The Sustainability Imperative – Watson Farley & Williams

The below is a guest blog from Watson Farley & Williams and ‘The Sustainability Imperative’ report can be read here:

Sustainability is now the single most important issue affecting shipping. With the industry being core to Watson Farley & Williams, as it has been since our inception, in working alongside our clients on a day to day basis it seemed, anecdotally at least, that the focus on, and attitudes towards, sustainability and issues of an environmental, social and (corporate) governance (ESG) nature had evolved considerably in recent years. And so in 2020 we began to consider producing our report “The Sustainability Imperative”, to see if the data backed up that view and to provide some parameters around which the ESG debate can be framed.

The report, ‘The Sustainability Imperative; ESG – Reshaping the funding and governance of shipping’, focusses on how the industry will finance the decarbonisation needed to meet the IMO’s targets and assesses how views on ESG may affect future access to funding.

It is built around a survey of 545 senior industry decision-makers worldwide, including shipowners and operators, lessors, charterers and banks as well as ten in-depth interviews with market leaders. Its key findings are:

·       Reducing carbon emissions is seen as the main challenge, though trade tensions, Covid-19 (unsurprisingly given the timing of the survey) and access to finance are also important; 

·       Financiers attach more importance to sustainability than operators do, though they have little appetite to fund new clean-technology upgrades themselves (given that they do not consider they are qualified to make risk assessments regarding the technology to be used) – or accommodate others doing so. Shipowners are also wary of committing to many new green technologies at this time; and

·       While the industry looks to governments to lead the funding of clean technology and fuel research (the cost of decarbonising shipping is estimated at US$1.4trn in a University of London report), decarbonisation is expected to drive greater cooperation among industry participants.

Many believe the drive to sustainability will bring about changes in the shape, capital structure and financing of the sector, meaning shipping won’t be able to bring about significant environmental change without also addressing social and governance issues. The separate elements of ESG look set to reinforce each other in shipping over the coming years.

Shipping has a reputation for being old-fashioned and resistant to change, but our report shows that the industry clearly recognises that significant changes are needed to hit the IMO’s target. It is anticipated that the action taken to enact these changes in the coming years will re-shape the maritime sector.