ESG in the shipping industry: Outlook for 2024

The shipping industry is increasingly influenced by the evolving ESG agenda, bringing significant challenges but also opportunities for those who invest in sustainable practises.

In 2023, we have seen significant regulatory development from both the International Maritime Organisation (“IMO”) and the European Union (“EU”) which are set to drastically impact the direction of decarbonisation efforts. For instance, to reach its revised 2050 net-zero targets, the IMO has confirmed new standards on the greenhouse gases (“GHG”) intensity of marine fuels. In a complementary move central to its climate policy, the EU is planning to bring shipping into its Emissions Trading Scheme (“ETS”) in 2024. Despite recent pushback from several European countries, Brussels will soon require shipowners to buy credits for every tonne of CO₂ emissions they produce on journeys between two EU ports, as well as half of their emissions on shipments between an EU port and a non-EU port. The rising price of carbon will increase costs for high-emitting ship owners, urging shipping companies to take their environmental performance seriously and consider new approaches to managing operations, alongside investment in technology and carbon-neutral fuels.

Regarding the management of social capital, the COVID-19 pandemic highlighted the challenges faced by seafarers, and this heightened focus is driving calls to address pervasive issues of workplace harassment, human rights abuse, and inadequate health and safety standards. As the global tolerance for poor worker treatment wanes, those who fail to act risk reputational and legal repercussions, as well as the ability to attract and retain talent. An issue particularly pertinent given the deepening concerns that shipowners will struggle to find enough workers to meet global demand. Additionally, shipowners are recognising the imperative to diversify the traditionally male-dominated industry, with women estimated to only make up 1.2% of the total global crew capacity. It remains to be seen how this culture shift will be implemented and through which targeted actions, however as ships become more complex, attracting more women into the industry is essential to bring in the skills needed to move the industry forward.

Business as usual is not an option anymore. ESG is now integral to maritime operations, impacting compliance, risk management, and commercial differentiation. Formerly deemed 'non-financial’, strong ESG indicators now provide additional means to raise capital, supported by initiatives like the Poseidon Principles, endorsed by 27 banking institutions of which 15 are considered leaders in shipping finance, and the increased valuations of Green Bonds and Sustainable Linked Loans.

In the face of the evolving ESG agenda and regulatory changes, the below recommendations aim to assist the shipping industry in managing risks, protecting value, and successfully transitioning to a sustainable and inclusive future.

1. Develop a practical and compliant plan for a net-zero transition.

Identify and implement practical measures to reduce carbon emissions and pollution.
Set emission reduction targets in alignment with evolving regulatory standards.

2. Develop robust strategies for organisational culture and Equality, Diversity and inclusion (“ED&I”).

Analyse and improve your people governance processes, controls, and procedures
Ensure leadership alignment with the core principles and undertake board effectiveness reviews.

3. Leverage green financing.

Effectively utilise ESG data to enhance funding opportunities, via sustainability-linked financial products.
Engage in directly positive ESG and sustainability initiatives through the use of creative and innovative financial debt products.
Ensure regulatory compliance with sustainability assessments.

How BDO can help:

Our experienced and expert teams offer a range of services tailored to address ESG issues and regulatory challenges:

Carbon Advisory Practice: Services include compliance, reporting, and decarbonisation strategies, with expertise in carbon accounting and greenhouse gas assurances.

Advisory and Assurance Services: Support in navigating environmental regulations, the evolution of roadmaps, and assurance over internal control frameworks and disclosed ESG metrics.

People Advisory Practice: Assistance in building sustainable businesses, delivering operational solutions, and overcoming capacity and capability hurdles, with a focus on human and social capital management.

Sustainable Finance Practice: Comprehensive services for green, social, sustainable, and transition (“GSS+”) bond issuance, emphasising regulatory compliance and successful navigation of the sustainable finance landscape.

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