Deloitte: The role of ESG criteria in seafaring

The way in which environment, society and corporate governance (ESG) issues affect the course of seafaring is the subject of a new study by Deloitte Greece. Specifically, Deloitte Shipping Partners, Elias Makris and Michalis Stergiou, in their study which was based, among other things, on a sample 38 listed shipping companies, 14 of which are of Greek interest, locate one ascending trend in the penetration of ESG criteria in the evaluation of companies in the industry, while at the same time mapping the strategic issues on which shipping companies focus globally.

Deloitte’s study highlights ESG’s role in one of the most dynamic sectors of the global economy, as well as the challenges facing seafaring companies in adapting their operations to the criteria set by its principles ESG. Some key points highlighted in the Deloitte study are:

What is the carbon footprint of seafaring?

The maritime transport industry (shipping), is part of the wider Transport sector, which, according to available data has a share 16% in global emissions. Of this 16%, as the study shows, the shipping industry has an impact of the order of 1,7%. However, as IMO requirements for reducing greenhouse gas emissions become increasingly stringent, shipping companies have already taken several steps to inform their investors about the new policies they are pursuing in order to harmonize their business practices. even more so with the ESG principles, of which the Environment and its protection are a fundamental component.

What do the annual sustainability reports – ESGs of shipping companies “show”?

Some key conclusions drawn from the data that companies publish in their annual ESG reports are:

– A significant number of companies are “ESG – ready”, ie they have the necessary resources to prepare and prepare annual sustainability reports – ESG.

– There is a growing tendency to publish data on the environmental footprint of companies’s fleets, as of the 38 companies in the sample, 24 – that is, 63% – have published at least one ESG report.

Regarding Greek shipping, out of the total of 38 companies that participated in the survey, 14 are of Greek interest and 6 of them – ie 43% – have published at least one sustainability report – ESG.

– According to Refinitiv, the largest shipping rating company in Refinitiv, the average rating of the 38 companies in the study is relatively satisfactory in terms of implementing ESG strategies, while their performance is mediocre in terms of transparency. key data around the ESG, with a tendency to improve them year by year.

How are ESG components translated into the global shipping industry?

“E” – Environment

The first component of the ESG, the Environment, is the element with the most reports / indicators, analyzes and “connection” management practices of the shipping companies with objectives that in a few years will become mandatory, such as the IMO requirements regarding the emission of pollutants.

The Poseidon Principles – which are widely recognized by major shipping financiers – are at the heart of the Shipping industry Environment component and are a well-developed and widely used policy assessment and reporting framework in line with IMO environmental strategies, and measuring the degree of harmonization of funded shipping companies located in the portfolios of international financial institutions.

The practical function and usefulness of the Poseidon Principles is that all organizations that co-sign these principles must, on an annual basis, measure emissions, but also draw and publish conclusions about how well these measurements are in line with strategic tendency to gradually reduce them.

“S” – Society

The second component of the ESG, Society, is about how a business manages its relationships with employees, suppliers, customers and the communities in which it operates.
In the maritime environment it is directly related to those management practices of the maritime operation that aim to improve the working conditions for the crews by taking all the necessary safety measures with the ultimate goal of reducing “on-board” accidents. After all, it is very recent discussion during the peak of the COVID-19 pandemic to take the necessary measures to address the discomfort of crews caused by their prolonged presence on board due to repatriation difficulties.

In addition, the Society addresses the issue of gender equality and equal opportunities, through the representation, inter alia, of women in seafaring crews, which as a percentage remains at relatively low levels compared to other sectors. According to the latest IMO figures, women make up about 1.2% of the total global crew potential, with the Agency’s strategic goal of gradually increasing the number of women in the shipping industry.

“G” – Corporate Governance

Corporate Governance is the third component of the ESG which is related to the system of rules, principles, practices and procedures that govern the operation of a business. In the seafaring sector, this system includes, inter alia, policies and procedures aimed at combating corruption in ports that do not have up-to-date operating protocols.

How is the financing of shipping companies affected by the ESG?

There are clear indications that shipping companies that are improving their performance on ESG criteria are becoming more attractive to shipping investment circles, gaining easier access to capital and financing.

In fact, although ESGs are often considered “non-financial” and it is not yet possible to adequately substantiate whether ESG performance affects the course of the stock, they may have an impact on corporate finances.

In addition, it is typical that the funds invested in companies that harmonize their operation with the rules of the ESG have increased by 170% in the period 2015 – 2021, while in the same period the funds invested in green bonds have increased sevenfold. According to the study, from May 2018 until today, $ 14.5 billion of investment funds have been channeled to shipping companies based on ESG criteria.

At the same time, rating agencies such as Moody’s, Bloomberg, MSCI and Fitch are aiming to set rating standards for the ESG criteria. Banks are also increasingly focusing on meeting ESG criteria for their investment and financing decisions, as climate risk will soon be included by the ECB in prudential supervision, with the aim of reducing the risk posed by unsustainable investments.

The study also shows that, according to Refinitiv, the value of green bonds increased eightfold in 2020 while only for the first quarter of 2021 it reached $ 287 billion, an amount double that of the corresponding period last year.

By the end of 2020, the total capital of ESG funds worldwide, reached a record amount of $ 1.7 trillion, marking an impressive increase of 50% compared to 2019, which was also a record year.

In conclusion and according to Deloitte and them Mr. Stergiou and Mr. Makri “The ever-growing trend of shipping companies to integrate ESG is changing industry data, introducing new concepts and setting new goals and challenges. The future of seafaring shipping worldwide will be determined in the coming years by how bold decisions of the IMO and the shipping institutions regarding the reduction of greenhouse gas emissions, to the extent that the policies that will be formed will affect the global fleet, but also to the degree of commitment of funds and banks to the implementation of the ESG as a funding criterion of companies “. Finally, according to the authors of the study, “how many more banking giants will subscribe to the Poseidon Principles, the ever-expanding role of Asia as a major financier of shipping and the extent to which “Asian financiers will focus on the ESG and, more generally, the ability of the investing public to assimilate ESG policies and link them to improving the return on investment portfolios.”