Shipping industry ESGs: Shipping firms scramble to become sustainable

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  Quantumrun Foresight
• November 21, 2022

Insight summary

The shipping industry faces pressures from all fronts—government regulations, environmentally conscious consumers, sustainable investors, and as of 2021, banks shifting to green lending. The sector will likely receive fewer investments unless it drastically improves its environmental, social, and governance (ESG) policies and measures. The long-term implications of this trend may include shipping fleets being retrofitted and investment firms prioritizing sustainable shipment companies.

Shipping industry ESGs context

The Boston Consulting Group (BCG) highlights the significant role of the shipping industry in climate change, primarily due to its carbon dioxide emissions and intensive fuel usage. As a key player in global trade, the industry is responsible for transporting 90 percent of the world's goods, yet it also contributes 3 percent of global carbon dioxide emissions. Looking ahead to 2050, the industry faces a financial challenge: investing approximately USD $2.4 trillion to achieve net-zero emissions, a target that aligns with global efforts to reduce environmental impact.

This financial requirement poses a considerable hurdle for the industry, particularly in improving its Environmental, Social, and Governance (ESG) ratings, a measure increasingly used to evaluate a company's ecological and ethical impact. In recent years, there has been a growing trend among companies, including those in the shipping sector, to voluntarily disclose their impact on the environment. This transparency is driven by a desire to meet the expectations of lenders and consumers who are increasingly conscious of environmental issues.

Deloitte conducted a study in 2021 examining the ESG practices of 38 shipping companies. Their findings revealed that about 63 percent of these companies have pledged to publish an annual ESG report. Despite this commitment, the average ESG score among the surveyed shipping firms was relatively low, at 38 out of 100, indicating significant room for improvement. The lowest scores within the ESG ratings were notably in the Environmental pillar. 

Disruptive impact

Banks are beginning to shift investments to greener projects. For example, in 2021, Standard Chartered has already issued loans linked to sustainability goals for the drilling unit Odfjell and the shipping division of Oman’s Asyad Group. Furthermore, assets related to ESG are estimated to make up 80 percent of total shipping lending by 2030, according to BCG. The International Maritime Organization (IMO) expressed it aims to reduce overall greenhouse gas (GHG) emissions from shipping by 50 percent from 2008 levels by 2050. Still, industry organizations and ethical consumers are demanding more government action.

Some companies are actively trying to lower their carbon emissions. For example, in 2019, Shell Oil installed a system on the hull of a ship designed by Silverstream Technologies in London. Between the boat and the water, steel boxes welded to the vessel’s hull and air compressors create a layer of microbubbles. This design’s improved hydrodynamics allowed the ship to move faster and more efficiently through the water, resulting in 5 percent to 12 percent fuel savings. 

Additionally, the demand for hybrid and electric boats is on the rise. In Norway, the world’s first fully autonomous electric container ship, Yara Birkeland, made its maiden voyage, going 8.7 miles in 2021. While this was a brief journey, it has significant ramifications for an industry under increasing pressure to embrace sustainability.

Implications of shipping industry ESGs 

Wider implications of shipping industry ESGs may include: 

• Global financial institutions and standards requiring shipping companies to submit ESG measures or risk being losing access to financial services or being fined.
• Shipping firms investing greater sums into streamlining and automating their processes to lower carbon emissions.
• Increased pressure on financial institutions to choose sustainable shipping investments or risk being called out/boycotted by ethical consumers.
• Global shipping fleets being retrofitted sooner or being retired and replaced earlier than forecasted as more promising technologies are developed.
• More governments creating stricter shipping industry legislation related to meeting ESG metrics. 
• More shipping companies voluntarily submitting ESG metrics to global rating institutions.    

Questions to consider

• If you work in the shipping industry, what are the ESG measures being implemented by your company?
• How might sustainable investments change how the shipping industry operates?