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29th October 2015

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Neville White, head of Socially Responsible Investing Policy and Research at EdenTree

EdenTree: Amity insight on shipping

Neville White, head of Socially Responsible Investing Policy and Research at EdenTree, discusses the investment opportunities and responsible investing issues to be found in the global shipping sector.

Although we are rarely aware of them, ships are omnipresent, with the world economy highly dependent on them. Shipping meets approximately 85-90% of the global demand for transport, with more than 55,000 merchant ships, registered in 150 nations, carrying and transporting 8 billion tonnes of cargo annually.

The modern shipping industry comprises many interwoven components – from shipping lines and owners to ports management, brokers, marine insurers and support services. So there are any number of possible investment opportunities, but shipping also represents several environmental and social impacts, which are of interest to the ethical and responsible investor:

End-of-life ship breaking

The average life span of a ship is 30 years, with about 750 ocean-going ships decommissioned and scrapped annually. 95% of a ship's mass is steel and 97% is recyclable. Whereas ships used to be broken up in their home ports, 85% are now taken to Asia and, until recently, there has been very little health and safety or environmental protection in the process. The International Maritime Oranization (IMO) has now produced a Convention for Safe and Environmentally Sound Recycling of Ships, which attempts to ensure 'green' breakage and recycling, with no risk to human health. Each vessel is now required to have an inventory of hazardous substances, and responsible owners have committed to ending 'beaching' as an end-of-life route.

Climate Change

Shipping is the only sector without a cap on emissions at EU level, placing all responsibility on the sector to improve efficiency. It accounts for about 3% of global GHG emissions, or 400 tonnes a year. However, since 1990, shipping emissions have increased by 90% and, under a 'business as usual' scenario, could account for 10% of global emissions by 2050. The IMO response has been the introduction in 2011 of the Energy Efficiency Design Index, the first globally binding climate change standard for the industry. This requires newly commissioned ships to become more energy-efficient, with ships built after 2014 having 10% improved efficiency, rising to 30% for ships delivered after 2024. The IMO is also beginning to regulate black carbon by phasing out low-grade fuels and via the introduction of low Emission Control Areas, such as the Baltics.

Human rights and piracy

Shipping companies have become increasingly involved in 'migrant risk'. Several thousand deaths have occurred in Mediterranean waters in recent years and, as Maritime Law obliges ships to respond to rescue calls, the sheer numbers involved have become a safety risk for the rescuers too, increasing the danger. Piracy too has become a significant human rights risk, particularly for charterers navigating the Horn of Africa. Liners have been consistently targeted and the pirates are now operating over extensive distances. While container ships are generally safer, they are not immune from attacks. Solutions are challenging and have been met by international naval patrols and wider convoy protection.

Labour and employment

Shipping is a major source of employment, but standards can be poor. The cruise industry has been dogged by persistent allegations of 'sweatshop' conditions. Labour issues typically include: insecure contract terms, low wages, long working hours poorly regulated, little union or collective bargaining representation, inability to leave ship as passports routinely 'surrendered'. The IMO has responded with a single comprehensive rights and protection formula for seafarers globally, which sets out minimum requirements for working conditions.

Conclusion

Some areas of the sector are not investible on ethical grounds (defense and some areas of fishing) and others, despite the size of fleet, have little or no investment scale (ferries). However, the sector remains a diverse and vibrant arena in which to seek investment returns. We believe shipping is one to watch. We currently have holdings in some ports and builders, shipping lines, support vessels, brokers, cruise lines and technology companies across our funds.

EdenTree Amity UK is Elite Rated by FundCalibre.


Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Neville's views are his own and do not constitute financial advice


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