Sustainability and communications consultancy Woodrow has published a report showing that 64% of senior finance professionals in the UK are contemplating reducing their investment in the maritime sector because of Environmental, Social, and Governance (ESG) risks. The study offers insights into how ESG considerations are impacting decisions in capital markets.
In particular, the report sheds light on key areas of ESG risk perceived by lenders and investors, including labour rights, climate change and regulatory compliance. It also assesses risk perceptions in specific maritime sectors such as shipping, ports and terminals, and offshore activities like drilling.
Key highlights
- Woodrow report reveals maritime sector perceived as more vulnerable to ESG risks, lagging in transparency and ESG awareness.
- 64% of surveyed professionals indicate that their institutions are weighing the option of scaling back maritime investments due to escalating ESG apprehensions.
- First-of-its-kind study examines the influence of ESG risks on lending and investment decisions, polling senior figures from major financial establishments.
The survey engaged 100 senior finance professionals from various segments of the UK capital markets, including commercial and investment banks, asset managers, development and multilateral banks, as well as private equity firms.
Navigating ESG risks in the maritime sector
ESG factors are increasingly instrumental in shaping a company’s financial future. In the maritime sector, issues like poor waste water management affecting biodiversity, or subpar working conditions on ships, carry potential regulatory repercussions and reputational damage. These are not just ethical concerns but critical factors that investors, lenders and underwriters are incorporating into their capital allocation strategies.
Given the capital-intensive nature of maritime activities—ranging from shipbuilding to pioneering new fuel technologies—secure access to financing is crucial, heightening the need for effective ESG risk management.
Maritime more exposed to ESG risks, say lenders and investors
Two-thirds (66%) of respondents believe that the maritime sector faces greater ESG-related financial risks compared to other industries. This perception is particularly strong among those managing debt capital (73.5%) and among large institutions with assets under management (AUM) ranging from £10 billion to £100 billion (75%).
Perceptions differ according to the type of financial institution and its exposure to maritime assets. Investment banks were the most concerned (83.3%), whereas multilateral banks and IFIs were less aligned, with only 40% sharing this view. High maritime exposure led to higher concern (69.7%), compared to limited exposure (52.9%).
Maritime sector criticised for poor ESG practices
The report unveils widespread scepticism about the maritime sector’s ESG awareness and transparency, with 57% considering the sector less aware and 56% criticising its transparency. This scepticism is heightened among those handling equity capital—66.7% questioned the sector’s awareness and 64.1% its transparency.
The type and size of institutions influenced these perceptions. Larger institutions (AUM between £10-£100 billion) generally agreed with these negative views, while smaller institutions (AUM < £1 billion) were less convinced.
Worker welfare and climate change top ESG concerns
Survey participants cited several areas of ESG vulnerability for maritime assets, with worker conditions and safety at 38%, technological disruptions at 34% and climate impact at 33%. Concerns varied depending on the type of capital managed and the level of maritime exposure.
Equity managers prioritised climate impact (38%), while debt managers focused on biodiversity (41%). Those dealing with hybrid capital expressed most concern about technological disruptions (41%) and water management (44%).
Highest risks perceived in shipping and maritime technology
Among specific maritime industries, Shipping and Maritime Technology & Equipment were viewed as the riskiest, each cited by 17% of respondents. They were followed by Ports & Terminals and Naval & Defence, both at 12%.
High exposure to maritime assets heightened concerns about Shipping (24.2%), whereas exploratory stages of investment led to increased focus on Maritime Technology (28.6%).
This report reveals a paradox: while capital markets consider the maritime sector to be ahead in managing ESG risks, they also find it lacking in transparency and slow to integrate sustainable practices. This inconsistency is alarming, particularly when a majority of financial institutions are mulling over divesting from or reducing exposure to maritime assets due to ESG concerns.
..Henry Kirby, head of Woodrow’s sustainability practice, said.
Our aim is for this report to serve as a guide for maritime companies and financial institutions, helping to bridge this perception gap and encourage more informed decision-making in capital allocation.
..said.
