The Poseidon Principles of Marine Insurance | Celent JD Supra

prologue

The shipping industry currently accounts for 2.2% of global greenhouse gas (GHG) emissions, according to the International Maritime Organization (IMO), and will increase by 50-250% by 2050 if left unregulated There is a possibility. aims to reduce GHG emissions by 50% by 2050 through its GHG strategy approved in April 2018.

Against this background, the Poseidon Principles for Marine Insurance (PPMI) entered into force on 15 December 2021. PPMI represents an insurance-based follow-up to the influential Poseidon Principles for Financial Institutions, joined by 30 banks and financial institutions in June 2019. The first Poseidon Principles for Financial Institutions set industry policy above and beyond IMO requirements, and PPMI, along with other initiatives such as the Sea Freight Charter, will help the shipping industry comply with the world’s most ambitious climate targets. It’s the fairlead that guides you. The Poseidon Principles target a 100% GHG reduction, or “net zero” carbon emissions.1

In late September 2022, the Poseidon Principles for Financial Institutions and PPMI released a further benchmark of a maximum temperature increase of 1.5°C above pre-industrial levels by 2100. The Intergovernmental Panel on Climate Change (IPCC) currently projects a 3°C rise by 2100, but maintaining the 1.5°C target would require reducing GHG emissions relative to 2019. It claims a 43% reduction by 2030. Thus, while the Poseidon Principles extend beyond his IMO’s GHG Strategy, these goals are largely aligned with global climate goals and, moreover, impose an impossibly heavy burden on the shipping industry. It has a realistic style.

What are PPMIs?

PPMI is the global framework for assessing and disclosing the climate adjustments of insurers’ hull and machinery portfolios. At the time the initiative launched in December 2021, PPMI had six insurer signatory members. PPMI only applies to hull and machinery insurance where the PPMI signatory is the primary insurer or where the signatory is the next insurer as long as the primary insurer is the signatory. The framework also makes available ‘Affiliate Members’, consisting of companies that promote and support hull and machinery insurance, such as brokerage firms and fixed premium P&I providers. At the time of publication, he has nine signatories and nine affiliate members.2

PPMI signatories track the carbon intensity of their ships. It represents the total operational emissions generated to complete one unit of transportation work. Simply put, this is the number of grams of CO2 emitted by a ship to move one tonne of goods for one nautical mile. A ship’s carbon intensity is measured as the Average Efficiency Ratio (AER). This is the unit of grams of CO2 per tonne of deadweight nautical miles.3

The aim of tracking the carbon intensity of ships and aligning them with the PPMI trajectory is to align the shipping industry with the aforementioned 100% carbon emission reduction target, which is the same standard as the 2015 Paris Agreement.Four While this is a stricter standard than the current IMO GHG Strategy, the IMO Data Collection System (DCS) is essential for signatories to track their carbon intensity.

Trajectories are specific to ship type and size, as well as technical and operational specifications. This is intended to prevent any one of her types of vessels from being disadvantaged in trajectory alignment. Nonetheless, older vessels with higher fuel consumption will inevitably have higher AER and may struggle to comply with track alignment. Additionally, perhaps ironically, conceptually larger ships could be seen as carbon emission exacerbators, but the economies of scale and the existence of far more tons of fuel burning split , indicating that the AER for large ships is likely to be lower than for small ships. In any event, the PPMI acknowledges that trajectories are likely to be adjusted after at least one year of data has been collected, and PPMI signatories are concerned about whether the industries they represent are significantly off track with climate targets. You can evaluate whether It is envisaged that the PPMI Secretariat and Official Advisors will periodically reassess the trajectory based on developing climate and industry data.

What disclosures are required by PPMI?

PPMI signatories rely on the IMO DCS to collect data for AER calculations, but 100% disclosure may not be achievable. PPMI advocates a standard commitment to hull policies requiring disclosure, but does not require signatories to implement the same. The signatory will report to other her PPMI members the percentage of fleet for which data is not available, but this information need not be made public.

In fact, the only information available to the public is the PPMI signatory’s overall climate adjustment score, which is published annually and is based on reported and accumulated data for each insured fleet. .

Where an owner’s vessel is insured with a PPMI signatory, disclosure will meet IMO requirements, particularly as IMO’s Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) planning and reporting rules come into effect in January. should not represent a material ESG burden exceeding 2023.

Will violating the PPMI void my insurance?

There is no immediate threat of insurance interruption if shipowners do not immediately comply with the PPMI’s preferred trajectory. PPMI’s main enforcement tools are requests for information under the general terms of the policy and standard contracts intended for a shipowner to disclose specific information to calculate her AER. Signatories are less likely to attempt to amend existing policies and will no longer be required to enforce their terms. This in itself implies room for negotiation and the possibility of non-disclosure. However, the shipping financiers behind the Poseidon Principles may become more inclined to condition their access to finance on compliance of groups such as PPMI, and as IMO tightens carbon regulations and data collection requirements, It is in the shipowner’s interest to start aggressively. Disclose and self-evaluate as soon as possible.

1 These reductions are based on 2008 emissions data.

2 https://www.poseidonprinciples.org/insurance/members/.

3 gCO2/dwt-nm

Four The Paris Agreement entered into force on November 4, 2016, with 193 parties, including 192 signatories and the EU.

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