ESG: Navigating shipping towards a sustainable future

The shipping industry is now feeling significantly increasing pressure to adopt ESG principles as it moves towards the energy transition set out in the ambitious ‘Fit for 55’ legislative package.

The successful implementation of ‘Fit for 55’ could be a turning point for shipping, reducing greenhouse gas emissions to sustainable levels and signalling the industry’s readiness to navigate a greener horizon.

The key to this journey is the “E” in ESG-Environmental. This element includes key indicators closely linked to a shipping company’s environmental practices and protection policies.

Among these practices, the Poseidon Principles system is an internationally recognized framework for assessing and reporting each company’s alignment with international requirements (IMO) regarding environmental risks. Signing up to these principles commits a company to submit annual reports on pollutant emissions and to evaluate policies geared towards the progressive reduction of pollution.

Effective emissions monitoring and reporting is at the heart of both ESG and the Fit for 55 package. In this way, a company that can demonstrate, through reliable data, its resilience to climate change is likely to stand out to investors and financial institutions.

The “Fit for 55” package also defines the rules for calculating carbon emissions according to the “GHG Protocol” and “ISO 14064-1:2018”, but additional verification is required in order to be valid. With accurate monitoring, companies can establish credible GHG reduction targets and strategies in line with the Science-Based Targets Initiative (SBTi) guidelines.

As companies move toward a reduced emissions policy, most invest in innovative technologies or implement operational measures to limit annual consumption, while others use alternative fuels. The drive for lower emissions has also prompted shipping companies to engage in R&D projects to discover new technologies and alternatives that will enhance the industry’s sustainability.

However, a company’s ability to withstand the financial impacts and risks arising from climate change and the transition to a zero-emission future (Task Force on Climate-related Financial Disclosures – TCFD) should be assessed.

Companies are encouraged to disclose climate-related information through the CDP, an independent reporting framework. This framework presents a predefined questionnaire documenting a company’s emissions reduction practices, climate risk identification and adaptation measures. The resulting information is then assessed and compared with that of peer organizations through a transparent and objective process.

As a capital-intensive industry, the shipping industry will need to leverage investments to boost its revenues and profits. In addition, new climate policies are pushing shipping companies to invest in energy-efficient technologies and to adopt new policies to reduce greenhouse gas emissions. Thus, despite the significant initial investment required in the early stage, the industry is expected to gain in the long term, resulting in reduced operating costs, increased revenues, and improved risk management. This green transition is not just an obligation; it is an opportunity to increase companies’ competitive advantage and long-term financial performance.