Article: As we enter a new era where key stakeholders would “rather see that a company has planted trees, instead of seeing that they have policies about not destroying trees,[1]” expectations have been re-defined.
Entering the Environmental, Social, and Governance (ESG) Arena
According to the landmark report released on the 6th of August, 2021 by the Intergovernmental Panel on Climate Change (IPCC), in the words of Antonio Guterres, United Nations Secretary-General a “code red for humanity;” the planet will warm by 1.5° Celsius in the next two decades if we do not take drastic moves to eliminate greenhouse gas pollution.
The moral case for sustainability is evident, yet it also makes an exceptional business case. Charterers, end consumers and clients, regulators, employees, investors and banks are increasingly expecting ESG to become the new norm for shipping companies; forming both a driver and catalyst for the way in which they interact with them. Furthermore, with more than 30 trillion in sustainability investment capital on the line and one in every four dollars under asset management in the U.S. alone – some US$12 trillion – being invested in line with ESG strategies,[2] if there was ever a time for organisations to enter the ESG arena, the time is now.
The breakbulk and wider maritime sector, remains largely reliant on international commercial banks, export credit agencies and leasing companies for capital. Subsequently, the recent trend of sustainability impacting the decisions of finance institutions constitutes a clear sign that the industry needs to embrace ESG as a cherished survival kit.
From Corporate Social Responsibility (CSR) to Culture of Sustainable Responsibility (CoSR)
Companies are now called upon to move away from paper-based policies and build cultures of sustainable responsibility, in order to actively manage ESG risks and opportunities. The transition from CSR to CoSR, has been the result of initiatives and regulations aimed at establishing a direct link between ESG performance and the company’s financing viability such as the:
- Poseidon Principles: introducing a framework by which shipping companies will only be eligible for financing by signatory institutions, if their environmental performance is aligned with the desired climate alignment of the principles;
- EU Sustainable Finance Regulation: requiring investors to report on the ESG performance of their portfolios, which is then linked to their annual credit rating by financial institutions;
- Sustainable finance products and lending terms: providing access to green financing for products such as LNG powered vessels, sustainable retrofit programs and green bonds issued by shipping companies, which integrate ESG criteria into the business or investment decisions.
This new approach is leading a mindset shift within the wider maritime sector, with ESG reporting covering topics such as recycling, greenhouse gas emissions, other air pollutants, ecological impact, business ethics, employee health and accident and safety management. While, examples which would demonstrate ESG performance are as diverse as fleet’s performance against IMO’s EEDI requirements, lost time injuries (LTIs) figures or explaining diversity policies and practices.
Navigating the Arena
Whether ESG will be a “deal maker” or “breaker” for companies, comes down to the following basic practices:
- Understanding the ESG scene and remaining updated and proactive
- ESG due diligence and risk management; determining gaps, resilience levels and opportunities
- Transparent ESG strategies reflecting short, medium and long terms targets; aligned with the Paris Agreement, 2050 net zero emissions plans and respective maritime regulations
- ESG frameworks, defining targets, KPIs and processes; ideally automating procedures such as data reporting etc.
- Aligning brand, communications, policy and advocacy activities with strategy
- Taking at all times employees, communities and other stakeholders into consideration
As daunting as the ESG Arena may seem, it remains one of the biggest disruptors the industry has seen in recent years. Therefore, what can be said with certainty, is that companies who will embrace it as a new direction of opportunity, are those who will secure, possibly the greatest “deal” of all time; for commercial viability, our planet and humanity.
[1] Sikochi A., 2021, Harvard Business School
[2] Source: US SIF forum for sustainable and responsible development
