Climate change in shipping

Last week headlines around the world were dominated by the COP26 summit in Glasgow and statistics about greenhouse gases. Governments were making pledges whilst the biggest emitters, both countries and industries, were being singled out for criticism. Shipping is firmly in the sights of policy makers. Many would say rightly so as the world�s fleet of 100,000 vessels produces about three percent of global greenhouse gas emissions. 

Given the focus on shipping, it is not surprising that the International Chamber of Shipping also has hosted a conference on Saturday (6 November) on the fringes of the main summit. The event brought together leading players from industry and government to look at progress being made to decarbonise shipping, innovation in the reduction of emissions and future regulation. The Chamber of Shipping has already been amongst those calling on the UN bring forward the industry�s mandated timeline for full decarbonisation from 2055 to 2050. To help meet this target the Chamber has backed a USD 5 billion Research and Development fund to develop zero-carbon ocean-going vessels. Its target is to ensure that such vessels are in the water by 2030. Future initiatives include a proposal to introduce a carbon levy on ships over 5000 gross tonnes via a global market-based mechanism. The proceeds will be used to help fund development of the technologies needed to bring about a zero-carbon fleet.

In the context of a zero-carbon target for the industry by 2050, a report published on 25 October by the Maersk Mc-Kinney Moller Center for Zero Carbon Shipping, an independent research institute, makes interesting reading.   This concludes that zero-carbon shipping can be achieved by 2050 but that meeting this will require many different elements including energy efficiency regulation; scaled-up production of alternative fuels; a global carbon pricing mechanism, and incentives for first movers to adopt new technologies.

Whilst decisions taken by global leaders may seem a long way from the daily realities of running a shipping company, the truth is that every shipowner in the world should anticipate significant changes in the years to come as a result of the climate change agenda. One inevitable change will be a switch to zero-carbon fuels such as biofuels and hydrogen. There will also be an introduction of an increasing number of energy-efficiency technologies in newbuilds. How quickly these changes will happen is hard to predict. But it is certain that new vessels being delivered in ten years from now will be very different to those being delivered today.

In addition to new technologies and carbon levies, shipping companies will also have to get used to ESG Reporting. Until recently, the letters ESG (standing for environmental, social and governance) meant very little to those within the industry. Today, most shipping companies and their finance partners fully understand that ESG-impact must be taken into account when making almost every business decision and that information must be maintained to support this process.

As governments push for greater compliance and more information to monitor progress, the emphasis on ESG can only be expected to increase. Having good information will be important not only to meet regulations but also to reduce finance costs. Banks and other capital providers are already deeply engaged in reducing their carbon footprint. One way of demonstrating their commitment is to impose ESG requirements on borrowers and to penalise those that cannot demonstrate they comply. The Maersk Mc-Kinney Moller Center for Zero Carbon Shipping believes this dynamic could lead to a spread of more than 2% by the end of this decade between compliant and non-compliant borrowers.

Systems to record ESG information and to ensure ESG considerations are taken into account during day to day decision making, vary considerably between companies.   Larger organisations may already have sophisticated systems in place but many smaller organisations could still find this a challenge. Any company in such a position should take action now. Even if the financial benefits are not immediately evident, they soon will be. It is therefore essential to develop an ESG-compliance strategy, set objectives and implement systems to monitor and record progress towards those objectives. The climate in shipping is changing. By acting now, shipping companies have a chance to stay ahead of the weather turn what might otherwise be no more than a regulatory burden into a competitive advantage.

Moore ST offers a range of ESG services to shipping clients including assistance in the development of ESG strategies, design of ESG monitoring systems, ESG reporting and ESG audits.

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