What Is Sustainable Shipping?

Sustainable shipping refers to the practice of reducing carbon emissions and environmental pollutants that are typically the result of maritime shipping and transportation.

Although maritime shipping tends to have a lower carbon footprint than shipping via air, rail, or road, it still accounts for about 2.1% of global CO2 emissions because most vessels still rely on fossil fuels. In addition, shipping via the ocean is responsible for pollutants such as nitrogen oxides, sulfur oxides and particulate matter.

Sustainable shipping practices seek to reduce greenhouse gas emissions through fuel efficiency, use of renewable energy sources, and redesigning ocean-going vessels of all types. The use of sustainable packaging and containers also plays a role in sustainable shipping.

Why Does Green Shipping Matter?

In light of global warming trends, the need to reign in greenhouse gases from all sources has emerged as a priority across industries, and shipping is no exception.

Investors who take an interest in green investing goals are likely aware that shipping emits a small but significant amount of the world’s CO2, which contributes to global warming, ocean acidification, loss of biodiversity, and climate change.

In addition to these emissions, shipping can cause air and water pollution, harm wildlife and destroy habitats through dredging, collisions, oil spills, and vessel routes.

Green shipping practices matter because they may help mitigate some of these climate risk factors. Sustainable shipping may also help protect the oceans themselves, which have long been part of the earth’s natural system for absorbing excess carbon dioxide.

Also, making maritime vessels more energy efficient and sustainable overall has certain business implications. Green shipping practices may help shipping companies lower operational costs and become more competitive, perhaps generating some reputational benefits as well.

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Green Shipping Initiatives

Mirroring socially responsible investing (SRI) trends across many industries today, the maritime shipping sector has seen a steady interest in making shipping more environmentally responsible. Consumer demand for greenhouse gas emissions reduction and decarbonization has accelerated in recent years, which has put pressure on the shipping and transportation sector, and created some momentum.

New Technology, New Targets

For example, the International Maritime Organization (IMO) has set a target of reducing carbon emissions from global shipping by 50% by 2050 versus 2008 levels. Reaching this ambitious goal will require the development and implementation of zero-carbon vessels by 2030, according to the World Shipping Council (WSC).

To accelerate what is in effect a technological revolution in shipping, WSC itself has proposed a $5 billion research and development program that would be funded by key players in the industry.

The Role of Financial Institutions in Green Shipping

Financial institutions are likewise finding ways to get on board with green shipping. For instance, 35 financial institutions have adopted the Poseidon Principles, a framework designed to meet the decarbonization goals of the International Maritime Organization (IMO). Collectively the 35 signatories represent 80% of the global portfolio of ship financing.

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Barriers to the Adoption of Green Shipping

Although there is considerable interest in reducing greenhouse gas emissions in the shipping industry, there are also barriers that make implementation difficult. There can be hurdles when it comes to investment and financing in green shipping options, as well as challenges around ESG reporting and sustainability targets.

Some examples:

•   Maritime shipping vessels are expensive, making it hard for companies to build or switch to new ones with lower carbon emissions. Also, there are emissions associated with manufacturing new vessels, canceling out a certain amount of the emissions reduction.

•   Shipping is a cyclical and volatile market, making it hard to have a stable cash flow available for investment into decarbonization.

•   The cost of R&D and developing new technologies to make shipping more sustainable is often high, and there’s no guarantee of commercial adoption.

•   There is an increased shipping demand in developing countries, but it’s more difficult to get financing for green shipping. Investments in green shipping in developing nations tend to come with currency risks, cash flow risks, and other potential risk factors.

•   The shipping sector has traditionally kept its data private, but stakeholders are now demanding more data and sustainability disclosures. Given the inconsistencies of ESG disclosure frameworks, it remains difficult to assess progress in terms of sustainability factors, and thus instituting regulations for widespread adoption is challenging.

•   There is a lot of focus on easy or short-term improvements, such as using renewable energy, but less focus on the harder areas to decarbonize, such as steel and concrete production, which are material to vessel manufacturing and port construction.

•   Used vehicles and vessels are often sent to developing countries. So although developed nations may be adopting lower-emission vessels, those high-emission vehicles may still be in use.

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What Is Sustainable Packaging?

Sustainable packaging refers to the shift away from materials that are considered toxic for the environment (e.g., traditional petroleum-based plastics, non-recyclable cardboard, styrofoam), toward recyclable, reusable, and biodegradable types of packaging.

Sustainable packaging can include:

•   Recyclable packaging such as paper, glass, and recyclable cardboard.

•   Packaging made from reusable materials like recyclable paper, bamboo, wood, and others.

•   Biodegradable and compostable materials like polylactic acid (PLA)-based bioplastics, often made from corn, potato, and other organic substances that biodegrade.

Why Sustainable Packaging Matters

Reducing carbon emissions is challenging in any industry owing to the various channels, direct and indirect, that can contribute to emissions. For example, the use of packaging in the shipping sector is also responsible for various types of waste and pollution.

First, because traditional packaging materials are often not biodegradable or recyclable they can add to the environmental impact of maritime shipping and other industries. While it’s nice to imagine a container ship sailing from one port to another, loading and unloading goods without any mishaps, accidents can and do occur — putting plastics, styrofoam, and other toxic materials in waterways.

Also, some materials and packaging that are labeled as recyclable or compostable don’t really get recycled, and can only degrade under specific conditions.

Thus, sustainable packaging may offer additional benefits to the shipping industry, in that recyclable and biodegradable packaging options may support greater efficiency in shipping products overall.

Sustainable Packaging Initiatives

The good news is that there are proposals to increase transparency in packaging labels, as well as the development of new materials and packaging options that are more environmentally friendly. Some ways that packaging can become more sustainable are:

•   Transparent labeling

•   Eliminating single-use plastic from packaging

•   Removing toxic chemicals such as dyes, fragrances, and solvents

•   Shipping in bulk when possible

•   Switching to refillable packaging options

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Opportunities in the Green Shipping Sector

Individuals interested in ESG investing strategies can explore various investment options in the green shipping sector. Categories of green stocks to look for within the shipping sector include:

•   Low- or zero-emission fuels such as green hydrogen, biodiesel, ammonia, and methanol

•   Renewable energy technologies such as solar energy and wind energy.

•   Exchange-traded funds (ETFs) and index funds that are focused on sustainable or ESG investments.

•   In addition to investing in stocks and ETFs, choosing consumer or commercial end products from companies that are embracing sustainable or ESG principles.

•   Investing in companies that use sustainable packaging, such as recycled packaging and alternative materials to plastic.

•   Investors looking for fixed-income options can consider green bonds.

The Takeaway

As one of the biggest sectors in the world, there are both significant challenges and opportunities for green shipping and decarbonization of transportation. As an individual, you can participate in green shipping by investing in companies working to embrace sustainable fuel, technology, infrastructure, and supply chain alternatives.

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