Sustainability In The Maritime Industry
By Thomas Funkhouser and Nathalie Gilet
Sustainability concerns are increasing, both in the United States and internationally, gradually rewriting the rules for business.
In the past, environmental issues were sometimes treated as a secondary thought. People tend to enjoy the conveniences of their lifestyle, while discounting the impact their choices have on the environment. Businesses also tend to jump to the cheapest option, without considering or being aware of the negative social and environmental impacts. However, with increasing access to information, consumer preferences and business practices are changing. Investors, also, are increasingly taking into account the importance that not managing environmental, social and governance factors have on a business’s risk.
In response, a growing number of organizations are integrating sustainability into their business model. Business Sustainability (also referred to as Corporate Social Responsibility, or CSR) aims to create long-term value through a strategy that focuses on the ethical, social, environmental, cultural, and economic dimensions of doing business.
The goal is for companies to make a positive impact on the environment and society, as well as financially benefiting. By incorporating CSR, a company not only “does the right thing,” it covers more risks (for example, the impact that more frequent and intense weather events brought on by climate change may have on its operations), cuts down on energy and resource costs, identifies new opportunities, develops innovative methods and products, builds a better reputation, gains a competitive advantage, and attracts and keeps higher quality talent.
Large US companies have worked on their sustainability for many years. And, as their performance matures, they are increasingly requiring their supply chain, providers, and transporters, to improve their own environmental and social impact.
The maritime industry and its sustainability are key drivers for Goal #14 of the United Nation’s 17 Sustainable Development Goals (SDG) – “Life below water: Conserve and sustainably use the oceans, seas and marine resources.” The SDG broadly establish a set of targets and guidelines to drive international government and corporate action on sustainable development.
The maritime industry is working on its social and environmental impact. During 2016, the maritime industry suffered a period of historically low shipping rates, which resulted in significant mergers and acquisitions activity, as well as shipping lines forming alliances such as 2M+H, the Ocean Alliance and, the Alliance.
These alliances had a dual focus of both improving the economic outlook and the industry’s sustainability performance. In 2017, the industry was volatile globally, but was beginning to level out, and 2019 is expected to continue in a positive direction (recent tariff activity may affect this outlook). Renewed economic activity did not divert the maritime industry from its sustainability objectives.
As far back as 2005, the International Maritime Organization (IMO), which monitors the industry’s efforts to limit pollution levels and describes its fundamental purpose as the conservation and sustainable us of oceans and its resources, mandated that ships restrict their SOx, NOx and Particulate Matter emissions, which contribute to atmospheric pollution, by adapting their motors and fuels by 2020 (MARPOL Convention Annex VI).
It then took steps to launch the industry on a sustainable path by defining “A concept of a sustainable maritime transportation system” in 2013. In 2018, it stated that the industry should cut its carbon emissions by 50% by 2050, compared to 2008 levels. To comply with these requirements, shipowners need to work on their energy efficiency and the type of fuel they use, taking into account both current fleets and future investment strategies.
The maritime industry also has a strong impact on ocean biodiversity and pollution through ballast water, used to stabilize vessels at sea and maintain safe operating conditions during a voyage. When it is released, ballast water poses serious environmental problems as it transfers bacteria, microbes, small invertebrates, eggs, cysts and larvae of various species from the catch area to the release, where they can spread as invasive species and disrupt fragile local balances.
IMO members adopted the International Convention for the Control and Management of Ship Ballast Water and Sediments (BWM Convention) in 2004, requiring all ships to implement a ballast water management plan, carry a ballast water record book and carry out ballast water management procedures. Regulations of the BWM Convention continue to be strengthened and require ships to maintain ballast water management systems that are approved by the BWM Convention.
These IMO regulations require ship owners to ensure that vessels are equipped with certain equipment and technology, implement management measures and include specific criteria in their fleet management plans. As the industry has seen better days with low shipping rates and tough economic climates, companies may see this as a burden, as financing of these capital expenditures may be challenging.
However, this is not simply a “nice to have.” The industry’s contribution to climate change and oceanic and atmospheric pollution must be reduced to ensure the future of the maritime economy. And, practically speaking, the IMO may impose fines or penalties for exceeding emissions allocations.
Industry leaders, such as CMA CGM, have embraced the need for sustainability via instituting a program and reporting results. As part of its sustainability report to investors, the company has reported reductions since 2015 in CO2 emissions per container transported per kilometer by up to 17%. CMA CGM plans to have taken delivery of 20 vessels powered by LNG and are in the trial process for the use of biofuel on board of a container ship.
Sector organizations, such as the Sustainable Shipping Initiative, the World Ocean Council, and Green Marine, are leading the way, promoting good practices and shaping solutions from the bottom up.
The maritime industry can positively contribute to the climate crisis, as maritime transportation is the lowest CO2 emitter over long distances. However, the industry must keep working on managing its environmental impact. Including sustainability in the business model brings many benefits in terms of risk management, cost-cutting, reputation and innovation. But, to be sure to get the benefits, a meaningful approach requires companies to implement a strategic design of their operations as well as management and reporting.
At Mazars USA, we believe sustainability adds value. We help our clients understand the role they can play in the sustainable development movement and take advantage of it. We can help you design your sustainability strategy, identify cost management mechanisms, report to clients, investors and the greater public, and assess the impact of your actions. As CPAs, we can also certify the information you are providing. Please contact your Mazars USA LLP professional for additional information.