ESG is the latest acronym to haunt tanker shipping, but what is it and what does it mean for tanker operators?
The concept of Environmental, Social and Governmental (ESG) recently made the headlines when Blackrock, the trillion-dollar investment fund, declared it would no longer invest in companies with a low ESG score. On virtually the same day, Tesla shares soared to a market cap of US$74Bn (twice that of Ford) and the company was described as the “ultimate ESG play”.
ABS director of global sustainability, Georgios Plevrakis says: “The important point to note is that ESG is not Corporate Social Responsibility (CSR); this is not about charitable work or good causes, however worthy. It’s about whether your business is positioned and prepared in terms of demonstrating all three principles to your customers, investors and to society generally.”
Opportune LLP managing director of its complex financial reporting group, Amy Stutzman continues: “An ESG framework provides a structure to address these issues holistically and to consider the ways in which the issues impact each other. For example, strong governance should lead to positive environmental and social impacts. The key is that ESG provides a platform to demonstrate company performance and value creation in ways other than financial performance.”
Environmental |
Social |
Governmental |
Energy efficiency |
Diversity and inclusion |
Board diversity and quality |
Water management |
Labour and management relationships |
Risk management |
Pollution and waste |
Occupational health and safety |
Capital allocation |
Regulatory compliance |
Training and education |
Management compensation |
Climate risk and mitigation |
Community impact |
Shareholder communication |
Greenhouse gas emissions |
Data privacy |
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Source: Opportunity LLP; GRI, SASB and TCFD standards
As the Blackrock example shows, investors are now demanding to see an ESG score before handing over their cash. There are a variety of metrics available to devise this score and these are beginning to be applied to shipping. Some elements in the framework clearly pose a risk to tanker companies.
“The elements of ESG will increasingly be addressed by financiers in our industry, as investors are looking at these criteria to complete their due diligence,” says Mr Plevrakis. “ABS has seen a rapidly emerging interest from owners as ESG elements become part of their operations.”
For the tanker industry, ESG represents another cost. Exposure to a high-rating ESG counterparty could raise a bank’s cost of capital, which will be passed on to the tanker companies via higher fees or rates.
But ESG offers opportunities too. “In an increasingly competitive landscape, ESG excellence could be an important differentiator,” says Mr Plevrakis. “To put it in a way that might resonate with owners, ESG principles could be seen as an opportunity to demonstrate the positive story.”
This was evident during the announcement of International Seaways’ full-year 2019 and the Q4 2019 financial results. The company’s financial officer, Jeffrey Pribor said: “We are proud to have collaborated with our leading banking group and Sustainalytics, a leading firm in ESG and corporate governance research, to become the first NYSE-listed shipowner and operator to include a sustainability-linked pricing mechanism in our new credit facilities.”
Although ESG is not compulsory under any finance or maritime regulation at the moment, pressure from investors to rate the ESG performance of tanker companies could see it become a regular metric sooner rather than later.
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