The increasing number of ESG-related regulations in shipping are a reflection of the emphasis that clients, investors and other stakeholders are placing on the maritime sustainability agenda. Consequently, if companies fail to comply and to successfully illustrate how they are managing the increased regulatory risks, they may be subject to fines and reputational damage as well as being potentially less attractive to both talent and financiers – all of which are key components in “fuelling” the maritime industry and subsequently running a successful business.
The UN Global Compact published its 12th CEO report in January 2023, indicating that from 2013 there has been a 15% increase in CEOs who believe that it falls within their responsibilities to make their business more sustainable – an acknowledgement that sustainability and ESG are a business opportunity that need to be at the forefront of every board agenda.
The report also provides guidance on the ingredients for businesses to build resilience in this new reality, such as sustainable supply change management, investing in the workforce (upskilling, training & wellbeing), aligning leadership incentives to sustainability-based values and outcomes and including ESG impacts in investment decisions. The report’s conclusion was that by choosing to invest in sustainability, companies can build their own resilience and agility to respond to upcoming, unknown challenges.
Access to financing, insurance and investments
Financial institutions, insurers and investors are integrating ESG risk factors in their decision-making processes. The Poseidon Principles and Poseidon Principles of Marine Insurance are only the beginning, setting a global framework for assessing and disclosing the climate alignment of shipping portfolios. Furthermore, in respect to public listed companies ESG ratings provide transparency to investors around how exposed companies are to specific risks, and how well companies are managing them.
Complying with environmental regulations
The International Maritime Organization (IMO) has adopted an initial strategy on the reduction of GHG emissions from vessels, with key strategic objectives including (i) the reduction of carbon intensity of international shipping by 40% by 2030, pursuing efforts towards 70% by 2050 and (ii) the reduction of total annual GHG emissions by 50% by the year 2050. From 1 January 2023, all vessels are required to calculate their attained Energy Efficiency Existing Ship (EEXI) to measure their energy efficiency and to initiate the collection of data for the reporting of their carbon intensity indicator (CII) and CII rating.
Furthermore, in accordance with the latest European Union (EU) proposal, the shipping sector will be included in the Emissions Trading Scheme (ETS) by 2024. The measures have an extra-territorial reach and will also affect the movement of cargo outside of the EU’s borders.
Missing out on talent, creativity, innovation and subsequently profitability
Companies are under heightened scrutiny not only by regulators, financiers and clients but also from prospective employees. Faced with increasing difficulty in attracting and retaining talent, industry leaders need to recognize the importance of collectively improving their value offering towards the future workforce.
At the latest Global Maritime Forum’s Annual Summit, working groups of young professionals explored what it will take for the global maritime industry to become truly attractive to the diverse workforce of the future, with all agreeing that our value proposition is behind other industries when it comes to addressing the career priorities of younger generations.
Furthermore, McKinsey & Partners published a business case for diversity in May 2022. With the largest data set gathered so far, encompassing 15 countries and more than 1,000 large companies, the case revealed that companies in the top quartile for gender diversity on their executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile. In the case of ethnic and cultural diversity, the findings were equally compelling: in 2019, top-quartile companies outperformed those in the fourth one by 36 percent in profitability – a clear indicator of why it makes business sense to embrace diversity and inclusion in efforts to attract and retain talent. The maritime industry of the future needs to be staffed by people who are skilled and able to deal with the complexities of fuel transitions, digitalisation and automation. This puts greater emphasis on the enhanced need for talent to safeguard a resilient maritime future and the need for workplaces – whether onboard or ashore – which cater for employees’ mental health and wellbeing.
The maritime industry is undoubtedly now faced with numerous challenges, from decarbonizing operations at the forefront and crew wellbeing also in heightened focus, the future will involve testing new fuel and energy solutions, new technologies, new vessel designs, embracing innovation and enhancing efficiencies. According to the World Economic Forum, international trade is vital to economic development; it has lifted 1 billion people out of poverty in recent decades and around 90% of global trade moves by sea. Food, energy, medicine and much more are all delivered to us by ships, so maritime transport is unquestionably the backbone to our daily lives.
As the least environmentally damaging from of commercial transport, we have a duty to maintain it sustainably and that duty can only be fuelled by successful sustainability and ESG strategies. For more than 150 years, West has been working with its Members to build a safer and stronger maritime industry and we remain committed to help develop the sustainable maritime industries of tomorrow by encouraging our Members, stakeholders and others within the marine industries to make a positive impact.