Breaking ships regardless of environmental conditions and safety issues is becoming increasingly difficult. Investors are cracking down on shipowners and recyclers who do not comply with standards, writes Felix Selzer
While European owners have already come under pressure, Standard Chartered Bank pushes for more responsible scrapping practices among its ship[ds_preview] recycling clients. In its Position Statement, the bank states that it »will only provide financial services to clients who have an environmental and social management system (ESMS) certified to the International Organisation for Standardisation standard ISO14001, the occupational health and safety standard ISO45001, or ISO3000 for Ship Recycling Management Systems.« A time-bound plan to comply with the requirements of the IMO’s International Convention for the Safe and Environmentally Sound Recycling (Hong Kong Convention, HKC) is also required. The bank fears a reputational risk in case of failures of environment and social governance (ESG).
»In order to minimise these risks or avoid them altogether, we believe in working with our clients to help them raise their performance in relation to E&S issues, and demonstrate to us that they are managing these appropriately,« Roger Charles, Director, Environmental and Social Risk Management, tells HANSA.
»The HKC has not come into force yet; however, we have seen that the technical standards of the Convention and of its Guidelines are already having the expected positive effect on the recycling industry,« he adds. Interestingly, Standard Chartered Bank does not exclude the much disputed beaching method. »We believe that beaching can be developed to a level compliant with important international regulation, and will continue to work with both ship owners and recyclers to make a positive impact across the industry as a whole,« Charles states.
»Satisfactory progress«
Since 2013, Standard Chartered has engaged independent consultants Litehauz to conduct annual audits of its ship recycling clients. »They measure against 390 KPIs derived primarily from the Bangladeshi legislation and where relevant, international standards including the HKC,« Charles says. Between now and 2021, the auditor will make two visits per year to help the yards achieve their time-bound plans to comply with SCB’s standards.
»As a result, several yards have conducted self-financed upgrade activities and/or participated in joint industry efforts. Improvements in infrastructure, procedures and organisational capacities are evident in several of the yards and the most recent audit showed that each is making satisfactory progress, but complete alignment takes time due to the sheer volume of investment and effort required,« Charles says.
Other investors are cracking down on their shipping clients as well, most notably Norway’s state pension fund (Oljefondet). The over 1tr.$ fund that invests the oil business revenues holds shares in over 9,150 companies, an average of 1.4% of all equity globally. Now the fund’s Ethics Council will check whether the companies in which it invests meet certain standards set by the government. At first the focus will be on the situation India. In 2018, Oljefondet and Norwegian KLP (Kommunal Landspensjonskasse) already excluded shipping companies Evergreen Marine, Korea Line, Precious Shipping and Thoresen Thai Agencies »based on an assessment of the risk of severe environmental damage and serious or systematic violations of human rights«. Pan Ocean is under observation.
SCB has not yet actively excluded or blacklisted non-compliant companies from funding. »We aim not to be in this situation; our clients have clearly stated their commitment to invest in environmental and social protection, and this investment is taking place over a period of years. Naturally, there is some flexibility on the order in which a client tackles the actions needed, and progress is a partnership between clients and external specialists«, Charles explains, but adds: »If a client were to rescind their commitment to making such progress, we would treat this seriously and seek to understand their rationale. Ultimately, we would withdraw from the relationship if we could not re-establish progress.«
Working on transparency
In early March, the Ship Recycling Transparency Initiative (SRTI), that brings together leading shipowners, investors, banks, insurers, cargo owners and other key stakeholders, launched its first report. Presenting data collected through a questionnaire, it clearly indicates that there is a growing movement stepping up the pressure on owners to disclose their approaches to ship recycling.
»We’re seeing increasing pressure on shipowners from key stakeholders including investors, retailers and manufacturers,« says Andrew Stephens, Executive Director of the Sustainable Shipping Initiative (SSI) that hosts the SRTI. »Conversations with cargo owners, lenders and insurance companies have highlighted that they too want more information on ship recycling to inform their decision-making.«
Major vehicle manufacturers including BMW and Scania have recently signed up to the SRTI, demonstrating their willingness to be held to account for their supply chain. Financial stakeholders make up one third of those involved in the SRTI – including recent signatories MP Pension and PBU.
The SRTI report also reveals how shipowners implement their responsible ship recycling commitments through the use of standard contracts such as BIMCO’s RECYCLECON for the sale of vessels for green recycling or explicit requirements for ship recycling facilities. 100% of disclosing shipowners monitor facilities’ compliance during the ship recycling process, mostly by way of ongoing supervision and assigning a company representative, follow-up onsite and spot checks.
SRTI’s initial signatories include shipping companies China Navigation Company, Hapag-Lloyd, A.P. Moeller-Maersk, Norden, Stolt Tankers, and Wallenius Wilhelmsen; financial stakeholders GES/Sustainalytics, Nykredit and Standard Chartered Bank; classification society Lloyd’s Register and sustainability non-profit Forum for the Future. Recent signatories include BMW, MP Pension, PBU, RightShip, Scania and Teekay. Commenting on the SRTI, Standard Chartered’s Roger Charles says: »This is a positive step in encouraging more recycling yards to invest in improvements. However, we need more shipowners to demand and control high quality ship recycling.«
Felix Selzer
