Using ESG Reporting to Decommodetize and Drive Change in the Maritime Industry
The maritime industry is responsible for transporting 90% of global trade and accounts for around 3% of global CO2 emissions. The industry is facing increasing pressure to reduce its environmental impact, and various approaches can be taken to achieve this. In recent conversations with two shipping company CEOs, I thought about the potential use of ESG reporting to decommodetize and drive change within the industry.
Scope Reporting in ESG Frameworks
ESG (Environmental, Social, and Governance) reporting is a way for companies to disclose their environmental and social impact and corporate governance practices. When reporting on emissions, companies use different scopes of emissions.
- Scope 1: Emissions from the company's direct operations, such as fuel combustion in boilers or vehicles.
- Scope 2: Emissions from the consumption of purchased electricity, heat, or steam.
- Scope 3: Emissions made by others to make the company's operations possible, such as shipping components or commodities.
The focus of the discussion was on Scope 3 reporting and how it could be used to decommodetize the shipping of commodities market. This market is heavily driven by commercial pressure, and inefficiencies within the industry regarding emissions are largely due to this commercial pressure.
Decommodetizing the Shipping of Commodities Market
Scope 3 emissions reporting could be a way to decommodetize the market. This would involve highlighting the emissions of a particular cargo during its shipping and its impact on the end customer's ESG reporting.
For example, if a cargo was shipped in a way that resulted in lower Scope 3 emissions, this could be reflected in the end customer's ESG reporting. This would incentivize shipping companies to find more efficient and environmentally friendly ways of transporting goods.
By decommodetizing the market, the industry could move away from the current commercially driven approach and focus more on sustainable practices. This could lead to greater efficiency and lower emissions overall.
Using a Common Language to Drive Change
I also noted that the industry needs to have a unified voice (see conversation with Yngvil) and agree on the direction it wants to take. This can be challenging, as there are many different players involved, each with their own commercial pressures and priorities.
The use of ESG reporting and Scope 3 emissions could provide a common language and framework for driving change in the industry. By making the environmental impact of shipping more visible and tying it to the end consumer's reporting, the industry can create a monetary incentive for companies to adopt more sustainable practices.
Conclusion
The maritime industry is facing increasing pressure to reduce its environmental impact, and various approaches can be taken to achieve this. The use of ESG reporting and Scope 3 emissions could provide a way to decommodetize the shipping of commodities market and drive change in the industry. By using a common language and framework, the industry can create a monetary incentive for companies to adopt more sustainable practices, leading to greater efficiency and lower emissions overall.
