Sustainability is a catalyst for corporate and industry reform in shipping, permeating all strategies, policies and operations in maritime transport. While radical industry shifts to pursue sustainability draw their origins in long-standing practices and concerns on corporate activities’social and environmental impact , ESG (Environmental-Social-Governance) is a different terrain. ESG blends social impact, environmental impact and corporate governance into a single domain of corporate identity and performance. ESG matters because it shapes the orientation of impact-minded investments and delineates the communication with the dynamic network of corporate stakeholders (the Corporate Sustainability Reporting Directive in the European Union is a pioneering case in point). Therefore, ESG reflects shipping companies’ accountability to society at large.
The implementation of ESG in the shipping industry is subject to fundamental challenges:
1. The way to achieve environmentally sustainable shipping is neither evident nor cheap. The proper technological choice to meet sustainability objectives in a timely manner has yet to be the crop of steady consensus. Furthermore, even if agreed upon, the renewal of the global fleet would be consuming time and resources potentially on (or even beyond) the boundaries of technological feasibility, financial viability and climate resilience. Such a shift requires radical, consistent and wide political support across the globe. While we are not there yet, we are experiencing the paradox of implementing questionable regulations, especially at the European level, which impose significant costs. At the same time, it is also doubtful whether they are part of a validated and structured long-term strategy. Worldwide, many citizens and their elected representatives keep doubting the merits of a green transition. The shipping industry is lying amidst all this.
2. Existing regulations require measurement and reporting of only a small portion of shipping companies’ social and environmental impact. Impact reporting is discretionary for the most part, lacking a common measurement and reporting model. This results in substantial differences in the disseminated information across shipping companies, reflecting not only diverse corporate identities but also different regulatory frameworks across the globe and different characteristics across the industry’s segments. This diversity inhibits comparability and undermines the reliability of sustainability reporting, impedes policy design and implementation, weakens the articulation of corporate strategies and casts mistrust on the industry as a destination of impact-minded capital.
3. ESG is about accountability to a wide range of stakeholders. Stakeholders are diverse in their priorities and material interests, and this implies compromising syntheses in designing industry and corporate policies, implementing these policies and reporting their impact. For example, the objective of full employment and economic growth may hinder climate change adaptation or mitigation to the extent that employment and growth are the result of environmental harm (e.g., Sustainable Development Goal 14 refers to small island economies with a view to balancing economic and environmental sustainability). Likewise, internal and external stakeholders, like employees, investors, citizens and the government, have different aspects of impact in mind, demanding different sustainability priorities and ESG narratives. The final outcome -in terms of business policy and reporting- is the result of dialectics that are economic, political, technological and always on the move.
4. Progress lies in two dimensions: the regulatory framework that is the main development path and the voluntary initiatives that go beyond it. This terrain beyond mandatory ESG policies is the cradle of industry initiatives for sustainable shipping. In principle, industry initiatives that exceed the requirements of the law in the pursuit of noble objectives (such as environmental welfare) are a good thing. However, by preceding regulators and policy makers, industry actors may set the trajectory for subsequent reforms, especially if these actors are market leaders. This means that regulatory frameworks are more likely to reflect the priorities of major companies in the shipping industry, possibly at the expense of minor ones. This accommodates the likelihood of increasing market concentration with the ensuing prosperity disadvantages of restrained competition. Another dynamic dimension, further developed with the latest European directives on non-financial reporting, contributes to the integration of ESG in the reform of management systems by providing a more practical and permanent basis for transforming companies' daily operations and mindsets by harmonizing them with the rules of the ESG philosophy.5. ESG policies are supposedly designed and implemented to bring about good in the world (while also harnessing profitability – this is the so-called “doing well while doing good” approach”). How much good is brought about in the world as a result of shipping companies’ ESG policies? It is hard to tell, especially in terms of social sustainability (S in ESG). If the regulators’ and shipping companies’ objective is to promote social cohesion, then an increase in family leaves, women in managerial positions, syndicated labor or seafarers' growth are efforts towards achieving impact, not impact in itself. To assess impact, we would have to check whether society actually became more cohesive as a result of these corporate initiatives, and this is an impossible task, not only because social cohesion is hard to delineate but also because it depends on many overlapping structural forces. ESG policies are only one such force and, evidently, not the most important one (government policies and international relations matter more). If the causal link between ESG policies and social impact is blurred, then why do we pursue social impact via ESG? Faith is the answer. What may be missing in terms of evidence is counterbalanced by our ideas and our sense of what prosperity should be like. ESG policies are pursued in part because they work and in part because we believe that they are the right thing to do.
6. While the environmental aspect of ESG is easier to grasp than the social one (emissions are a specific thing to measure and they do constitute impact), its merit is partly a matter of values and ideology, just like the social aspect of ESG. Granted, a ship that pollutes less is evidently an improvement. The long-run objective, however, is a climate and environmental shift on a global scale. Are reduced vessel emissions achieved within a specific technology and business model on the right path to accomplish global objectives for 2050? The achievement of these objectives depends on climate dynamics, government policies and international relations much more than discretionary corporate policies. Again -as in the case of social impact discussed above- the identification of missing links between corporate cause and environmental effect is not a scorn for ESG policies. It serves as reminder that part of the reason for the implementation of ESG policies is rooted in our values and ideas (the other part being of course rooted on hard environmental and technological evidence).
Acknowledging that ESG relies on an ideological background is not meant to challenge the realities of climate change and pressing social problems. We should bear in mind, however, that ideologies are subject to shifts and citizens and organizations play a part in the direction of these shifts. Science should be the connecting link, ensuring that policies that have a meaningful impact on practical and ideological grounds are implemented, while making the impact understandable and measurable. We are responsible.