"Attention should be paid by the shipping industry to stricter ESG requirements, as well as increased expectations from the investors."

Shipping industry - increased focus on ESG compliance

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Investors' focus on ethical and responsible investment (ESG – Environment, Social, Governance) is becoming increasingly important also in the shipping and offshore industry. The industry faces a wide variety of ESG risks through the entire value chain, and attention should be paid to stricter ESG requirements, as well as increased expectations from the investors.

The last couple of years there has been an increasing ESG pressure from financial institutions. Linking financing of potential portfolio companies with the requirements for ESG-reporting is now the new normal.  Therefore, all companies in the shipping industry should constantly understand the broader ESG consequences and the risks related to its business operations.

On the environmental side for example, increasingly stricter requirements related to emissions from ships poses a growing risk. Handling of accidental spills and transfer of invasive species through ballast water is another increased risk area. In recent years, also a growing focus has been put to social and governance risk factors. Evidently, the industry is exposed to social risks in area of health and safety on board, and also breach of labor rights can be a high risk. Serious offences in area of modern slavery have been uncovered over the last years, particularly related to migrant workers. Shipping, as an industry, is further particularly vulnerable to governance risks related to e.g. corruption and facilitation payments. Ethics and anti-bribery policies, as well as demonstration of an effective internal control system is therefore also considered by the investors as key “drivers” for defining shipping investments.

Despite the existence so far of many different ESG-reporting standards, we now see a trend towards a more coordinated approach in respect of ESG requirements and reporting standards. Among other, noteworthy is that Oslo Børs early this year replaced its former corporate responsibility guidance from 2018 with the new Euronext guidance on ESG reporting. Further, at EEA-level, the EU Taxonomy Regulation, aimed at investors, companies and financial institutions to define environmental performance of economic activities across a wide range of industries, entered into force this summer. Finally, yet importantly to mention, at national level the Norwegian Shipowners’ Association this summer launched its Guidelines for ESG reporting in the shipping industry.

SVWs Compliance team has broad competence in ESG regulatory matters and assist among other our clients in relation to IPO-processes and listing requirements. The team works closely with the shipping team in advising also our shipping clients on how to demonstrate sustainable business operations and expectations to be met.