Environmental, Social, and Governance (ESG) concerns have increasingly become a critical consideration for businesses globally. The maritime industry is no exception and is set to be significantly impacted by ESG considerations in 2023 and beyond. While the industry plays a critical role in global trade and commerce, it is also a significant source of greenhouse gas emissions, pollution, and other environmental and social impacts. Here are just some of the ways that ESG is likely to play a significant role in shaping the industry’s practices and operations.
Investments and Financing
There has been a recent demand for sustainable finance which means that banks and regulators are tightening requirements for ESG reporting. Companies across many industries that comply with these requirements can find themselves with a better chance of access to sustainability-linked finance.
Investors are often reticent to follow ESG investing in maritime companies due to the slow progress that the industry appears to have made thus far. As a result, accessing such ‘Green finance’ is not currently easy for shipowners and Deloitte states that many are missing out on the ESG reporting disciplines that could improve their prospects for raising finance. As of the end of 2022, only 63% had produced enough meaningful ESG metrics to be rated by the four main sustainability metrics.
A report from PWC has stated that “Public disclosure of ESG performance will soon be mainstream in the maritime industry”. And that shipping companies “will move toward a more focused mindset of treating ESG data as an asset”. It would appear then that as well as adhering to environmental regulations, ESG reporting is going to be another vital target for shipowners to be able to secure access to capital and the longevity of their business.
Environmental Impact
The shipping industry is responsible for around 2.5-3% of global greenhouse gas emissions, making it a significant contributor to global warming. Emissions from the maritime industry have tripled over the past three decades, and this is expected to continue unless steps are taken to reduce them. As a result, reducing carbon emissions from ships is becoming an essential part of ESG considerations for the maritime industry.
There are a number of ways the maritime industry can minimise its carbon footprint. The first is to reduce the speed of ships, which would significantly lower fuel consumption and emissions. Another option is to use low-sulphur fuels or alternative fuels, such as biofuels or hydrogen, which produce significantly fewer emissions. However, the cost of alternative fuels is still significantly higher than traditional fuels, so investment in infrastructure and technology will be required to make the transition to cleaner fuels feasible.
The International Maritime Organisation (IMO) is very much onboard with addressing the environmental impact and has a strategy to reduce greenhouse gas emissions from ships. The strategy sets targets for reducing emissions by 40% by 2030 and 70% by 2050, compared to 2008 levels and is also exploring alternative fuels and propulsion systems, such as biofuels, hydrogen, and electric propulsion.
Social Factors
Social factors are also becoming increasingly important for the maritime industry. One significant concern is the welfare of seafarers, who are essential to the industry but often face challenging working conditions and limited access to healthcare and other resources. The COVID-19 pandemic further highlighted the challenges faced by seafarers, who were left stranded at sea for months due to travel restrictions and other disruptions.
To address these issues, industry stakeholders are advocating for improved working conditions, better access to healthcare, and greater recognition of the essential role played by seafarers. There is also growing interest in promoting diversity, equity, and inclusion within the industry, to ensure that all stakeholders benefit from the industry’s growth and development. Also, the IMO has taken steps, such as introducing the mandatory use of the Maritime Labour Convention (MLC).
The industry needs to continue to address such social issues to meet ESG considerations and this can be achieved, by improving living conditions and healthcare access onboard ships. Companies can also offer mental health support to crew members and ensure they have access to communication tools to stay in touch with their families. Additionally, companies can work with governments and other stakeholders to ensure that seafarers are recognised as key workers and are prioritised for vaccination in the event of a global pandemic such as the recent Covid-19 situation.
Governance Factors
Governance factors are also becoming increasingly important for the maritime industry. The industry is highly regulated, with numerous international and national laws and regulations governing safety, environmental protection, and other aspects of maritime operations. Compliance with these regulations is critical for maintaining the industry’s social license to operate and avoiding reputational and financial risks.
In addition to regulatory compliance, there is growing interest in promoting transparency, accountability, and ethical practices within the industry. This includes initiatives to promote responsible supply chain management, combat corruption and bribery, and promote human rights and labour standards.
The industry has been criticised in the past for poor governance, and the IMO has taken steps to address these concerns, however, more needs to be done to ensure companies operate ethically and with transparency.
In summary, ESG factors are likely to have a significant impact on the maritime industry into 2023 and beyond. To remain competitive and maintain their social license to operate, industry stakeholders will need to adopt more sustainable and responsible practices. This includes reducing greenhouse gas emissions, promoting the welfare of seafarers, and promoting transparency and ethical practices.
Vassallo Associates can advise further on the implications of ESG to the Maritime industry. Contact us today for a free, no-obligation consultation.
