Shipping charts course for sustainable future

By Eric Pedersen, head of responsible investments at Nordea Asset Management

Maritime transport is the backbone of international trade and is an integral part of the global supply chain – transporting raw materials to refineries, refined goods to factories and manufactured items to consumers. In fact, shipping accounts for about 80-90% of global trading activity, with its cargo carrying capacity doubling since 2005.

For those not fully aware of the importance of this cost-effective mode of trade, the current global supply chain crisis must be an eye opener. Due to the rise of the Covid-19 Delta variant, a number of high-volume shipping ports in China were forced to close in recent months – while spiking cases in places like Vietnam and Malaysia decreased manufacturing capacity and depleted workforces at busy container ports. In addition, who could forget the six-day blockage of the Suez Canal earlier this year, after the grounding of the Ever Given container ship? As a result of these bottlenecks, thousands of cargo containers have been left dormant for days and weeks at major ports, exacerbating the shortages currently witnessed on consumer shelves and factory floors.

While the often-ignored shipping space has recently hit the headlines, it has long been an industry ESG investors have watched intently. Shipping is governed by numerous rules and regulations – in areas such as safety of life at sea and the protection of the marine environment, as well as the provision of decent working and living conditions for seafarers. In our ESG analysis of companies in the shipping sector, we evaluate a variety of risks – such as greenhouse emissions and other environmental impacts, employee health and safety, accident and safety management, and corporate governance.

Corporates enacting change

Even though shipping is one of the least emission-intensive modes of transporting goods – compared to trucking or aviation, for example – it is still among the largest carbon emitters, with more than one billion tonnes of greenhouse gas emissions each year. This is similar to the total carbon emissions of Germany. If left unchecked, emissions are tipped to double by 2050.

However, unlike other modes of transport, long haul shipping faces a challenging path to electrification, due to the large quantities of energy required over extended time periods. Positively, there has been some progress towards cutting emissions with advances in green hydrogen and ammonia. For example, Norwegian chemical company Yara International is a leader in green ammonia, while Aker Carbon Capture and Aker Clean Hydrogen are becoming key players in these important niches. While innovations in such areas will be vitally important to the shipping industry in the decades ahead, broad application of these technologies will take several more years to come to fruition.

Nevertheless, shipping groups are not simply treading water. Norwegian vessel owner Klaveness Combination Carriers is leading the way in terms of improving current emissions within the shipping industry. By designing vessels able to operate as both bulk ships and product tankers, Klaveness virtually eliminates repositioning of its vessels between journeys. For conventional bulkers and tankers, this would typically equate to about 50% of the total distance sailed. While these advanced vessels are more expensive to build than conventional bulkers and tankers, the emissions per tonne of freight moved and the return on capital over time are superior due to the fact cargo is carried both ways of the journey.

Denmark’s Maersk, the world’s largest container shipping line and vessel operator, has also shown a willingness to accelerate the decarbonisation of its fleet, by recently ordering a number of vessels able to run on carbon-neutral methanol. Maersk sees green ammonia as an important future fuel too, and has backed plans to build Europe’s largest green ammonia facility on the on the Danish west coast.

In addition to positive developments in cleaner fuel and vessel design, we are also seeing improved onboard energy efficiency and resource efficiency. At Nordea, we have an investment in Alfa Laval, which manufactures hardware vital to the operation of a vessel’s engine room. The Swedish company sees significant opportunities in providing sustainable solutions in the areas of water treatment, energy efficiency, emissions curbs, and broader pollution reduction.

Engagement and collaboration

There are many ESG elements an asset manager must consider in the maritime space – in areas such as ship recycling, crew and yard workers rights, cargo safety, and the obvious environmental concerns. Through our ESG engagement with Klaveness, we have been pleased with its commitment and progress in terms of sustainability since its IPO more than two years ago.

However, in such a global industry, it is important to seek change beyond individual corporate engagement. Industry collaboration is crucial, as evidenced by the Responsible Ship Recycling Standards initiative undertaken by a group of financial institutions. These principles aim to minimise the dangers associated with the dismantling of vessels – including labour conditions and environmental impacts. The Poseidon Principles is another global initiative, which provides a framework for integrating climate considerations into the lending decisions of institutions operating within the shipping space.

While it is likely to take many more years before shipping experiences an automotive-like sustainability revolution, there are still many courses ESG investors can chart to promote environmental and societal advances in this crucial global industry.

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches and subsidiaries. This document is advertising material and is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest Key Investor Information Document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management AB recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. A summary of investor rights is available in English through the following link: The Legal Entities’ branches and subsidiaries are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and subsidiaries. This document may not be reproduced or circulated without prior permission. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and/or subsidiaries.

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