Watch/Listen

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

Schroders

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.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital Management does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital Management has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital Management is a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.