritime activities so that they are environmentally responsible.
What are the benefits of being a Signatory or Affiliate member?
The Poseidon Principles for Marine Insurance were developed in recognition of the insurance industry’s role in promoting responsible environmental stewardship throughout the maritime value chain. Signatories are recognized for contributing to an initiative that is ground-breaking in the spheres of shipping and insurance. Furthermore, Signatories gain access to like-minded network of organizations and valuable data that can be used to assess and avoid potential climate risks.
What are the benefits for Signatory or Affiliate member's clients?
The aim of the Principles is to support clients and benchmark the starting point for how they can reduce the climate impact of their business. Clients of Signatories or Affiliate members will benefit from this commitment by having guidance and support in this process.
With clients of Signatories sharing key environmental performance information and data with their insurer, as they already do with their lenders or with their charterers, there is the added benefit of knowing where they stand with their climate alignment. With this information, the client and the Signatory can enter a dialogue on how the client is planning to transition to a cleaner portfolio in line with global emission targets.
What is climate alignment?
For the purposes of the Poseidon Principles for Marine Insurance, climate alignment is defined as the degree to which a vessel or portfolio’s carbon intensity is in line with the two global decarbonization trajectories (produced by the Secretariat of the Poseidon Principles for Marine Insurance based on agreed and clearly-stated assumptions). One trajectory illustrates the IMO’s goal of reducing total annual GHG emissions through at least 50% CO2 reduction in absolute carbon emissions by 2050 based on 2008 levels (the “50% Reduction Trajectory”), and the other illustrates a 100% CO2 reduction in absolute carbon emissions by 2050 to support the Paris Agreement (the “100% Reduction Trajectory”).
Alignment means that the hull and machinery portfolio of the Signatory is in line with the decarbonization trajectories over time. Year to year, as well as vessel to vessel or product to product, this may not happen. For entire portfolios, the same idea applies: one misaligned year or two does not mean that it is impossible for the portfolio to align. It may take time to establish a downward trend in line with the trajectory over time.
What is carbon intensity? How is it measured?
In shipping, carbon intensity represents the total operational emissions generated to complete one unit of transport work, which is measured in grams of CO2 per ton-nautical miles. For the Poseidon Principles for Marine Insurance, this is measured using a carbon intensity measure known as Average Efficiency Ratio (AER), which is reported in unit grams of CO2 per dwt-nm (gCO2/dwt-nm). The IMO DCS enables the calculation of the AER, thus ensuring that the Poseidon Principles for Marine Insurance are consistent with the IMO’s regulations.
What are decarbonization trajectories?
The IMO’s Strategy refers to GHG emissions for its absolute reduction but carbon intensity for its relative target. There is no reason for this distinction. The Principles derive their trajectories using an absolute carbon emissions reduction. While this is a proxy for GHG emissions, it is the dominant source of GHG emissions in shipping. In the future, other GHG emissions could be included in scope.
Decarbonization trajectories are specified by ship type and size because carbon intensities vary as a function of ship type and size, as well as a ship’s technical and operational specification. The trajectory is used to help measure the alignment of vessels, products, and the portfolio of Signatories. A trajectory in line with net-zero commitments by 2050, including those established by NZIA, will be introduced once available (e.g. from the Science Based Targets initiative). The trajectories will be reviewed and improved over time to maintain the robust nature of the initiative and remain in step with the demands of our society.
Who produces the decarbonization trajectories?
The Secretariat and official Advisors of the Poseidon Principles for Marine Insurance produce and provide standard decarbonization trajectories for each ship type-class and size for Signatories, based on agreed and clearly stated assumptions. The trajectories are based on the most up to date data source of the IMO-recognized information and will be updated once new information becomes available.
They are produced in a format that allows for simple weighting aggregation. This is to ensure that once the carbon intensity of vessels is understood, it is simple and practical to understand climate alignment. This also ensures that numbers are comparable between Signatories.
How do the decarbonization trajectories align with the Paris Agreement?
In order to support the move toward climate neutrality by mid-century, a 100% CO2 reduction trajectory in absolute carbon emissions by 2050 is also provided (the “100% Reduction Trajectory”). To this end, both decarbonization trajectories will be reported annually.
We have also chosen to take steps towards alignment with the Paris Agreement, to achieve net zero emissions by 2050, and to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. A trajectory in line with net-zero commitments by 2050, including the NZIA, will be introduced once available (e.g. from the Science Based Targets initiative). The trajectories will be reviewed and improved over time to maintain the robust nature of the initiative and remain in step with the demands of our society.
What would a theoretical portfolio aligned with the trajectory look like as of today?
The methodology that underpins the Poseidon Principles for Marine Insurance has been carefully designed to ensure that no type or size of vessel is disadvantaged. Thus, it does not matter which types or sizes of vessel are in a hull and machinery portfolio; what matters is the carbon intensity of those vessels relative to their respective decarbonization trajectories.
