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60 seconds on the costly future of green shipping

"We're going to need a greener boat": the latest research and video from the Schroders ESG team looks at the environmental impact of shipping and the regulatory implications for companies in the sector.

21/05/2015

Sophie Rahm

ESG Analyst

In summary:

  • The environmental impact of shipping operations has been known for decades. It is only recently, however, that the damages to human health and biodiversity have been demonstrated
  • Regulatory measures from the International Maritime Organization (IMO) and the European Union (EU) on air pollution, greenhouse gas emissions (GHG) as well as ecosystem disruptions will impose significant compliance costs on shipping companies
  • The most immediate operational challenge for shipping companies is abiding by international standards on emissions of sulphur oxides (SOx)
  • Restrictions around nitrous oxide (NOx) emissions and carbon dioxide (CO2) emissions will kick in over the next three years. Under a yet-to-be ratified international convention, ballast water management systems will also have to be installed by the end of the decade
  • Depending on the type of environmental pollutant, the financial impact on companies will be felt on operating and/or capital expenditures
  • It is expected that companies’ balance sheets will reflect these costs from 2016 onwards. Once the monitoring and enforcement systems have matured, we could also see an effect on provisions for environmental liabilities
  • Companies that have delayed investment in cleaner technology or cleaner vessel fleets could be more vulnerable to these environmental regulations. As a result, they may need to incur costs and essential investments for which they are ill-prepared. In contrast, those companies that have tackled these issues proactively and anticipated these regulatory requirements will be better placed to retain a competitive advantage over their peers
  • We engaged with four investee companies and evaluated their level of preparedness in relation to these environmental requirements, concluding that AP Møller Mærsk and Mitsui OSK lead the pack.

The full research is available below.

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