The pressure for change
Maritime transport plays and will continue to play a vital role in global trade and the economy, accounting for about 90% of the world’s trade. But it is also one of the world’s most polluting industries. Vessels release emissions that pollute the air and contribute significantly to global warming. Maritime shipping accounts more than three percent of global carbon dioxide emissions. This is a proportion comparable to that of major carbon-emitting countries. Shipping is projected to continue to grow and, without sustainable measures, its greenhouse gas emissions will increase by up to 50% by 2050. Shipping is also responsible for 18% of the world’s sulfur and nitrogen oxides which cause respiratory and cardiovascular diseases, acidify oceans and affect marine and farmland life. Therefore, business as usual is no longer an option and the shipping industry is under pressure decarbonize.
The responsibility to decarbonize and meet climate goals extends to the entire shipping ecosystem, including cargo owners and financiers, and it is a shared responsibility that requires collaboration within and outside the maritime industry. Corporate governance and regulation by governmental and nongovernmental organizations have begun to guide the move toward environmental sustainability in shipping. Major shipping companies are also increasingly concerned with improving their public image as environmentally conscious companies and are seeking to integrate environmental, social and governance – ESG requirements into their business models. This movement within the shipping industry is complemented by the setting of regulations and ambitious targets by European and U.S. governments, as well as international organizations, to reduce greenhouse gas emissions in the coming years and decades.
For example, in 2018, the International Maritime Organization (IMO) adopted its first strategy to reduce greenhouse gas emissions from ships, setting out a vision that confirms the IMO’s commitment to reducing greenhouse gas emissions from international shipping and phasing them out as soon as possible. In July 2021, the European Commission presented the package of legislative proposals entitled “Fit for 55” to ensure the success of the European Green Deal. The FuelEU Maritime Regulation is one of these proposals and, together with four other proposals, aims to steer the EU maritime sector towards decarbonization. The ‘Poseidon Principles’ is another global initiative that provides a framework for incorporating climate considerations into lending decisions by institutions operating in the shipping sector.
Toward a responsible and sustainable future
The tightening of regulatory frameworks related to environmental impacts, supply chain risks such as fuel price increases, and increasing public demand for social and environmental responsibility mean that the shipping industry is now under pressure to address climate change and implement comprehensive ESG policies.
At a time of continuous change across all sectors and global recognition of the need for sustainability, there is no doubt that stakeholders across the maritime value chain are increasingly demanding transparency across all data, but also strong evidence that corporate culture is moving beyond compliance. The ESG framework recommends that companies develop and implement management methods and tools that enable them to measure ESG performance targets, which generally include issues such as recycling, greenhouse gas emissions, other air pollutants, environmental impacts, business ethics, employee health and safety, and accident and safety management. In the maritime sector, the environmental pillar is the fundamental pillar on which companies develop their ESG strategies. ESG reporting meets the information needs of multiple stakeholders and covers legal requirements and society’s expectations. It is in line with the information needs of the financial sector, including ratings produced by ESG rating firms. They are crucial in describing the criteria investors use to evaluate a company and decide whether it is worth investing in by analysing key risks and growth opportunities. This means that ESG helps to make companies’ social and environmental efforts quantifiable and thus easier to measure.
Shipping and maritime companies are already getting a sense of the new expectations that a range of stakeholders, including lenders, customers, insurers, suppliers, employees, regulators and end users, will have of ESG. They are beginning to demand credible, standardized information to support long-term assessments of decarbonization, resource scarcity, talent management, data security, crew welfare, diversity and business ethics. So there is no standing still: companies will either embrace the implementation of effective ESG strategies and the opportunities they create, or risk being forced out of the industry. To remain robust and successfully navigate generational change, they must strike a balance between economic performance and social progress.
However, ESG success requires a long-term view. Executives must ensure that ESG strategies are embedded in their overall business strategy. This must be done both from the top of the company and in collaboration with value chain partners. While it can be difficult to see the potential that improving ESG performance can bring, those that are successful will be better able to secure investment, talent and customers.