ESG Introduction
Path to good
corporate citizenship
Commitment to ESG in shipping is being driven by consumer pressure, reports Felicity Landon
H ere’s a starter question. If ESG – Environmental, Social and
Governance – is not a regulation, is it just CSR – Corporate
Social Responsibility – with a new hat on?
Jagmeet Makkar, chairman of the Institute’s Hong Kong
Branch, dismisses that idea straight off the bat. “ESG is very
Felicity different. CSR is more like an ‘afterthought’ – if you are an
Landon
organisation and you want to look good, you might invest in
something which is good for society.
Topic: ESG
Keywords: Standards, commitment,
opportunity
Background: Environmental, Social and
Governance must be at the heart of every
shipping organisation’s commercial and
operational strategies
“ESG comes in right at the beginning. ESG in shipping is
essential at every stage, from before you even start thinking
about investing in a ship, right through to the scrapyard. There
are so many different stakeholders in this and at every stage
you require the dedication, and proper checks and balances of
each and every stakeholder – whether they believe in ESG, have
a system in place, how they are rated.”
This isn’t just a ‘nice to have’, he says – it’s a matter of
finance. “You might want money for a project. Lenders want
to be seen as responsible people, caring for the environment.
If they are lending you money, someone else is lending them
money, and they in turn want to see they are lending funds to
someone who is responsible. Therefore, the chain is building
up.”
As he points out, signatories to the Poseidon Principles,
the global framework to align lending decisions with the IMO’s
decarbonisation goals, now represent more than US$185bn of
lending capacity, nearly half of the global ship finance portfolio.
“That is so very important. It is no more a question of being
a signatory to the Poseidon Principles. Not being a signatory is
basically telling people you don’t care.”
Shipping, he says, ultimately serves consumers, and
consumers (or people) have become more aware. This filters
through to recruitment, too. Young people want to know they
are making a difference in their careers – they want to know
“In the day-to-day operations of a ship,
ESG comes in at every stage,”
Jagmeet Makkar, Institute’s Hong Kong
Branch chairman
6 Institute of Chartered Shipbrokers – Shipping Network
ESG is good for shipping and for society
what they are doing for sustainability. “The pressure is growing.
People demand it. And lenders will not give money to anyone
not following these principles.”
ESG learning
Makkar’s passion for ESG has fed through to his work revising
the MBA syllabus for the Indian Maritime University. “In my
preliminary comments, I said we must have a module dedicated
to ESG, because ESG is like an envelope. Even as you plan to
build a ship, you should be thinking – when I scrap or sell the
ship, what will be the impact of what I am doing now?
“In the day-to-day operations of a ship, ESG comes in at
every stage. Is there pollution or non-compliance? If there is a
machinery breakdown, how is it going to impact? Who is going
to be my manager – are they green? Do they believe in it? Are
they passionate and dedicated to these principles? If I appoint
an agent, have I checked for corruption? If I buy fuel, where
does it come from, who is involved, what about sanctions? All
of this should be part of the questionnaire for senior officers’
exams.”
Capt Subhangshu Dutt, chairman of the Institute’s
Singapore Branch, agrees: “For a public company, they don’t
have a choice. They have to have an ESG policy which exceeds
the regulatory minimum standards. Everybody is trying to get
as creative as they can and announcing new initiatives. Covid
has not been a dampener – they are pursuing these goals
regardless.”
There is a tendency to emphasise the E for environment in
ESG discussions. However, Dutt says: “Even if not expressed,
there is implied responsibility or commitment towards social and
governance.”
As he says, companies had welfare policies for their staff
and programmes to support charities, organisations and less
fortunate people in place long before social media turned up.
“They just did it and never spoke about it – but social media has

taken them to another level where they not only have to do it
but have to tell everybody what they did. The social aspect has
progressively taken on a more prominent role.”
Meanwhile, good corporate governance may not make top
content for social media, but checks and balances do exist within
annual reports and other publications, and in the structures that
provide for an oversight of management by a separate board,
for example.
“There are the basic parameters within which an
organisation functions, whether public or private, to clearly
define the division of power between management and board,
and ethics – including moral and financial. Those existed from
the time any company started. Some didn’t have an actual
policy, but it was ingrained into the company.”
‘A step beyond’
In short, ESG has progressively evolved – the S and G parts
existed before, but the E part has been enhanced and become
more demanding due to recent and upcoming regulation.
“Companies probably used to feel that complying with the
regulatory part for the environment was enough – now they
realise they need to go a step beyond that. That is why today we
are seeing a massive amount of time, effort and money being
spent trying to get future ships more than compliant.”
We are seeing at least vocal commitment not only to meet
the IMO’s 2050 targets but to do better, says Dutt. “I would
say shipping as a whole has responded in a committed and
responsible manner to go beyond the minimum regulatory
requirements.”
He also highlights the commitment of the younger
generation now starting their careers, who see protecting the
environment as a duty – ‘no longer a part-time thing’. They
would definitely look for employment in companies with the
right commitment.
“Meanwhile, banks are looking at green financing.
Corporates that move huge amounts of cargo all have green
programmes, including moving cargo in more environmentally
friendly ways. It is becoming an entire eco-system.”
The case for transparency
Jan Hoffmann, head of the trade
logistics branch at UNCTAD’s Division on
Technology and Logistics, welcomes the
overall increase in transparency allied to
Credit: Jan Hoffmann
ESG, whether being able to find out the
emissions from specific ships or shipping
companies, or reading the small print on
packages that tells consumers if fishing
Jan Hoffman
was carried out in a dolphin-friendly way,
or if a product has been grown organically.