There is no publicly available data for this calendar year which would allow climate alignment to be calculated per ship type or size, so there is some uncertainty on whether current portfolios are likely to be aligned with the trajectory. It is expected that the median carbon intensity by ship type and size will not be far from today’s trajectory alignment requirements, in large part because the fleet has seen significant carbon intensity improvement (slow steaming, increase in attention on energy efficiency, newbuild EEDI regulation) since 2008. Historical data shows some variation within each ship type and size, so depending on the mix of ships in a given insurer’s portfolio this may not be the case. If results from the first year of reporting show that there is a systemic (across Signatories’ portfolios) significant misalignment, there is scope to revise the assumptions underpinning the trajectories. Likewise, the trajectories will be updated as more accurate data becomes available (e.g. EU MRV data, new IMO GHG Study, and any analysis presented by the IMO).
How can a portfolio improve its performance in the short/medium term?
The Poseidon Principles for Marine Insurance establish a framework for the assessment of climate alignment and disclosure of hull and machinery portfolios. It does not provide solutions for how to achieve climate alignment. It is the responsibility of Signatories to determine how they choose to improve their portfolio performance.
Broadly speaking, however, to improve a portfolio’s score, it is necessary to reduce the carbon intensity of the vessels that underlie the portfolio relative to their respective decarbonization trajectories. In the short-term to medium term (i.e., 1-5 years), for most sectors – especially for ships which travel on long haul routes – the most commercially viable solutions for reducing carbon intensity is through speed reduction and energy efficient technologies and operation scheme. Over the longer term (e.g., in 10 years), the sector will need to use increasing quantities of energy and fuel which produce lower GHG emissions when used on board. Options include harvesting of renewable energy on board (wind propulsion, solar, wave), bioenergy, battery energy storage, synthetic or e-fuels (sometimes also called power-to-liquid or power-to-gas), made from renewable electricity or fossil fuel sources in combination with carbon capture and storage (CCS).
These options are at varying levels of readiness and use. For example, solar has been in use for supplementing auxiliary power for some time. Wind assistance technologies have been in use for some time on several sea going ships, as has battery energy storage and biofuel. Some of these options have yet to be deployed for deep sea shipping operation (for example bioenergy and synthetic/e-fuels) but are already deployed and in operation for short sea shipping. Their application for deep sea shipping use is the subject of intense RD&D effort, and their potential availability is expected over the coming decade.
Signatories can engage with clients to identify ways to bring down carbon intensity or they could rebalance their hull and machinery portfolio over time towards parts of the sector that are more climate-aligned or towards technologies that are climate-aligned (e.g. lower-carbon fuels).
Calculating the Annual Efficiency Ratio
What are the exact data needed in the calculations?
The data needed are the fuel consumption by fuel type in metric tonnes, total nautical miles travelled in given period, and DWT at summer draught. All of it is available via the shipowner, or through an RO with the shipowner’s permission. It is the same information the shipowner submits to the IMO DCS annually.
What is the source of the CO2 conversion factor?
The CO2 conversion factor is set by the IMO.
Is it common to other methodologies?
It is the same as used in other IMO regulatory mechanisms (e.g. EEDI).
To which extent is the data adjusted to “real” performance?
The source of the data is from direct operations from the ship using the methodology provided by the IMO DCS. Therefore, the data is not adjusted, rather it is as provided by vessel for mandatory purposes.
What about changes in ship design, specificities, efficiency, impact of retrofit works?
Any improvements undertaken by the owner in terms of efficiency (design or operational) will be reflected in the fuel consumption and hence in the data/score.
What is the impact of the fuel type used?
Different fuels have a different CO2 emissions factor, and this is reflected in the calculation of fuel consumption to CO2 emissions.
What is the impact of the (slow) speed strategy/performance of vessels?
Much like other operational efficiency measures, this will result in reduced fuel consumption and hence be reflected in the data/score of the vessel.
Is there an impact of the age of the vessel?
Older vessels may have a higher fuel consumption, which in turn would be reflected in the vessel’s AER.
Will the process for collecting data be applied on time by the various parties?
The IMO DCS is mandatory and has gone into effect in January 2019. Shipowners who do not comply within the timeframe set by the IMO will not have a Statement of Compliance which will affect their license to operate. In other words, it is not availability of data but rather access to the data for these purposes that will be of primary concern for Signatories. It is the assessment of the law firm WFW that insurance providers are within their rights under existing policy agreements to demand disclosure of data necessary to comply with the Poseidon Principles for Marine Insurance.
Nonetheless, the Poseidon Principles for Marine Insurance do take into account that in some circumstances, collecting the necessary data may not be possible. In this instance, Signatories will be required to disclose the percentage of the eligible portfolio for which there is non-disclosure. This information will be available to other Signatories but will not be publicly disclosed.
If Signatories decide to do the calculations themselves (allowed pathway), will an accountability assessment be made?
An external audit is not a requirement of the Poseidon Principles for Marine Insurance. However, in practice, some insurance providers will choose to have an independent assessment in line with their other reporting activities.
