ESG, Will It Disrupt The Shipping Industry?

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So far shipping has been able to skirt around the edge of the disruption that ESG could be about to bring upon the main stakeholders. The industry has yet to really to get to grips with it, especially the societal element, argues Frank Coles, says an article published on splash website.

CSR and ESG

While corporate social responsibility (CSR) is about accountability in the business itself environmental, social and governance (ESG) goes much further; it is about evidence and metrics. It provides for evidence and transparency related to the stakeholders and business objectives. ESG also places a responsibility on a company to ensure compliance in the supply chain and business partners it does business with.

CSR is about softer issues, while ESG is the evidential measure of a company’s sustainability and societal impact, using metrics that matter to investors. CSR is more like marketing or spin, but ESG is about actionable data which requires evidence and transparency.

ESG applies numerical figures as to how companies treat their staff, manage supply chains, respond to climate change, increase diversity and inclusion, and build community links.

REGULATION (EU) 2020/852 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088

Article 18

The minimum safeguards referred to in point (c) of Article 3 shall be procedures implemented by an undertaking that is carrying out an economic activity to ensure the alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

ESG compliance 

It appears that for a shipping company, manager, charterer or shipper to be ESG compliant they need to have clear measurable metrics on human rights not only in the company but also in their supply chain and the associated companies they deal with. If this is done properly they will not be able to greenwash or hide behind spin. This is not about a document but more about real facts and evidence.

Shippers and charterers will have to ensure that the ESG of owners and carriers also covers the treatment of the crew onboard and this includes during the current pandemic. With 300,000 crew over contract it is likely many are noncompliant at this point. What is more disturbing is that little action is being done to relieve the crew. With the EU taxonomy regulations banks and investors should be particularly careful about the abuse of this part of the ESG regulations.

Breaches of ESG

For instance, lying to the crew about being relieved and keeping them on for months and months over their time just to avoid a high airfare. Or ordering your managers to delete an oil record that shows an oil leak into the ocean. Or turning off the internet on ships to prevent the crew from communicating. This would seem to be gross breaches of ESG. Never mind the general malaise that many companies have shown to getting the crews off ships.

This points to investigations and vetting by a properly independent source being required. Going forward, it is going to be incumbent, under the regulations, on the banks and investors to make sure they have done their due diligence. This will not be a check box, but will require independent evidence of compliance with the claimed metrics.

Relying on an ineffective scorecard or a certificate or spin is not going to wash this one away. If done properly this due diligence will enable the banks, and the shipper to have proper transparent data on the ESG performance of the owner, manager and other parties to the supply chain. Proof will be required on all ESG actions and inactions, a voice to the crew maybe?

Summary 

  • So far shipping has been able to skirt around the edge of the disruption that ESG could be about to bring upon the main stakeholders.
  • While corporate social responsibility (CSR) is about accountability in the business itself environmental, social and governance (ESG) goes much further; it is about evidence and metrics.
  • It appears that for a shipping company, manager, charterer or shipper to be ESG compliant they need to have clear measurable metrics on human rights not only in the company but also in their supply chain and the associated companies they deal with.
  • Relying on an ineffective scorecard or a certificate or spin is not going to wash this one away. 

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Source: splash

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