The latest Intergovernmental Panel on Climate Change (IPCC) report has been dubbed a “code red for humanity” by the UN Secretary General, stating that human activity is changing the climate, with some of the changes inevitable and “irreversible”
Today therefore, the maritime industry is on high alert. Shipping is responsible for 2.5% of global greenhouse gas emissions; if it were a country, it would have the sixth highest global emission output. And, with the pandemic causing a boom in container shipping due to record levels of online shopping, and estimated ocean-going cargo volumes set to grow by 130% by 2050, emissions caused by shipping are set to rise even further.
In 2019 alone, the top 15 major US companies produced 12.7 million metric tonnes of CO2 through their shipping freight emissions, equalling the annual emissions of three coal-fired power plants.
As it stands, not only has the world’s shipping fleet quadrupled in size since the 1980s, but all 50,000 merchant vessels on the seas today are powered by fossil fuels. Overseas manufacturing and transoceanic shipping are, therefore, having detrimental consequences on our climate, as well as causing environmental and health problems for communities worldwide.
The maritime industry in action
Climate change not only affects the environment and our health, it also poses risks to the financial system due to the physical risks of natural catastrophes, environmental degradation, and those associated with the transition to a sustainable economy. These include the enforcement of new regulations and public policies, disruptive technology developments, and major shifts in consumer and investor preferences.
However, it is now widely understood that finance is the key to unlocking a sustainable future and, with banks having focussed on financing fossil fuels over climate-friendly projects in recent years, 2021 could finally be a critical tipping point.
According to Bloomberg data, this year has seen green debt issuance keep up with oil, gas, and coal-related finance for the first time. If this trend continues, climate action within the financial sector can unlock huge economic growth and create new jobs, particularly as the world aims to repair the impact of the pandemic. With this in mind, the financial sector could lead the way towards a more sustainable economy, with global regulators, the maritime industry, and companies worldwide following suit.
Since the Paris agreement set the target of reaching net zero by 2050, further regulations have emerged. For example, one of the pivotal regulations put in place in the maritime world was the 2020 IMO Sulphur Cap; the first step in reaching the IMO’s aim of reducing international shipping carbon emissions by 40% by 2030 and 70% by 2050, off the 2008 baseline.
While this might appear ambitious, goals like this send signals to the industry that change is coming and the supply chain must be prepared.
Up until now, the shipping sector has been excluded from countries’ climate plans, creating a disparity between meeting climate goals and reducing our impact. However, in April 2021, the UK incorporated shipping emissions in its target budget for the first time, ensuring greater transparency and accounting for the maritime sector. In conjunction, the upcoming COP26 Climate Summit will explore the future of shipping and accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.
The cost of sustainability
While many goals have been set, a sustainable future will only be achieved when significant action has been taken. For the maritime industry to meet its net zero targets, shipping needs to match the pace of the electrification of road transport, but this requires investments to be made throughout supply chains, from governments all the way through to the private sector. Green finance is required to drive that transition and support businesses in taking full advantage of the opportunities of decarbonisation, but to do this, every financial decision needs to take climate into account.
As a result, banks, insurers, investors, and other financial firms must commit to ensuring their investments and lending are aligned with net zero. To achieve this, ESG investments and collaboration are key for the faster development of sustainability-based programmes and technologies.
To prevent exceeding the 1.5 degree temperature increase from pre-industrial levels, the need for decarbonisation is urgent, but there are many other benefits to transitioning to a sustainable economy sooner rather than later.
A delayed transition could bring about sudden policy implementation, forcing the rapid decarbonisation of the economy and creating financial and economic disruptions. In contrast, the cost of transitioning gradually will be significantly less for companies than the consequences of noncompliance after new regulations have been introduced. Moreover, investor and client interest will peak when companies adhere to ESG programmes and reduce their supply chain emissions. Ultimately, this also pays off transitional expenses.
The choice is clear and the need for action urgent. Maritime companies must play their part in making the transition to a sustainable economy. If they do, they will soon see the rewards for both themselves and the planet.
About the Author
Simon Ring is Global Head of Maritime Trade Technologies & ESG, at Pole Star. Pole Star has been specifically designed to manage all aspects of asset management. We offer numerous modules which are based on a single source code allowing seamless integrations. All modules are customisable by our in-house team of developers. We pride ourselves on rapid development and delivery. Our modules range from equipment and asset registers, asset inspection and examination to maintenance management and workforce management. We offer a wide range of asset management software for all areas of asset management and facility management.