Environmental, social and governance (ESG) principles are making waves in the shipping industry; recent changes include groundbreaking regulation by the EU, increased administrative burdens in relation to ESG risk management and a push to improve the diversity of the sector. 

These ESG-related challenges were explored at the Shipping Professional Network in London’s (SPNL) ESG Seminar: “Navigating ESG Principles in the Maritime Industry” hosted at our London offices on 2^nd October 2024 by a panel comprising Alexander Walster (Head of ESG and Communications at Navigator Gas), Georgia Maltezou (Claims Manager at The Shipowners’ Club), Gina Panayiotou (Founder & CEO Oceans Arena) and NRF’s own shipping litigation partner Philip Roche.

Shining the spotlight on EU ETS and FEUM

Discussion centred around the hot topics of the EU Emissions Trading Scheme (EU ETS) and the FuelEU Maritime Initiative (FEUM), schemes introducing substantial sanctions for breaching prescribed emissions limits. EU ETS is a greenhouse gas trading system that places a cap on companies’ emissions, whilst FEUM is a regulation imposing a set of targets supported by financial penalties for non-compliance, applicable to vessels over 5000 gross tonnes visiting EU ports. The insightful discussion explored how these schemes are affecting the administration of ESG risk management and gender diversity. 

• For further information on EU ETS, see our more detailed article here: EU Emissions Trading System – What have we learned after nine months of operation? | Global law firm | Norton Rose Fulbright
• For further information on FEUM, see our more detailed article here: FuelEU Maritime | Global law firm | Norton Rose Fulbright

The overarching effect of these measures is the additional administrative burden they impose on the industry. Improvements need to be made, and new tools developed, to ensure the collection of reliable data to measure and report emissions. This is particularly problematic when attempting to report on emissions further down the supply chain. 

The panel noted that the key to fixing this problem, is for those in positions of leadership in the industry to prioritise implementing strategic plans at an early stage and crucially to focus on continuing to attract new talent to the industry to spark innovation. Practical solutions discussed included blind recruiting, bias training, and increasing visibility of successful role-models. Particularly noted was the severe lack of women in the shipping industry, most notably amongst seafarers. A recent, successful, initiative to highlight this issue includes a dedicated International Day for Women in Maritime each year, an initiative launched by the International Maritime Organization (IMO) in 2022.

The increased level of work and stress was also commented on by the panel. Crew welfare is a constant issue for the industry due to the isolating nature of life at sea. The industry has successfully set up dedicated 24 hour helplines to provide support to those in need examples of which are set out below:  

• SeafarerHelp (for all seafarers and their families)
• Yacht Crew Help (for professional yacht crew)

The two-tier fleet – can pooling level the playing field?

An evident difficulty created by the new legislation is its inherent discrimination against older vessels that face far greater challenges in reducing their emissions than their modern counterparts. Older vessels lack the benefit of the same modern technological developments (such as the ability to use novel fuels like renewable fuels of non-biological origin or being equipped with energy saving devices) which are increasingly common amongst modern vessels and ease compliance with the EU ETS and FEUM targets. 

FEUM aims to face this issue head on by allowing groups of vessels to be pooled, with the average of the pool’s emissions held against the FEUM target. On its face, the panel noted that the potential benefits here are obvious as valuable older vessels in good condition can continue to operate if pooled with emission efficient newer vessels. The panel discussion highlighted the importance of considering the prospective advantage of pooling newer vessels with older emission inefficient vessels against the risk of pulling down the overall fleet’s compliance balance, as this could have broader negative financial repercussions for the fleet as a whole. 

Responsibility – the impending ship manager revolt

Under the EU ETS and FEUM, it is the individual holding the document of compliance (the DOC-holder), which certifies compliance with the respective scheme, who is responsible for ensuring the vessel conforms to the applicable regulatory standards. Whilst the owner has initial responsibility, market practice dictates that the role of the DOC-holder is commonly delegated to the manager of the vessel, an entity with little control over the decisions that affect emissions. 

The panel addressed the inequitable and counterproductive nature of placing the burden of emission collection, verification and, most notably, any financial penalties on an entity without such required influence and control. This is already negatively impacting seafarers’ mental health as they feel inadequately prepared for the increased workload that the regulations will bring. 

In addition, the panel observed that whilst this question of duty may be resolved by implementing an indemnity in favour of the manager, this will involve additional contractual negotiation and it has yet to be determined where the responsibility will fall in the alternative. Potentially liable parties may include the ship owner or charterer, however this remains uncertain. 

It is clear that there are immense challenges the shipping industry will need to face head-on to adapt to these imminent ESG measures and only time will tell whether the industry will sink or swim.

Special thanks to Gabrielle Wong and William Ford, both Trainee Solicitors, for their contributions.