Environmental, social and corporate governance (ESG) is being used by investors to determine a shipping company’s future growth
When it comes to shipping sustainability, investors care. “There has been a profound change in the financial community within banks and investors,” said DNB Bank ASA head of ocean industries North America Evan W Uhlick. Speaking at a webinar Responsible shipping under Environmental Social and Governance (ESG), hosted by DNV GL, Mr Uhlick called ESG “a centrepiece” in how DNB evaluates companies, not just in shipping, but across its entire corporate banking landscape.
As a result, shipping will be required to provide increased transparency through ESG reporting.
An ESG report, prepared in accordance with the Marine Transportation framework established by the Sustainability Accounting Standards Board (SASB), can cover everything from emissions to employee health and labour standards to business ethics. Lenders use the reports to determine the long-term ESG risks on a company’s future growth. Shipping lines, for example, can demonstrate their fleet’s performance against IMO’s EEDI requirements, report on their lost time injuries (LTIs) or explain their anti-corruption policy.
More than a quarter (26%) of all assets under professional management across all sectors are screened against some ESG criteria, according to data shared by DNV GL global director of sustainability and supply chain resilience Tom C Andresen Gosselin during the webinar. Sustainable and responsible investing in the US has grown to US$12Tn, almost three-quarters of which is from institutional investors.
“[ESG] has become much more of a focus for investors when they think about allocating their capital"
A poll taken during the webinar indicated that the shipping community is not taking ESG lightly. Asked, “What is the status of ESG at your company?” 33% of respondents said they had an ESG plan in place, 44% said they were developing one, 16% reported that they had not started work on one and 7% said ESG was not relevant to them.
One of the world’s largest shipping companies, the Teekay Group, takes ESG very seriously. In marking World Maritime Day in September and reinforcing its ESG focus, the Teekay Group committed to the United Nations Global Compact. “We are fully committed to advancing sustainability and responsible business practices in order to meet growing expectations of our stakeholders and global society as a whole,” said Teekay Corporation president and chief executive Kenneth Hvid. Teekay has been publishing sustainability reports for at least a decade.
Sustainability is at the heart of the Poseidon Principles, which provide a framework for responsible ship financing; banks and financial institutions will measure and publicise whether their shipping portfolios are in line with climate goals set by IMO. This means reducing greenhouse gas (GHG) emissions by 40% by 2030 and by 70% by 2050, as compared to 2008 levels.
Established in June 2019, the Poseidon Principles were developed by Citi, DNB, and Société Générale in collaboration with AP Møller Mærsk, Cargill, Euronav, Lloyd’s Register, and Watson Farley & Williams.
With other banks and financial institutions signing on, the influence of the Poseidon Principles is unmistakable; signatories to the Poseidon Principles represent about US$140Bn in loans to international shipping – about 30% of the total ship finance portfolio.
Using ESG reports, a bank can demonstrate the sustainability of its shipping portfolio. Mr Uhlick said an ESG shows “capital providers who is on the ball”.
ESG covers the entire shipping value chain, including ship recycling. Responsible ship recycling standards are implemented into internal ESG guidelines. New ship financing transactions will require an inventory of hazardous materials and ships will be recycled in line with the EU Ship Recycling Regulation or the Hong Kong convention.
“Investors’ appetites are shifting,” said Mr Uhlick. “This has become much more a focus for investors when they think about allocating their capital. This is only going to increase as we move forward and people adapt to the very real and serious threat of climate change.”