Shipping faces a wide variety of ESG risks through the entire value chain. Mr Bjørn Kjærand Haugland, co-founder and Chief Executive Officer of Skift Business Climate Leaders enumerates the 13 key areas from a global perspective that should be on top of the ESG agenda for the shipping industry.
With regards to the ‘E’ – Environment
#1 Emissions: GHG emissions and the ability to meet stricter climate related regulations, concern over air pollution emission from ships, including Nitrogen Oxides (NOX), Sulphur Oxides (SOX) and Particulate Matter (PM) in harbour areas.
#2 Climate risk: the fleet’s preparedness to meet harsher and more unpredictable climatic conditions and stricter requirements
#3 Recycling: Reputational damage due to recycling taking place on the beaches in southeast Asia, where the health and safety of workers are not respected, and environmental protection is lacking.
#4 Biodiversity and pollution: transfer of invasive species through ballast water, impacts on marine life from anti-fouling chemicals, and insufficient on-board waste management.
#5 Accidental spills and emergency preparedness: Financial markets are concerned with environmental damage from accidents.
With regards to the ‘S’ – Social
#6 Forced labour: Several cases of forced or compulsory labour have been uncovered in recent last years, particularly involving migrant workers.
#7 Security: Shipping routes in high-risk areas require a greater focus on security practices.
#8 Diversity: Shipping is a male dominated industry with limited opportunity for women and non-Western crew to advance.
#9 Health and Safety: There are approximately 6 fatalities per 100 million work hours on board ships (excluding fishing) per year, which is 10 times the OECD average for all industries.
#10 Labour rights: Extensive use of temporary employment agencies and short-term contracts weaken worker’s rights and their ability to organize.
With regards to the ‘G’ – Governance
#11 Political accountability: Controversy over the industry’s supranational nature means it often escapes enforcement of national regulations and international agreements.
#12 Tax transparency: Tax transparency and tax liabilities, the use of tax havens, and tax evasion.
#13 Anti- corruption: Shipping is highly vulnerable to corruption and the demand of facilitation payments.
Key considerations to move forward
The fact that shipping is a highly regulated industry is beneficial for controlling the aforementioned ESG concerns. To achieve ESG and sustainability objectives, the majority of businesses will have to alter the way they conduct business. This implies that in order to manage the increased risks, they may also need to alter their organizational structures.
Operational risk, for instance, is increased by technical complexity, new regulations, and new fuels. Crew competency and wellbeing are intimately related to operational resilience. Therefore, improving crew training and prioritizing health and safety are crucial for reducing this risk. It is time to take into account an ESG and sustainable strategy for business that is more people-focused. Organizations must focus on sourcing, assessing and developing talent with the right knowledge and skills for change.
In addition, stakeholders are increasing their scrutiny on the shipping value chain. This exposes the company to more new risks. However, all ESG risks can be turned into opportunities. In some regions, there is a surge in climate litigation, targeting companies accused of greenwashing or not mitigating their climate impact. In conclusion, having a robust ESG strategy and executing it is essential.
