ESG has become a major priority for the global shipping industry. While ESG strategies used to be largely voluntary, they are now a core requirement for most insurers and regulators.
In this post we will outline the key elements of an ESG strategy for shipping, along with your reporting requirements.
What is ESG, and What Does It Mean for Shipping?
ESG stands for Environmental, Social, and Governance. When we talk about ESG in shipping, we are referring to a number of measures shipping businesses can take to address the environmental and social impacts of their operations, along with the governance strategies that could contribute to more efficient practices.
Why ESG Matters in the Shipping Industry
According to the International Maritime Organization (IMO), international shipping accounts for around 2% of all global emissions. A report published by the International Council on Clean Transportation (ICCT) found that global shipping generated approximately 900 million tonnes of CO₂ emissions in 2023. Container ships were the largest contributor, responsible for around 20% of emissions, followed by bulk carriers (16%) and oil tankers (14%). Together, these three vessel types accounted for approximately half of shipping-related CO₂ emissions, highlighting the importance of decarbonisation across the commercial shipping fleet.
Yet the global shipping industry has environmental impacts beyond these emissions. Ships could introduce invasive species to new habitats. They could pollute waterways, and the underwater noise they produce can disturb marine habitats.
Insurers and regulators set ESG requirements as a means of managing and mitigating the damage vessels can cause to the atmosphere, along with waterways and ecosystems.
Who Is Responsible For ESG In Shipping?
ESG is a shared responsibility across the entire shipping industry. Ship owners and operators may be responsible for ensuring their ship meets applicable environmental standards, and they may also be responsible for safeguarding their crew.
Meanwhile, directors and other stakeholders will be better positioned to ensure compliance when it comes to management, recruitment, financial reporting, and other aspects of governance.
Key ESG Requirements in Shipping
Environmental requirements:
- Reducing harmful emissions while addressing marine pollution
- Increasing energy efficiency both onboard and onshore
- Promoting recycling and biodiversity wherever possible
Social requirements:
- Prioritising crew wellbeing with training and support
- Choosing supply chains that comply with labour standards while reducing potential abuse
- Treating workplace equality as standard
Governance requirements:
- Accuracy and transparency in all reporting
- Introducing anti-corruption measures
- Making managers and decision-makers accountable for risk-management and performance outcomes
ESG Reporting and Requirements in Shipping
You can read our full guide to the environmental regulations in shipping, which outlines many of the reporting requirements, including:
- The International Convention for the Prevention of Pollution from Ships (MARPOL)
- The ISM Code
- The IMO’s Carbon Intensity Indicator (CII) scheme
- The Fuel EU Maritime regulations
Beyond this, The International Chamber of Shipping suggests a number of ESG reporting frameworks and standards, including:
- 2023 IMO Strategy on Reduction of GHG Emissions from Ships – This strategy sets a target to achieve net-zero greenhouse gas emissions from international shipping by 2050.
- United Nations Sustainable Development Goals – This is a set of 17 global objectives that any business in any industry can adopt in order to address certain ESG challenges.
- The IFRS International Sustainability Standards Board (ISSB) – These provide a common language for recording and reporting certain environmental and sustainability metrics.
- Global Reporting Initiative ESG Standards (GRI ESG) – This is a series of best practice guidelines for recording and reporting on a number of ESG impacts.
There is no legal requirement for marine businesses to adopt any of these ESG reporting standards. But the International Chamber of Shipping acknowledges that these frameworks are internationally recognised, and can thus provide detailed, measurable, and specific targets and reporting techniques for businesses across the shipping industry.
You can read the full International Chamber of Shipping guide to ESG reporting frameworks and standards. You can also access their detailed guide to designing and implementing an ESG reporting system.
The Consequences of Poor ESG Performance
Prioritising ESG can bring a number of benefits. If you can accurately report your performance outcomes, you may have better access to financing and credit options. You will improve your operational efficiency, and through evidencing your risk management you could even make savings on the cost of marine insurance cover.
Yet beyond high emissions and inefficiency, poor ESG performance can bring a range of consequences:
- Regulatory Action – Regulators such as the IMO have certain enforcement powers. For example, if your ship gets a poor CII rating, the IMO will require you to submit a Ship Energy Management Plan to outline your intended decarbonisation roadmap.
- Reputational Damage – The IMO encourages administrations, port authorities, and other stakeholders to provide incentives to ships with good CII ratings. This implies that any ships with poor ESG performance can expect to get penalised. Lenders and investors may also be less willing to work with you if you cannot evidence your compliance.
- Insurance Implications – Insurers increasingly require marine businesses to evidence their risk management procedures, along with certain other ESG metrics. If you cannot provide the information they request, you may struggle to get the insurance you need, which could create contractual issues with other parties involved in your operations.
How James Hallam Can Support You in Ensuring Good ESG Performance
Everard Insurance Brokers are the specialist marine trading division of James Hallam Limited who are accredited Lloyd’s insurance brokers.
We are just as committed to ESG as you are, and we can support you in your journey towards good ESG performance. For example, we can show you how to evidence your risk management procedures in order to demonstrate your commitment to safe and efficient operations both onshore and at sea. We can also help you access a cost-effective insurance package to get you the specialist cover you need that will best meet your insurance requirements
Find out more about our specialist marine insurance and risk management services.