The maritime sector, an industry as ancient as civilization itself, is now steering through the transformative tides of the 21st century. Amidst the rising global consciousness on environmental preservation and social equity, the industry confronts an unprecedented wave of change—the integration of Environmental, Social, and Governance (ESG) criteria into its core operations. These criteria have evolved from buzzwords into vital coordinates on the maritime industry's navigational map, guiding shipowners and operators not just toward profit but toward sustainability and ethical responsibility. In this era of ESG, ship recycling emerges as a critical focus area, offering a prism through which the maritime industry's commitment to ESG can be refracted and understood.

The concept of ship recycling is anchored deeply in the ESG framework, symbolizing the industry's commitment to the planet and its people. As vessels reach the end of their service life, the processes and policies governing their recycling become a testament to the industry’s sustainability ethos. It is here, in the ship recycling yards and recycling facilities, that the maritime industry’s ESG narrative unfolds in its most tangible form. The industry's horizon has thus broadened, with the worth of a company now measured not just in financial ledgers but in the contributions to environmental stewardship, social responsibility, and ethical governance. The integration of ESG into the maritime business model is a strategic imperative for sustainable advancement, and an authentic approach to ship recycling is at the forefront of this evolution.

The Authentic Belief in ESG: Going Beyond Box-Ticking

The maritime industry's adoption of ESG principles signifies an understanding that a ship's journey doesn’t just begin at the port of origin and end at the port of call; it encompasses the entire ecosystem, including the people and environments affected by maritime operations. When maritime leaders express a genuine belief in ESG, they recognize that their companies, while engines of global trade, also play a critical role in advancing global sustainability goals. This perspective is vital because the shipping industry, responsible for about 90% of world trade, is under increasing pressure from consumers, investors, and regulatory bodies to improve its environmental track record [1]. For example, the International Maritime Organization (IMO) has set a target to reduce greenhouse gas emissions from international shipping by at least 50% by 2050 compared to 2008 levels [2]. Many blue-chip companies are taking proactive steps by committing to net-zero CO2 emissions by 2050, showcasing that their dedication to ESG is more than a compliance exercise. This is not a trivial pursuit, as research has demonstrated that companies with strong sustainability scores reflect better operational performance and often outperform their counterparts in the long term [3]. Hence, an authentic belief in ESG within the maritime sector is not only a moral imperative but also a strategic business decision.

Integrating Ship Recycling into ESG Framework

To authentically integrate ESG, shipowners must consider the end-of-life phase of their vessels with the same responsibility as their operational life. Incorporating ship recycling into ESG involves:

• Inventory of Hazardous Material (IHM) report: Ship owners should first provide the well-maintained IHM reflecting actual wastes onboard (before the last voyage) to the ship recycling yards. IHM is the heart of green ship recycling.

• Sustainable Ship Recycling Plans: Developing a sustainable ship recycling plan ensures that ships are recycled in a manner that is safe for workers and environmentally sound. India has over 100 ship recycling yards with HKC compliance.

• Selecting Green Ship Recycling Facilities: Engaging with ship recycling yards that follow strict environmental and safety standards aligns with ESG commitments and can be a part of a shipowner's sustainability report via experienced and certified compliance monitoring agencies.

• Transparency and Traceability: Establishing a transparent process that allows stakeholders to trace the end-of-life journey of ships showcases a company's commitment to ethical practices.

• Innovation and Collaboration: Promoting innovation in recycling techniques and collaborating with yards to improve environmental performance can drive the industry towards more sustainable practices.

• Circular Economy: By considering the circular economy within ESG strategies, shipowners can encourage the recycling of materials, reducing the environmental footprint of building new ships.

Moreover, the integration of ESG into maritime finance is exemplified by the adoption of the Poseidon Principles. Alongside these developments, the Poseidon Principles stand as a beacon of strategic innovation.

Incorporating the Poseidon Principles into ESG in Maritime Finance:

Alongside these developments, the Poseidon Principles stand as a beacon of strategic innovation, aligning maritime finance with climate responsibility. As a framework, the Poseidon Principles enable financial institutions to measure and manage the carbon intensity of their shipping portfolios, harmonizing with global climate goals. As of 2023, 30 leading banks, jointly representing a bank loan portfolio to global shipping of over USD 200 billion, have come together to commit to the Poseidon Principles [Poseidon Principles Annual Report 2022]. By adhering to these principles, lenders and investors commit to pivotal roles in fostering an environmentally sustainable maritime industry, encouraging shipowners to think beyond traditional operations to encompass responsible ship recycling practices as well. This integration of financial strategies with ecological consideration underscores a holistic approach to ESG, acknowledging the interconnectivity of environmental stewardship, social responsibility, and economic viability.

SAFETY: The Lifeline of Ship Recycling:

In ship recycling, safety is paramount, not only for ethical reasons but also for business continuity and reputation. The dangers of this industry cannot be overstated, with workers often facing life-threatening conditions. Despite the perilous nature of their work, significant progress has been made in recent years due to the sincere ESG efforts by shipowners and facilities. For instance, the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC), which sets out safety and environmental standards for ship recycling, has led to tangible improvements, that will come into force on 25 June 2025 [4]. The industry’s drive towards safety is not merely about regulatory adherence but about creating a culture where the well-being of every worker is a priority.

