The Malta Maritime Forum recently held a national conference dedicated to ESG (environmental, social and governance) in the maritime industry. The event was supported by BIMCO, the world’s largest direct-membership organisation for shipowners, charterers, shipbrokers and agents, by Bank of Valletta and Weave Consulting.
This was the third event of this kind organised by the forum which firmly believes that ESG, if correctly implemented, can be of great benefit to our industry. This complements the forum’s mission to raise standards in the Maltese maritime industry, which is one of the pillars of the Maltese economy.
Proper adoption of ESG practice may go a long way in enhancing the reputation of the industry which is often thrown on the defensive in countering criticism about pollution – this despite the fact that, due to the critical mass we command, our industry generates the least emissions per ton mile.
Besides, shipping is misunderstood because decisions leading to the “road to zero carbon” is extremely complicated to say the least. As elaborated upon during the panel discussion held between the conference speakers and members of the audience at our event, such decisions are hampered by the fact that technologies applicable to other modes of transport – like electrification – do not lend themselves well to maritime transport across the board.
Besides, the “fuel of the future” still does not exist and going forward, there will most likely be more than one such fuel. So investment decisions regarding new vessels running into hundreds of millions of euros must be taken very carefully given the risks involved.
Such risk is a function of (a) the sheer magnitude of the capital investment involved and (b) the delivery period of a new ship (often in the region of three years) during which time breakthrough of new technologies could possibly undermine the viability of the whole investment.
Our event emphasised the need for a holistic approach in the adoption of ESG, whereby all the components are tackled with equal importance. A successful delivery of ESG cannot come about if an organisation is strong in any of the two elements and weak in the other. That said, speakers agreed among themselves that governance is the starting point of a company’s journey towards ESG.
Investment decisions regarding new vessels running into hundreds of millions of euros must be taken very carefully given the risks involved
This is because the ‘G’ represents the values of the organisation – the core beliefs and standards of the owners/partners/directors. It is these values that shape the mission and vision of the company and these are cascaded downwards to the management and employees to provide the ‘tone from the top’ that is to influence the culture – the boundaries of risk and behaviour. Oversight is then to be applied by the board of directors to ensure the company is delivering on its culture and values.
The precept was expounded very well by our dear friend and Malta’s leading business consultant, Joseph F. X. Zahra, in his feature on ESG published in the Sunday Times of Malta on June 30.
Our event established that the ‘G’ sets the objectives, the direction and the pace in terms of the ‘E’ and the ‘S’ and it further supports the company in implementing and achieving them. Needless to say that managing the transition towards ESG also requires good governance, discipline and transparency.
Governance and ESG adoption is certainly the collective responsibility of the public and private sectors alike. In terms of the private sector, much emphasis is being placed on large corporates because they are in scope for the new reporting standards being introduced across the EU through its Corporate Sustainability Reporting Directive. However, small companies should behave equally responsibly because ultimately we all deal with customers, we are all part of a larger supply chain and we operate in a global village where competition is cut-throat.
While the larger companies may be formally obliged to report to their authorities and regulators, the smaller companies must step up in terms of their policies and procedures and data-capturing to ensure they are in a position to provide the necessary disclosures to their principals upstream and other gatekeepers such as the banks.
Our event elaborated on the costs and benefits of ESG to serious companies that implement it. We, as MMF, believe that although there is definitely a cost side to the exercise, yet the benefits go beyond the financial dimensions.
As evidenced by several empirical studies, ESG gives an edge to companies because it acts as a mark of quality and enhances its unique selling propositions. Correct adoption of ESG, therefore, can serve to filter the wheat from the chaff in our industry – the serious companies from the less serious and the proactive from the reactive.
ESG adoption should not come across as extraordinary. After all, our industry is already highly disciplined and regulated. Serious operators are already used to conducting business with integrity; with due skill, care, diligence; managing conflicts of interest, maintaining adequate financial resources; organising and controlling internal affairs effectively; operating policies and procedures for risk and crisis management; and making the necessary disclosures.
MMF now looks forward to moving from the talk to the walk by organising a series of workshops for its members to assist them in implementing ESG.
Godwin Xerri is chairman of the Malta Maritime Forum.