He believes that soon consumers will be able to read
about the carbon emissions related to a product they buy,
too. It’s all part of the ESG principle that “we can no longer
say we didn’t know”, he says.
He believes that shipping can take advantage of an
opportunity to lead the way in decarbonisation. “With global
regulation, shipping can be ahead of the curve and have one
global regime and one price or levy for carbon. In UNCTAD,
Institute of Chartered Shipbrokers – Shipping Network
ESG Introduction
Many banks are looking at green financing
The ESG work is never done. “It is not just complying with
something today. Are you ready to comply with something that
is coming tomorrow? What impact will your actions of today
have in ten years’ time?”
Not a negative
ESG provides an opportunity for shipping companies to review
and improve their practices, become more efficient and aware,
and start doing things differently, says Malin Högberg, corporate
and legal director at the Swedish P&I Club.
Far from being a negative, she says ESG is exciting. “You
shouldn’t look at ESG as a necessary evil that comes from
outside demanding things, but as an opportunity to streamline
your business and consider whether you have covered all bases.
It is an opportunity to consider – are we making efficient ships,
are we being competitive? Because what you will be up against
otherwise is more efficient ships and more developed outfits.
This is very much about taking responsibility for your own
business.”
we sometimes say we do not want a level playing field – we
want the least developed countries and poor countries to pay
less. If you generate this money from a carbon levy, which
everyone pays, it has to go to the least developed and those
negatively affected.”
An interesting ESG challenge could be made to the
decisions by some shipping lines to cancel sailings to small
island developing states (SIDS) and remote destinations,
because of rocketing world trade and the ability to earn more
by moving cargo on the main shipping routes.
There have already been situations where such countries’
exports – particularly perishables – have been hit by lower or
unreliable frequency of services, says Hoffmann.
“Shipping lines, even if they could at this moment make
even more billions of dollars of profits by re-assigning some
services from SIDS to routes that pay more – call it CSR,
call it ESG – but please stay there. If you don’t, your clients
suffer.” SN
7
ESG Introduction
ESG ensures responsibility and commitment
towards social and governance
In some ways, shipping companies are already on top
of this, says Högberg – they are under pressure from banks,
finance institutions and their home regulatory authorities. What
ESG emphatically is not, is just signing up to various initiatives,
she adds. “You have to look at what you can do and how you
can utilise this.”
ESG focuses the effort and intentions and creates a common
picture in a company – “this is the direction we are going in,
these are the goals, these are the ways we are going to work
with this.”
She says that if everyone takes this approach and starts
mapping what they do and considering how to improve it, then
everything will become a bit more sustainable over time. “I think
that is the whole essence – all these small streams should create
great rivers.”
The Swedish Club’s ESG policy, which is based on four of
the UN’s Sustainable Development Goals, is reviewed annually
and all employees are tasked with reading and understanding
it, says Högberg. “It is also divided into various focus areas
– for example, specific considerations for underwriters or in
investment and finance, so it is relevant.”
She says anyone who focuses on the E for environment and
stops there is “missing the bigger picture”.
“If you are a company committed to good governance,
then environmental response ties in with this. People focus
very much on greenhouse gas emissions, but you should also
consider – are we paying our employees a fair wage, are we
taking responsibility regarding the society where we operate?
The overarching goal is to be a good corporate citizen.”
Reputation and resilience
ESG elements go straight to the heart of a company when
discussing reputational and resilience risks – “in every angle,
you can see the benefits”, says Karen Dinucci, ESG lead for
advisory services at global consultancy Mott MacDonald. “Also,
we are living in what is being called the ‘Great Resignation’
times where it is clear that it is not all about money. People want
to make sure they are working in an environment that cares and
8 Institute of Chartered Shipbrokers – Shipping Network
has values; as every day they try to create this balance in their
own lives, they want to work for a company that reflects their
values. It is not the same in every territory, but talent retention
is definitely a very important element.”
She hears people refer to ESG as an ‘alphabet soup’ and
says: “We try to make it simpler, clear, straightforward, for
everyone to have the benefits.”
ESG is an umbrella term that should provide information
to society about a company corporate behaviour, says Dinucci.
Specifically for shipping: “Of course, climate change is one of
the important pillars. But life at sea would be another, with all
the responsibility towards the risks of pollution control. We can
also bring in the social aspect – the labour related to maritime
operations, including labour conditions, equality, diversity,
inclusion.”
ESG’s importance is ‘absolutely growing’ and the demands
are becoming more intense, she says. This is especially the case
in that good governance requires a company to ensure that its
partners, clients and suppliers also adopt good governance, so
that the requirements are cascading through their supply chain.
“The way Mott MacDonald sees it, for every client and
every project there is going to be a pack of frameworks that
are relevant for them. As an engineering and cross-sector
consultancy, part of our commitment is making sure every
project has these principles in mind and that we can help our
clients to see and to provide for better environmental quality,
social values and outcomes, so that we can include these in the
design – the best place to start.”
ESG is a vast picture, and the publishing of the EU’s
European Green Deal is just one example of regional regulations
that are changing the picture rapidly, she says.
More and more clients are asking for support, says Adam
Rees-Leonard, project director at Mott MacDonald. “The best
way we can help our clients is through attentive listening –
capturing what matters to their business and providing smart
insights that can enable them to enhance ESG performance.
We ask, ‘what do you need and what do you aspire to’, and we
create a roadmap based on these.” SN