Environmental, Social, and Corporate Governance (ESG) & Shipping

ESG examined for the shipping sector

For most of us, the term ‘ESG’ brings environmental issues and conservation to mind but, whilst this is critically important, the term is of course much broader than that. ESG also covers social issues such as talent management, training, data security and labour practices, as well as governance measures like diversity and business ethics – and this is by no means an exhaustive summary.

The environmental picture

The shipping sector clearly has an important role to play in the drive towards reducing our impact on the environment. Shipping’s share of global GHG emissions in 2018 was 2.89%, an increase from 2.76% in 2012 (source: DNV-GL). The most obvious way to reduce the industry’s environmental impact is to make each vessel ‘greener’ in a progressive, measurable and disciplined way. This will  not simply be limited to retrofits and conversion projects, although these are key, but will also include innovative initiatives such as the onboard storage of containerized LNG, to name just one example.

Social snapshot

To delve deeper into one of the social elements, let us take diversity as an example for the maritime sector. The industry has a largely male workforce at all levels, from crew onboard ships to middle managers and equity holders. As a collaborative, we are on a drive to raise awareness of the critical nature of all roles in attracting talent from within and outside the industry. A good example of this would be scholarship and training funds raised by a large number of companies that enable people to train, upskill and gain qualifications that they may otherwise not have had access to. This levelling of the playing field is a small but essential piece of the ESG jigsaw.

A view on governance 

The shipping industry is required to improve on transparency and reporting from ethical, regulatory, social and financial standpoints in a similar way to any other comparable industries. However, for shipping especially, we need to approach this in a methodical and standardized manner that can be communicated to and understood by the general public. Shipping is in some respects a silent giant, forever active but barely noticed and understood by consumers, despite the fact that without it, the global marketplace would collapse.

Industry-wide approach

The ESG strategy of a company is often reliant on the one person who holds ultimate responsibility for it. Deep-rooted strategies that become part of a company’s DNA, reaching and wrapping around each part of the business and forming the foundation of the company culture are far more effective. When this happens organically, leaders can shift their focus to innovation, efficiency, best practices and of course, profitability.

However, it is not enough for companies to succeed this way in silos, creating unfair environments where the inevitable hurdles that a robust ESG strategy may present are non-existent in companies not taking their responsibilities seriously. An industry-wide approach is the way forward and this can be driven to a certain extent by those that finance it.

Doing the right thing – for what?

Currently, some elements of ESG are largely self-determined and self-enforced. This will inevitably change as we progress in finding solutions but there will no doubt be bumps in the road. Doing the right thing without an expectation of gain could be classed as a benefit itself, but so is genuine, long-term sustainability. Ancillary benefits also include easier access to finance and on a larger scale, so it is a challenge we must collaboratively rise to.

Corporates with sound ESG processes sometimes lack the tools to give investors standardized, credible information in the right format to shape the narrative around their company and its culture. By implementing the right processes and digital tools to communicate the right information in the right way, the sector can tentatively look forward to a more prosperous and sustainable future.

For shipyards and the ship maintenance supply chain, there are obvious gains to be made in the drive towards more environmentally-friendly global shipping fleets. The gains may be less immediate for shipowners, but ultimately, both sides stand to benefit from more profitable business and the added financial value to vessels, which in turn attracts more interest from a broader set of investors.

During a time when the shipping industry is undergoing a paradigm shift, it is discernibly challenging to enforce transparency and discipline, but the current general direction of travel with the ESG mandate is the right one if we are to address social and governance challenges and the looming climate catastrophe.