ESG Watch: Expert thinking on next steps towards an ESG-ready shipping industry

As such, we cannot overlook that decision making will be impacted from ESG topics and the first step should be to identify those and work on fostering an ESG-driven culture. In this context, our special column asks industry stakeholders to provide feedback on the following question:

Has the maritime industry realized the importance of ESG? Next steps towards an ESG-ready industry.

Øistein Jensen, Chief Sustainability Officer, Odfjell SE

We see a tremendous positive change in ESG attention. The IPCC reports, EUs ‘Fit for 55’ and several initiatives leading up to COP26 have put the Environment on top of the industry’s agenda. The Ukraine war highlights our dependency on fossil energy, and I believe this will lead to an acceleration in renewable energy development. We need access to renewable energy to produce green fuel and succeed in the transition to zero emissions. As for Social: Covid-19 has shown our vulnerability and raised the attention towards physical and mental health. We also see a focus on improving diversity; access to talents from the entire population is vital to solving future problems. The next step will be to move the pendulum from targets to actions.

Carleen Lyden Walker, Chief Executive Officer, IMO Goodwill Maritime Ambassador, Morgan Marketing & Communications

Global society is getting closer to the marine transportation system, especially with its demands for performance.  What they are looking for is accountability for shipping’s ESG.  While the focus for now is on the E, the S and the G are not far behind. In addition to your emissions, where do you stand on DEIA (Diversity, Equity, Inclusion, Acceptance)?   What started as a “feel good” has now become a requirement.  This is augmented by social justice organizations raising awareness through global communications, prompting companies such as Patagonia, Ikea, Cargill and others to demand performance indicators.  Investors, too, are scrutinizing these metrics, begging the question:  How does your company measure up?  How will our industry be judged on the world’s stage?

Jan Dieleman, President, Cargill Ocean Transportation, Chair of the Sea Cargo Charter Association, and Chair of the Global Maritime Forum

I believe the maritime industry has realized that sustainability is not a niche trend but a system-wide transition that will only keep accelerating. We can sense this mindset shift in the membership of the Sea Cargo Charter. We launched the framework with 17 founding Signatories in late 2020. As of April 2022, the initiative counts 31 Signatories, and we expect many more to join. I believe the next step should be to expand our view of ESG. A lot of effort is currently being poured into the “E” in ESG – and these efforts should continue and accelerate to safeguard our future. However, we need to focus just as much of our energy on the “S” and “G.” The COVID-19 pandemic has shown that the human element of shipping is sharply undervalued and too often forgotten. Human sustainability issues such as human rights, wellbeing, safety, future skills and competencies, and diversity, equity, and inclusion also need to be addressed by all of us.

Dr. Edmund Hughes, Director, Green Marine Associates Ltd.
The answer is yes and no. Some sectors, such as container lines and cruise passenger shipping companies, are now very much focused on perception of their business by their customers who demand attention be given to ESG issues. As such the companies in those sectors are being highly proactive to address those needs. Other sectors may see ESG less as a corporate governance issue at the heart of their decision making requirement but more from a business perspective with a need to address ESG issues to improve the bottom line and to ensure their business model remains viable including ensuring access to markets. Either way the drivers for change are likely to become more acute as scrutiny of the shipping industry intensifies.

Jenny Braat, CEO, Danish Maritime

Yes, the Danish maritime industry is very aware of the big responsibility we all have on the way to making the World a better place and investment strategies are key. Denmark is one of the most responsible countries in the World and that shows very clearly in our industry too. For us a more holistic approach to the companies is a win win situation because you’ll find high standards both when looking at environmental, social and governance matters. We work with green solutions that make a hands-on positive difference around the World and alongside of that we try to make sure that our international partners share our values. Also, Danish investors have growing demands to make sure that the funding and loans are given to companies that strive to make the world a better place. A development that we welcome and will continue to work with.

