Maritime ESG 2024 – A challenging landscape?
The International Maritime Organization adopted the Strategy on the Reduction of greenhouse gas emissions from Ships in July 2023. March 2024, a Net Zero legal framework has been agreed to be put forward at the Marine Environmental Protection Committee meeting 82, at the beginning of October 2024.
Maritime and marine industries connect the world. To regulate the industries, a mesh of global, regional, and local legislation is applied. It may be a surprise to many, but the legal regulations and frameworks are quite coherent.
The so-called ESGs, environmental, social, and governance requirements, put extra challenges on companies’ business models and ways of working. In common with all the regulations, transparency, authenticity, and accountability are crucial to avoid just greenwashing and to advance sustainability goals.
What are the main components and principles?
• Requirements to reduce greenhouse gas emissions.
• Requirements to know your environmental and social imprint and improve it.
• Requirements to take responsibility for your supply chain’s environmental and social imprint and improve it.
• Requirements to monitor and report coherently.
Globally, the United Nations initiatives are important. From the start with the human rights charter and into industry policy governing bodies such as the International Maritime Organization, IMO, the Food and Agricultural Organization, FAO and others to the Conference of the Parties on Climate Change Mitigation.
A 2023 midterm review of the United Nations 17 Sustainable Development Goals, the SDGs, showed that only 12% were on track to reach the 2030 goal. A comprehensive review process is set in motion and will be delivered in 2025, and the Goals will be revised shortly to heighten the urgency.
Nations Global Compact, UNGC, initiated by Kofi Annan when he was General Secretary, has gotten traction as a base minimum for businesses when it comes to protecting human rights, social rights, core environmental principles as well as anti-corruption policies. The principles and initiatives are all centred around double materiality, scenarios and policies, including continuous improvement, increased stakeholder engagement, and structured and mandatory monitoring and reporting.
So, let's look closer at the four categories of regulations:
1. Climate change requirements. This includes the important concept of double materiality – first, how climate change will impact the company, its financial worth, activities, geolocation, etc., and second, how the companies’ activities will impact climate change.
Many initiatives such as the Paris Agreement frameworks (aiming to keep global warming under 2 degrees Celsius) and the Taskforce on Climate-related Financial Disclosures, TCFD, set standards for reporting for companies worldwide to disclose climate-related financial risks and opportunities. There is the global platform for Carbon Disclosure, CDP, used to measure climate and environmental performance, and the Science-based targets initiative SBTi. Then finally, there are initiatives for the maritime industry such as the Carbon Intensity Indicator, CII, supporting the IMO climate emissions strategy, backed by 175 countries, which aims to cut greenhouse gas emissions by 30% by2030, and 80% by 2040 to achieve zero emissions by 2050.
Regimes to trade GHG were set up a long time ago. The EU ETS, as one of the most important, was setup in 2005 and now covers 40% of the total emissions from participating countries, including power generation, oil & gas, steel, cement, chemicals, glass, and pulp & paper emissions. Aviation and maritime joined EU ETS in 2024.
We also have the Carbon Border Adjustment Mechanism, CBAM, the EU's tool that aims to set a carbon levy, a price, on the GGH emitted during the production of carbon-intensive goods imported from non-EU and non-EFTA countries when they enter the EU to prevent 'carbon leakage' (that industry move out of EU to avoid GHG-taxes).
2. Companies are required to investigate with open eyes where they come short and negatively impact social or human rights, environmental regulations, climate emissions, corruption, and bribery. With this knowledge, they must establish scenarios and policies that form the basis for continuous improvements. The OECD due diligence guidance for responsible business is an important tool here.
To the experienced quality assurance professional, this is familiar territory. You start by embedding responsible business conduct into policies and management systems, then identify and assess adverse impacts, analyse and prioritise what you need to address from the information you have gathered, and work to close the prioritised gaps. Then, you start the process over again.
3. Requirements to have insight and engage stakeholders both up and downstream to improve performance on social rights, human rights, greenhouse gas emissions and the more classical nature protection areas such as pollution to water, soil or air, biodiversity, and land use.
Ethical sourcing and safe procurement
Production of goods and services does not come without cost. It is tempting for a company to buy from countries or regions with milder legislation regarding environmental pollution and human or social rights. Legislation to ensure ethical supply chains has been approved in many countries.
This Spring the Corporate Sustainable Due Diligence Directive will be published in the EU. In Norway, violation of the so-called Transparency Act, (official name: the Act relating to enterprises' transparency and work on fundamental human rights and decent working conditions - åpenhetsloven) can result in fines up to 4% of turnover or 25 million NOK whichever gives the highest amount. In the UK you find the Modern Slavery Act, in France the French Duty of Diligence Law (devoir devigilance), in German the Supply Chain Due Diligence Act (Lieferkettengesetz), in the Netherlands the Dutch Child Labor Due Diligence Law and then now the Corporate Sustainability Due Diligence Directive (CSDDD) in EU and the EEA.
4. Finally, there are requirements to monitor and report coherently on environmental and social factors, preferably in a structured way so information can be understandable and comparable for both insiders and outsiders.
Examples are the frameworks of the Global Reporting Initiative, GRI, a comprehensive reporting regime intended to be used globally and by different industries and the American Sustainability Accounting Standards Board (SASB) with industry-specific standards for ESG-related financial disclosure.
The EU Sustainable Finance Disclosure Regulation, SFDR, regulates transparency on ESG and how financial actors evaluate these risks and concerns when investing, the EU Taxonomy Regulation establishes a classification system to transparently see if companies are moving towardsNet Zero emissions in 2050.
The Non-Financial Reporting Directive, NFRD, required large E.U. companies to disclose non-financial information on environmental, social, and employee matters, diversity, respect for human rights, anti-corruption, and bribery issues in their official company reports. This directive will now be replaced by the Corporate Sustainability Reporting Directive, CSRD, which standardises corporate sustainability reporting across the EU.
Maritime and marine industries are global, and some are working with sourcing or production in economically developing nations.
The OECD Development Assistance Committee has developed standard criteria, the OECD DACs, to measure and evaluate uniformly if projects in developing economies are sustainable, relevant, effective, efficient and have a sustainable impact. Internationally, the OECD DAC criteria can be complemented by the World Bank International Finance CorporationsPerformance Standards. They cover responsible environmental and social business practices and include biodiversity conservation, climate change mitigation, and respect for human rights. They are used by many companies to ensure and showcase sound business practices.
Using international standards is a known and measurable way to ensure compliance and commitment. ISO14001 on environmental management, ISO14090 on adaptation to climate change, and ISO26001 on social responsibility can all ease and streamline the work. New and more specific standards can address other core aspects of your company's needs.
Internationally, the Paris Agreement with the Enhanced Transparency Framework is becoming tighter, and the EU in March, approved the law banning greenwashing and misleading product information, which will work together with the Green Claims directive. Greenwashing will not be tolerated anymore.
Yes, it does seem a lot to navigate, but these standards and requirements are not so different. They all aim to establish ways to account for environmental and social impact in as uniform a fashion as possible and then set requirements to prioritise and act on the information you get. Whether you are an investor, a manufacturer, or a distributor, you are involved in upstream or downstream transport and logistics.
