Environmental, social and governance (ESG) has risen to prominence as a major tool for investors to compare companies within an industry. CTI-Maritec senior vice president, global maritime client relations, Capt Herbert Soanes explains the relationship between ESG and ship recycling
Capt Soanes was speaking ahead of the Riviera webinar ESG ratings: the new focus of shipping boardrooms. The key to the relationship between ESG and shipping is how investors use ESG ratings to compare peer companies in an industry sector.
Capt Soanes noted that public shipping companies are now publishing ESG ratings in their annual reports. The impact of ESG is also felt on private companies. A private company has stakeholders that are aware of the risks to their own ESG rating including banks, insurance, and in the shipping space, the cargo owners. These entities could have their ESG rating downgraded if they deal with a company with poor environmental practices. Maintaining a good ESG rating is necessary for a company’s upstream and downstream network.
One potential ESG risk lies in the ship recycling sector. Capt Soanes noted that in the past, it had been acceptable practice to sell a ship for scrap to a cash buyer. The name of the ship would be changed and the funnel emblem painted over to hide the previous ownership. Months later the vessel would be laying on a beach in India being broken up with hazardous waste entering the sea, and workers suffering injuries from poor safety practices. It has been a passion project of NGOs to highlight these issues. The pressure on the industry and IMO resulted in the Hong Kong Convention.
Although the Hong Kong Convention is not yet law, some recycling yards in India have refurbished facilities up to and beyond the Hong Kong Convention standards and have been approved by class societies. There is also the EU Ship Recycling Regulation, that requires EU-flag vessels to be recycled in yards on an EU-approved list.
The responsible shipowner, seeking to maintain or improve the ESG rating for the company will not only choose one of these yards, it must also prove all aspects of ESG were followed.
This is where CTI-Maritec’s Responsible Ship Recycling Supervision service comes in. Capt Soanes said, “The responsible shipowner wants to be sure the ship is recycled in a manner that has the lowest risk of contaminating the environment, including ensuring hazardous materials are not dumped, but disposed of responsibly.”
The responsible shipowner can do this by employing a third party such as Centre Testing International Group to conduct due diligence throughout the ship recycling process.
“The third party is independent of the cash buyer and the shipyard. The third party is on site every day supervising the recycling plan, checking what is coming out and checking the shipyard is following the right procedures, taking safety of the employees into account and that they have the right equipment available for the job,” said Capt Soanes.
One element of the supervisory role of the third party is that it can issue a ’stop work’ notice if there is an unsafe practice or a threat to the environment. Under a stop work notice, the work is halted until a suitable alternative arrangement is in place.
The shipowner is kept informed of the progress of the recycling of the ship with weekly reports and images of the stages of deconstruction. Capt Soanes said, “The ship owner is made fully aware of activities and is assured that it has executed its social and environmental responsibilities.”
It is this independent third-party assurance that all aspects of ESG have been adhered to in the recycling process, that allows a responsible shipowner to differentiate itself from its peers and prove to business partners, stakeholders and investors that it is doing the right thing when it comes to ESG.
ESG ratings: the new focus of shipping boardrooms is part of the Maritime Environmental, Social and Governance Webinar Week being held 30 March to 1 April 2021, and is one of several free webinars.
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