Andrew Stephens, Executive Director, Sustainable Shipping Initiative︱Ship Recycling Transparency Initiative

Many in the industry are certainly realizing the importance of ESG factors, in particular as the push increasingly comes from shipping’s own stakeholders, including customers and investors who are in turn responding to pressure from their customers, regulators, among others. This is positive as pressure to change and become more sustainable comes from all sides, and as other stakeholder groups realize the opportunities and benefits of sustainability, shipping should not be left behind. However, the shipping sector is not a monolith, and we constantly see that the different industry segments (by vessel type, company size, geography and many other factors) are at different stages of their journey when it comes to ESG. Pushing for more awareness of these challenges throughout the industry is thus an important step toward action and raising the bar. So is proof of concept – developing, testing and scaling new technologies to show that it is possible to have a more sustainable shipping industry, and that ESG needs to be a core part of the business model – not a CSR exercise.

Lars Lange, Secretary General, IUMI

Yes, I believe that the importance of ESG has been realized but the need for necessary action has not been realized just yet on a global scale and this, to a degree, is due to uncertainty. Historically a marine insurer would underwrite by considering the risk and the claims potential of that risk, asking the question of does this risk fit in with the portfolio and exposure. Now we need to take into account non-risk related factors with ESG and these can be very generic. Larger marine insurance companies are developing indicators for a list of critical risks. This cannot be achieved immediately but committed companies are driving this forward. With ESG issues it is important to do concrete things and take concrete actions – there is no more time for talk. There needs to be a strategy: How do we integrate this process? How do we get the data? How do you work with your clients? And how do you make it measurable? It is critical that it is measurable so that you can also calculate success and have achievable targets. Through these actions, companies can measure and benchmark their data to develop KPIs and have something tangible to work with.

Oli Beavon, Managing Director, ITOPF

I think that the maritime industry is thinking about the environmental, social and governance aspects of what we do and I see significant effort from owners, insurers and regulators to up our game. I see ITOPF as part of the solution and we can work together with industry stakeholders to improve in all these areas. Are we doing enough? Not yet. We have a way to go to achieve the 17 UN sustainable development goals and for the industry to become carbon neutral, but the fact we are working on them is a good thing. As an organisation, ITOPF will strive to be a leading example and share our journey in coming years to invite collaboration and help others.

Aishwarya Iyer , ESG Manager, RightShip

Yes, I think the industry is getting there in realizing the significance of ESG. Almost every maritime conference now has an ESG-themed discussion, indicating growing awareness of what the term means – that it’s not just being proactive about reducing emissions, although this is a crucial aspect – but also focusing on the S and G aspects of the sustainability journey. This means looking closely at the people involved in maritime through an equality and diversity lens, working to make it a sector that is accessible to all. General sentiment seems to be that shipping as a sector is much lacking in transparency. At RightShip we believe that you cannot manage what you cannot measure. To that end, I think next steps towards an ESG-ready maritime industry include harnessing data to regularly and honestly report on emissions levels and the impact of shipping on marine ecosystems, alongside a real focus on safety, crew welfare and responsible governance. A clearly articulated ESG profile provides a holistic picture of how the industry is functioning in its responsibility towards all stakeholders, including the community, employees, suppliers, shareholders and of course, the environment.

Stavros Meidanis, Managing Director, Capital-Executive Ship Management Corp.

No, not yet. Maritime industry is undergoing significant disruption from several sources, including economic downturn, the global transition to move away from fossil fuels, increasing digitalization and decreased demand during recent COVID- 19 pandemic. ESG, with emphasis to sustainability, shows significant challenges for the industry. Specifically, maritime industry is a complex, globalized industry and investor priorities like climate change, human rights and corporate governance are quickly applying severe pressures. In simple words, energy transition themes including renewable energy and reducing the carbon footprint are the most commonly occurring elements of ESG. At the same time, social issues such as human rights and labor practices, as well as governance issues, like diversity and equity, are becoming more prominent investor concerns. In the near future, Shipping companies that do not incorporate investor concerns about ESG principles into their overall strategy, run the risk of reduced revenue, reputational damage, missing opportunities in emerging markets and litigation.

