How cutting carbon offers a competitive advantage to shipping companies
International shipping carries around 90 percent of world trade and produces about 2.3 percent of global greenhouse gas emissions. To put this into perspective; if the sector were a country, it would rank as the sixth biggest emitter of CO2 in the world – with a carbon footprint roughly the size of Germany’s.
Given it is such a major source of pollution, it might be surprising that shipping industry emissions do not fall within the targets set by the Paris Agreement. An inherently global business, that stretches across the world’s oceans – territories not owned by any one country – the shipping industry was considered problematic to incorporate into nation-led climate negotiations.
Instead, the 1997 Kyoto Protocol gave responsibility for handling carbon emissions from marine fuels to the International Maritime Organisation (IMO), the branch of the UN responsible for regulating global shipping. In the 21 years since, the shipping sector has managed to dodge its responsibility. It remained the last sector of the economy with no regulation of carbon emissions in place.
The tide has started to turn. The IMO met in London in April to decide on a strategy to reduce carbon emissions from the shipping industry. It was a tense week of discussions. We supported the motion put forward by a number of countries – including the EU and some small island states – for a target to reduce emissions from the shipping industry by 70-100 percent by 2050.
Such rapid decarbonisation is entirely feasible using a mixture of operational changes, different fuels and various technologies. Other countries, including the US and Saudi Arabia, did not want a target at all.
In the end, a draft strategy was set, including a compromise target of a 50 percent reduction in carbon emissions by 2050. While this is positive progress, science tells us that it does not go far enough to meet the goals of the Paris Agreement.
Under this target, and assuming a ‘well below 2 degrees’ scenario, the shipping sector would account for 10 percent of global emissions by 2050. In doing so, it threatens to derail the Paris Agreement and would undermine the strong progress in cutting emissions made by other sectors and governments.
Nowhere to hide
However, the weakness of the current goal does not stop individual companies taking the lead and getting ahead of tougher targets which are likely to be set in the years to come.
At CDP (formerly the Carbon Disclosure Project), we work with over 100 global purchasing organisations, including household names like L’Oréal, McDonalds, Microsoft and Walmart.
All of them are, at some point in their supply chains, customers of shipping companies. These companies are increasingly demanding greater transparency and increased action on climate change, water security and deforestation from their suppliers.
And as they are all requesting their suppliers report their environmental impacts annually through CDP, the shipping companies they work with have nowhere to hide.
One increasingly common reason for this request is that purchasing organisations have set science-based targets – emissions reduction targets aligned with the level of decarbonisation needed to meet the goals of the Paris Agreement.
These targets require companies to measure and reduce their emissions from both their direct operations and – if the emissions count for more than 40 percent of the total – their supply chain, putting further pressure on shippers.
Many organisations are also going a step further and asking their suppliers to set science-based targets of their own. With the Science Based Target initiative currently working on a methodology for the transport sector, we expect this request to soon be made of shipping companies.
It can be done
By setting ambitious goals to reduce their emissions, and reporting them to their customers and investors, shipping companies can ensure their businesses are resilient and seize a competitive advantage.
One company that sees this competitive advantage is Danish shipping company Maersk, the largest container ship and supply vessel operator in the world.
In its 2017 disclosure to CDP, Maersk stated: “For us, having a reputation of being a responsible company that manages climate change in a credible, transparent and efficient manner may be a significant opportunity to retain current customers and attract new customers in the future…
“Already, major players like Unilever, Nike and Walmart are exploring ways to reduce the environmental impact of their supply chains and the selection of sustainable business partners and suppliers is a key factor in this work.”
Cutting emissions can also result in additional benefits, including significant cost savings. A recent CDP report found that supplying companies disclosing to CDP saved US$14 billion collectively in 2016, as a result of carbon emissions reduction activities.
An example from the maritime industry comes from Norway’s all-electric ferry. Operational since 2015, it has cut costs by as much as 80 percent and emissions by a remarkable 95 percent, compared to fuel counterparts.
Importance of disclosure
The first step to gain a competitive advantage, and identify cost savings, is disclosure. Currently only around 30 percent of shipping companies requested to report to CDP respond, versus, say, 49 percent of auto companies.
Disclosure supports much-needed visibility through the supply chain, helping inform purchasing organisations’ procurement decisions, and supporting shipping companies in communicating their efforts to reduce their environmental impacts.
As the largest source of corporate environmental data globally, we can see that businesses around the globe are well on their way to making the transition to a low-carbon economy, and are using it to their advantage.
IMO strategy aside, the momentum behind this transition is undeniable. It’s plain to see that reducing emissions in line with a 2-degree goal is ultimately the right thing to do for shipping companies now, and in our increasingly decarbonised future.