Why ESG Matters for the Decarbonization of Shipping

The Potential for ESG Strategies in Shipping’s Decarbonization

With shipping companies making ambitious investments in decarbonization, the debate around creation of robust ESG (Environmental, Social, and Governance) strategies for the industry has become imperative. New regulations - such as the inclusion of shipping in EU’s Emission Trading Scheme (ETS), as well as IMO’s EEXI and CII ratings - are also pushing shipping lines to consider sustainability.

It is apparent that sustainability has shifted from just a positive differentiator to increasingly becoming tomorrow’s license to operate. As a result, shipowners and operators face mounting pressure for environmental compliance from customers, regulators and investors.

Indeed, the shipping industry continues to lag behind other industries, with limited environmental transparency and climate actions largely in their infancy. Only 46 percent of the largest shipping companies have made pledges in line with IMO net-zero commitments and only 41 percent have GHG and sustainability reporting.

To navigate the changing business landscape, some industry stakeholders believe it is time for the shipping industry to embark on the ESG journey. This is the argument embodied in a new ESG Playbook for Shipping prepared by the Maersk Mc-Kinney Moller Center for Zero Carbon Shipping and the Boston Consulting Group (BCG).

“ESG compliance can drive commitment and action towards decarbonization and help shipping companies meet the rising request from customers and investors to deliver on environmental, social and governmental practices,” said Bo Cerup-Simonsen, CEO of Maersk- McKinney Moller Center for Zero Carbon shipping.

While the ESG concept may be relatively new in the shipping industry, it is a common feature of corporate disclosures, especially for listed companies. Essentially, ESG was born from UN Principles for Responsible Investment in 2004. The climate crisis has fueled popularity of ESG policies, mainly seen as an investment risk management framework and tool to encourage responsible investing. Thus, the Environmental, Social and Governance factors have become critical in investment decisions.

The International Sustainability Standards Board (ISSB) is the agency charged with the mandate to develop standards for ESG frameworks, but a customized industry-specific format - as provided for in the new ESG Playbook for Shipping - is highly beneficial.

As shipping grapples with decarbonization, an ESG strategy is a concrete approach to identify the most valuable focus areas, set specific targets and ensure organizational readiness to a new business landscape of sustainability.

There is a significant decarbonization potential in wider adoption of ESG practices in shipping. Thousands of vessels, millions of seafarers and gigatons of CO2 are currently not covered by any ESG ambitions.

“Those who do not act are leaving value on the table and will face mounting pressure from the entire shipping ecosystem, including customers and regulators, to act. They are at risk of deteriorating their current value by facing unmitigated risks while others unlock new value pools from ESG,” noted Peter Jameson, Partner and BCG’s global lead on maritime sustainability and decarbonization.