Signatories to the Poseidon Principles for Marine Insurance are expected to comply with both the Accountability and Transparency requirements. Altogether, these are:
a. The overall climate alignment of the Signatory’s hull and machinery portfolio reported as a +/- percentage figure;
b. The percentage of eligible hull and machinery portfolio that is non-reporting;
c. The percentage of portfolio for which preferred and allowed pathway tracks were used;
d. A list of the providers it used.
All information will be shared privately with other Signatories. Thus, if a Signatory make all calculations on their own, they will have to report that to the Secretariat, which will share this information with other Signatories. Only the portfolio alignment score will be made public.
What are the consequences if Signatories can’t obtain approval from all clients under (existing) agreements to collect the relevant data for the calculations?
It is the opinion of WFW that typically insurance providers will be well within their rights to ask their clients for this information. However, it is recognized that collecting 100% of relevant data may not be possible in some circumstances.
In this instance, Signatories will be required to disclose the percentage of their eligible portfolio for which they have non-disclosure. This information will be available to other Signatories. Please see Table 3 in the technical guidance of the Poseidon Principles for Marine Insurance for an example of this.
If there are significant inconsistencies, it will fall to the governance system to determine how to address the issue. This is to preserve the integrity and legitimacy of the Principles, as we expect this percentage to improve over time.
How are organizations qualified as Recognized Organizations?
A Recognized Organization is an authorized organization that performs statutory requirements on behalf of a vessel’s flag state. While typically a Classification Society, in the case of the IMO DCS, independent verifiers have been authorized by some flag states. This specific list of RO’s may differ from flag state to flag state.
The Secretariat will not approve the ROs but operate on a basis of trust that ROs authorized by the IMO DCS will be acceptable to perform services required to comply with the Poseidon Principles for Marine Insurance.
How best to work with multiple RO’s?
A common portal to share data is currently under consideration. Under this scheme, classification societies would exchange data with insurance providers and banks, to be able to access the data for the vessels in their portfolio regardless of which classification society it is covered by. This would remove most of the cost and effort in reporting and having to use multiple ROs.
The only procedure that would still be up to each Signatory is taking the intensity measure and applying it to each loan as relevant. That can of course be outsourced to an RO, but that would be at a cost agreed between the Signatory and the RO.
Is it possible to source all the data needed to report on an entire portfolio from a single classification society, even though all vessels covered by the Signatory are not classes by the same classification society?
Classification societies are members of the International Association of Classification Societies (IACS) and as such can work together to share the data (and have done so in other contexts).
A common portal to share data is currently under consideration. Read more about this project in the FAQ above.
Enforcement of the Principles
What does enforcement look like?
The enforcement process is outlined in the technical guidance and is the primary guide to meeting the requirements of the Poseidon Principles for Marine Insurance. The Secretariat, in conjunction with the Steering Committee will, as outlined in the Principles and the articles of association, update the technical guidance to ensure the Poseidon Principles for Marine Insurance are up to date.
Standard covenant clause
While the covenant wording is strongly recommended, it is not compulsory for Signatories. However, if all Signatories start using it in new agreements it will de facto be in common usage. There is no suggestion that existing agreements should be amended.
Reporting & transparency
What is the process for calculating and reporting portfolio alignment?
Signatories will annually assess climate alignment in line with the Technical Guidance for all business activities. This means that Signatories will calculate the carbon intensity of vessels in their portfolio in order to assess the climate alignment at the portfolio level, using data collected in the IMO DCS, decarbonization trajectories produced by the Secretariat and insurance providers’ portfolio data.
What exactly do Signatories need to report? What of that becomes public?
As a Signatory of the Poseidon Principles for Marine Insurance, the reporting requirements are:
- The overall climate alignment of a Signatory’s hull and machinery portfolio reported as a +/- percentage figure.
- The percentage of eligible hull and machinery portfolio that is non-reporting.
- The percentage of portfolio for which preferred and allowed pathway t racks were used.
- A list of the names of providers it used.
Only the Signatory’s overall climate alignment score will be published. All other information listed above will be shared with other Signatories but will not be made public. For further details see the Transparency section of the technical guidance.
Does becoming a Signatory create significant reporting requirements?
Every effort has been made to minimize the reporting requirements of the Poseidon Principles for Marine Insurance themselves. While it is required that Signatories include their portfolio climate alignment figure in relevant institutional reports (e.g., sustainability reports), the Poseidon Principles for Marine Insurance do not interact with any other reporting initiatives.
How will the portfolio climate alignment score be published?
The Poseidon Principles for Marine Insurance will publish the portfolio climate alignment scores of Signatories on its website. The Association will also publish a report which will provide some context in order to put the scores alignment score in perspective and correctly interpret them.
Signatories are required to publish their portfolio climate alignment in relevant institutional reports (e.g., sustainability report). There is however nothing to stop individual Signatories to publish their climate alignment at a more granular level, for example by vessels categories.