ENVIRONMENTAL PROTECTION: Going the Extra Mile:

Environmental protection in the maritime industry extends beyond mere compliance with current regulations. Shipowners and operators are increasingly recognizing that taking care of the environment is intrinsic to their license to operate. For example, prior to the enforcement of the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI, which aims to reduce air pollution from ships, many companies had already started investing in cleaner technologies [6]. This pre-emptive approach reflects a trend where stakeholders in the maritime industry are looking ahead to future regulations and public expectations. Progressive companies have been voluntarily adopting the standards set by the Hong Kong Convention and providing IHM reports to the ship recycling yards as well as working with yards to ensure safe disposal of hazardous wastes. The leadership shown by Norway in ratifying the convention and setting up funds for better recycling facilities in Bangladesh illustrates the importance of proactive environmental stewardship [7].

SOCIAL Initiatives: Building a Sustainable Future:

The social aspect of ESG within the maritime industry is multifaceted, dealing with the well-being of the workforce, their families, and the larger community. Companies are beginning to understand that investing in the social fabric of their operational areas is not just charity; it’s smart business. For instance, the supplier code of conduct of ship owners includes policies wages, living conditions of workers, overtime payment, right to bargain, freedom of association, no discrimination, among many, is being checked by ship owners before selecting ship recycling yards.  Shipping giants are increasingly investing in community projects, with the Global Maritime Forum’s report highlighting the industry’s role in supporting the UN SDGs [8].

GOVERNANCE: Steering the Ship with Integrity:

Governance within the context of ESG in maritime industries encapsulates how companies oversee their operations, manage risks, and ensure accountability for their impact on the environment and society. A Chief Sustainability Officer (CSO) is critical in this governance structure as they bring ESG considerations to the forefront of corporate strategy. According to a study by the Smith School of Enterprise and the Environment at the University of Oxford, firms with strong ESG practices tend to have lower costs of debt and equity, which are significant for capital-intensive industries like shipping [9]. Good governance includes transparent reporting, stakeholder engagement, and a clear roadmap for achieving ESG goals, which are increasingly demanded by investors. The presence of a CSO on the executive team ensures that ESG risks and opportunities are evaluated with the same rigor as financial ones, leading to more resilient and adaptable businesses.

Is ESG Just Good for Business?

The business case for ESG in maritime industries is compelling. Companies that incorporate ESG principles into their operations are not only preparing for future regulations but are also benefiting from increased investor interest. A study by the American P&I Club has shown that companies with strong ESG practices enjoy up to a 10% lower cost of capital [10]. Additionally, a survey by the Global Maritime Forum indicated that 80% of maritime stakeholders acknowledge the strong business case for ESG, as it correlates with higher operational efficiency and regulatory readiness [11]. The true value of ESG lies in its ability to foster trust and build a resilient, future-proof business.

Conclusion:

The integration of ESG into maritime strategies is not just a trend but a transformative shift that will delineate the future contours of the industry. For ship owners and maritime enterprises, the journey towards authentic ESG integration till ship recycling represents a commitment that extends well beyond compliance—it is a commitment to the very waters that sustain their vessels and the people who propel their businesses. Ship recycling stands as a beacon of this commitment, symbolizing the convergence of environmental integrity, social responsibility, and sound governance.

In the realm of ship recycling, the industry's dedication to ESG is manifested through every vessel that is decommissioned with respect for environmental and human safety. It is exemplified by each measure that anticipates and exceeds regulatory requirements, and by every initiative that fosters a circular economy. These efforts underline the industry's role not only in economic growth but in charting a sustainable future for the global community.
As we drop anchor on this discourse, it is clear that ESG is more than a business imperative—it is a moral compass guiding the maritime industry through the uncharted waters of a rapidly changing world. Ship recycling, when integrated into the ESG framework, is a testament to the industry’s capacity for regeneration and responsibility. The time to embrace these principles is now, for in doing so, maritime businesses will not only navigate toward compliance and profitability but will lead as exemplars of sustainability and guardians of the marine environment for generations to come.

Through this series, we will continue to explore the currents of ESG in the maritime industry, highlighting both the challenges and opportunities it presents. Authentic ESG integration, with ship recycling as a key component, will enable maritime leaders to steer their companies with a vision that honors both the legacy and the future of this time-honored industry.

Author:
Dr. Anand Hiremath, Chief Sustainability Officer, GMS

References:

1. [1] UNCTAD Review of Maritime Transport 2020.

2. [2] IMO GHG Strategy, International Maritime Organization.

3. [3] Eccles, Robert G., Ioannou, Ioannis, Serafeim, George. "The Impact of Corporate Sustainability on Organizational Processes and Performance," Management Science, vol. 60, no. 11, 2014, pp. 2835-2857.

4. [4] IMO, “Hong Kong International Convention.”

5. [5] IMO Global Integrated Shipping Information System (GISIS), “Ship Recycling.”

6. [6] International Convention for the Prevention of Pollution from Ships (MARPOL), Annex VI.

7. [7] Ministry of Climate and Environment of Norway, “Norway first to ratify international agreement on ship recycling – the Hong Kong Convention.”

8. [8] Global Maritime Forum’s “Social Impact in the Maritime Sector” report, 2020.

9. [9] Clark, G.L., Feiner, A., and Viehs, M., "From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance," University of Oxford, 2015.

10. [10] American P&I Club, “ESG in the maritime industry” report, 2021.

11. [11] Global Maritime Forum, “Annual Stakeholder Survey 2021”.