ESG Focus: Global Shipping, Disrupted Disruptor

ESG Focus | Jun 06 2019

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

ESG Focus: Global Shipping, Disrupted Disruptor

-International Maritime Organisation slashes sulphur limits in shipping fuel by 85% starting January 1, 2020
-Shipping, oil refineries, aviation, road transport and coal will be hardest hit
-Domestically, Australian LNG and coal exports to feel the repercussions

By Sarah Mills

It’s life Jim but not as we know it.

These iconic words from Star Trek’s Mr Spock could easily apply to the investment environment over the next two decades as environmental, social and governance (ESG) considerations bite.

ESG has, up until now, been a largely abstract concept, with the exception of sharply deteriorating funding for the coal industry.

But the world is about to feel the first shock of environmental regulation when the International Maritime Organisation’s (IMO’s) new limits on sulphur in shipping fuel come into effect on January 1, 2020.

Limits on sulphur fuel in ships slashed 85%

Under MARPOL Annex VI regulation 14.1.3, IMO has mandated an 85% reduction in sulphur levels in shipping fuel to 0.5% weight from the existing 3.5% weight. 

IMO has also banned the carriage of non-compliant fuel after March 2020, to stop ships switching fuel at sea. Ships will be inspected going in and out of port.

It is the largest sulphur reduction undertaken in one step in the transportation sector’s history.

Global impact

Global shipping has long been a sink for dirtier crudes, and the implications will be far reaching.

The shipping industry is responsible for half of global high-sulphur fuel demand, according to Forbes; and accounts for 80% of international trade, at least 3% of global emissions and 10% of global transportation oil demand, according to HSBC.

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