By Mikkel Holbæk Mørch, Tobias Brunsgaard Børglum, and Prof. Kristjan Jespersen
The shipping industry plays a vital role in global trade, but its environmental impact cannot be ignored. The sector contributes a significant share of greenhouse gas emissions, posing a risk to the objectives of the Paris Agreement. While global measures to reduce emissions in the maritime sector have been slow to materialize, shipping companies are recognizing the need for more ambitious sustainability strategies. This blog post summarizes the key findings of a master’s thesis exploring the role of emissions reporting in the shipping industry, highlighting the risks of non- compliance with stakeholder expectations and the opportunities it presents for shipping companies.
The Growing Importance of Emissions Reporting
Stakeholders across industries are increasingly expecting companies to disclose sustainability information and targets. This reporting allows financial institutions, industry customers, regulators, and other stakeholders to understand and benchmark company performance. The shipping industry has historically been resistant to disclose company-specific data; nevertheless, the industry is now facing rising stakeholder pressures to increase its transparency. However, the academic discourse on emissions reporting in the maritime sector is still limited, with a lack of research concerning emissions reporting’s impact on shipping companies’ modus operandi.
Understanding the Role of Emissions Reporting
To investigate the role of emissions reporting across the shipping industry, an emissions reporting index was compiled, consisting of the 50 largest stock-listed shipping companies globally. The index revealed variations in reporting efforts among shipping companies. Opposing viewpoints are discernible across geographical locations and shipping segments, with Northern European and companies in close proximity to the end consumer being more inclined to disclose emissions. In addition, the study employed interviews with 16 shipping companies and industry stakeholders to explore the varying reporting efforts across the industry and generate insights into stakeholders’ perceptions and expectations of emissions reporting.
Divergent Reporting Expectations
The study found a disparity in emissions reporting expectations among stakeholders. Companies are encouraged to adhere to diverse reporting standards based on their segments and geographical locations. Stakeholders exhibit divergent reporting expectations, ranging from regulatory compliance to the adoption of voluntary emissions reporting standards. However, it is challenging to impose stricter reporting requirements due to inadequate sanctions for non-compliance with stakeholder expectations. For instance, financial institutions are aiming to increase transparency across the shipping industry promoting reporting initiatives, but their effectiveness are arguably restricted as financing options remains available outside the initiatives.
Risks of Non-Compliance with Stakeholder Expectations
Non-compliance with stakeholder expectations exposes shipping companies to financial, reputational, and competitiveness risks, varying across shipping segments and geographical locations. The inadequate sanctions for non-compliance with stakeholder expectations pose a limited immediate risk to shipping companies; however, the materiality of these risks will increase significantly in the future. Neglecting emissions reporting in the short term can have adverse consequences for a company’s future competitiveness, due to risks of being a late adopter of emissions reporting.
Implications and Recommendations
The study’s findings have practical implications for shipping companies and industry stakeholders. Although non-compliance may not result in immediate consequences, companies should not disregard emissions reporting. Disclosing emissions allows companies to control their narrative, develop competencies, and improve long-term competitiveness. The potential benefits of emissions reporting must be weighed against the costs of establishing and maintaining reporting processes. In addition, given the divergent stakeholder expectations, two recommendations are proposed to create a more equitable competitive landscape. Emissions reporting efforts could be increased through a bottom-up approach in which regulatory requirements are increased, forcing stakeholders to raise their expectations. Alternatively, a top-down approach involving collaboration among financial institutions could impose appropriate sanctions on non-compliant shipping companies. This approach requires significantly more global collaboration among financial institutions than what is currently facilitated.
The Future of Emissions Reporting
The paper uncovers that emissions reporting is gradually converging towards a license to operate, as more stakeholders are demanding transparent emissions disclosure and voluntary reporting standards are becoming mandatory. It is argued that emissions reporting will become increasingly similar over time, as shipping companies are urged to adopt similar disclosure practices to maintain legitimacy and competitiveness. It is imperative that shipping companies understand the expectations of their unique stakeholder environment and not merely mimic the reporting practices of industry leaders. Furthermore, the study emphasizes that mandating uniform emissions reporting across the industry may impede companies’ ability to differentiate themselves and restrict their competitive abilities. Therefore, a balanced approach utilizing both mandatory and voluntary frameworks is recommended. Concurrent application of regulations and voluntary reporting standards can incentivize stakeholders to increase expectations without compromising shipping companies’ ability to differentiate themselves.
What’s next?
Emissions reporting in the shipping industry is gaining prominence as stakeholders demand more transparency and accountability. Although challenges exist in meeting divergent stakeholder expectations, shipping companies must recognize the risks and opportunities associated with emissions reporting. By embracing transparency and sustainability, companies can enhance their long-term competitiveness and contribute to a more sustainable maritime sector.
About the authors
Mikkel Holbæk Mørch is a Data Analyst at the product tanker company Hafnia BW. He is currently positioned in the Pool Management department, where his focus is centered on data analysis pertaining to the performance aspects of vessels as well as algorithmic modelling of pool earnings. He recently obtained his master’s degree in International Marketing & Management from Copenhagen Business School (CBS), where his research explored the connection between financial concepts and sustainability, particularly focusing on the shipping industry. Mikkel also holds a bachelor’s degree in Shipping and Trade from CBS.
Tobias Brunsgaard Børglum is an Investment Analyst at the alternative investment fund, Navigare Capital Partners, specializing in investment analysis and financial modeling of maritime investments. He recently obtained his master’s degree in Finance & Investments from Copenhagen Business School (CBS), where his research explored the connection between financial concepts and sustainability, particularly focusing on the shipping industry. Tobias also holds a bachelor’s degree in Shipping and Trade from CBS.
Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.