Ingrid Sidenvall Jegou, Project Director, Global Maritime Forum

The private sector is already taking important steps to decarbonize global supply chains. With our recent Report on Climate Commitments by Signatories to the Call to Action for Shipping Decarbonization, a wide support in the maritime ecosystem for shipping decarbonization by 2050 is demonstrated, including support from unions. It also shows that the private sector is already committed to a zero-emission shipping transition with concrete actions, targets, and plans. Transparency is a key aspect of ESG, and one that has improved substantially over the past decade. If you can’t measure, you can’t improve. Transparency and ESG reporting at large will be crucial to maintain a license to operate over the years to come. But reporting in isolation is not enough, and standards are needed to allow for apple-to-apple comparisons for meaningful ESG reporting. That is what the Sea Cargo Charter and Poseidon Principles for Financial Institutions and Marine Insurance were set to do.

Konstantinos Papoutsis, Sustainability Manager, EURONAV NV

Maritime shipping is a capital-intensive industry attracting investments from around the globe. The measurable challenges and opportunities enabled by ESG provide a significant advantage for strategic decision-making. ESG performance has recently been embedded into shipping financing and there is also a growing number of shipping companies issuing ESG reports. However, whilst part of the industry may have realized ESG importance, it needs time to integrate ESG into their strategic orientation. To remain ahead of that momentum, the industry should demonstrate: (i) integrity for trustful and transparent ESG performance disclosure, (ii) adaptability to be able to navigate future ESG risks and uncertainties and (iii) cooperation to collectively drive impactful change.

Maria Kyratsoudi, Business Development Manager, ABS Greece

ESG in shipping is not without significant challenges unique to the industry. Shipping requires deep domain expertise to understand the landscape, navigate the options and opportunities to build a custom, sustainable and effective ESG framework that optimizes your metrics, reporting, and competitive position across the entire industry value chain. In shipping, sustainable business outcomes such as having a commercially competitive fleet staying constantly under an ambitious decarbonization trajectory and at the same time having zero Lost Time Injuries can only be achieved by taking an intentional, balanced approach to the ESG elements. ESG is asking for performance beyond the regulatory threshold. ESG will define trajectories. It requires top management engagement so that the whole company is driven to continuous improvement that goes beyond the regulatory requirement.  A company needs to ensure that its ESG performance is properly represented and captured by the framework of KPIs it has set.

Elias Demian, Environment and Climate Sustainability Advisor, MOORE Greece, Regional Coordinator of the SEE External Monitoring Team of the LIFE programme, Senior Researcher at IOBE

Realising the importance of ESG in the maritime sector calls for agreeing that ESG should not be considered as another resource intense process. All shipping companies, regardless of their size, geographical operation and type of vessels are already implementing actions that fit to each of the ESG triplet. What is missing is an integrated approach that includes awareness among top management, identification of those ESG criteria that suit the firm better, close monitoring by a specialised team and, finally, reporting on a compliance-driven methodology that allows full transparency for shareholders, customers and the wider public. At Moore Greece, we have recorded the strategic steps needed and we offer a professional team that supports the sector in each and every step to valorise the ESG framework.

Nick Walker, Partner & Valentina Keys, Senior Associate, Watson Farley & Williams

The ‘E’ in ESG is high on the maritime agenda , with widespread acceptance of the need for urgent emissions reduction. The will to do the right thing – to innovate, retrofit and build more efficient vessels – is there. However, there is a lack of market-ready low-carbon technology and fuels and decarbonisationis often held back by regulatory gaps and difficulty obtaining finance. The industry’s decarbonisation will make many vessels obsolete, with significant consequences for the waste and recycling sectors. Ship recycling, though not as high profile as decarbonisation, has significant environmental and social impacts and, despite confusion around the regulatory regime, remains something the industry needs to address. In common with many other industries, there is currently less of a focus on the ‘S’ in ESG. This is bound to change with new EU laws coming into force requiring relevant organisations report on sustainability criteria and undertake detailed due diligence of their supply chain. As a critical part of the supply chain, maritime is bound to be affected. The Global Maritime Forum’s Neptune Declaration Crew Change Indicator (which WFW assisted with) and Just Transition Maritime Taskforce (which came out of COP26) demonstrate the direction of travel for the industry in social governance and as its willingness to tackle difficult issues around social welfare.