Insight: Shipping's financiers turning the tide on shipbreaking practices
15/05/2018 06:30
* Most old commercial ships broken on beaches of South Asia
* Beaching criticised for endangering workers, polluting
* Financial backers looking at scrapping more closely
* EU compiling list of approved ship-breaking yards
* GRAPHIC: http://tmsnrt.rs/2pDHaBR
By Jonathan Saul and Simon Jessop
LONDON, May 15 (Reuters) - The shipping industry has long
been criticised by campaigners for allowing vessels to be broken
up on beaches, endangering workers and polluting the sea and
sand.
Now, it is being called to account from a quarter that may
have a bit more clout - its financial backers.
Norway's $1 trillion Oil Fund, a leader in ethical
investing, in February sold its stake in four firms because they
scrap on the beach.
Three of the firms excluded by Norway's fund - Taiwan's
Evergreen Marine, Precious Shipping PSL.BK and Thoresen Thai
Agencies (TTA) TTA.BK of Thailand - say they have been
unfairly singled out. The fourth, Korea Line 005880.KS ,
declined to comment.
Norwegian life insurer KLP soon followed, selling shares in
the one of the four it owned and blacklisting the other three.
Further exclusions are likely, said KLP, the fund and its
advisory Council on Ethics. The council's chief adviser, Aslak
Skancke, said the divestments had already effected wider change,
including encouraging companies to seek cleaner scrapping.
The fund contacted several firms in its portfolio during its
investigation, Skancke said, "and when we made them aware of the
possibility of exclusion from the fund, they ... decided to
change their policy." He declined to name the companies.
Three leading pensions funds - Caisse de Depot, CCP and
OMERS - are reviewing their investments in shipping over ethical
and green considerations, a finance source familiar with the
matter said. OMERS declined to comment. Caisse de Depot and CCP
did not respond to requests for comment.
The steps add to momentum on the issue from European Union
regulators and courts, in particular pressure to measure up to
standards for inclusion on the EU's list of approved
ship-breaking yards, which is due to be updated later this year.
It's a revolution that has been a long time coming,
environmental, labour and human rights activists say. But a
transition won't be easy, for owners or breakers.
More than 80 percent of ageing commercial ships are broken
up on the beaches of Bangladesh, Pakistan and India. Industry
leaders in South Asia say they cannot afford to upgrade their
sites and remain competitive.
And not all beaching is the same. In its most criticised
forms, workers cut up ships with little more than their hands
and blowtorches, with parts and pollutants dropping directly
onto the sand. Other sites have cranes, impermeable surfaces and
safety standards for workers and equipment.
"No one has ever really been able to come up with a
reasonable definition" of beaching, said John Stawpert, manager
for environment and trade at the International Chamber of
Shipping, which represents most of the world's merchant fleet.
"If there was to be a blanket ban on 'beaching' there would
be a very, very serious capacity problem because there is
nowhere else big enough to deal with it at the moment," he said.
Beaching in South Asia also pays more, an important
consideration as the shipping industry emerges from a decade in
the doldrums due to over-ordering of ships and slowing global
trade, 90 percent of which is transported by sea.
Financial sources estimate shipping companies face a $30
billion funding gap in 2018, because even though the business is
recovering, they are still not getting enough money from banks
who are constrained by stricter capital requirements.
Commerzbank has said it will exit shipping financing and
invest its capital elsewhere; others, such as Deutsche Bank, say
they aim to cut their exposure to the sector.
FINANCING
Leading Dutch shipping finance houses ABN AMRO ABNd.AS and
ING, Sweden's Nordea NDA.ST , Norway's DNB DNB.OL and
Denmark's Danske Bank DANSKE.CO , as well as the Netherlands'
NIBC, say they are taking a hard look at their borrowers'
policies.
"We believe actors that do not take the environmental and
social risk seriously will have problems accessing capital
markets in the future," said Kristin Holth, DNB's leader for
Ocean Industries.
Most of the 18 institutional investors contacted by Reuters
said they preferred engagement to divestment, at least at first.
Sasja Beslik, head of group sustainable finance at Nordea,
said the bank had "no issue with divestments - we've done that
over the years and are not afraid of doing that."
But he added that in the case of ship breaking, the approach
for now was to encourage companies to "take responsibility".
A spokesman for ABN AMRO said in a statement if clients did
not comply with the bank's sustainability policies, there would
be "a phase of engagement".
"If engagement is without result, the ultimate consequence
is that the relationship with (the) client will be ended," he
added.
Europe has a powerful voice as the world's second-largest
ship-owning region after China, with an estimated $301 billion
worth of tonnage, according to valuation company VesselsValue.
The EU's decision to draw up a list of approved
ship-breaking yards in December 2016 was the first regulatory
step with real teeth; the Hong Kong Convention on recycling
drawn up in 2009 does not take a position on beaching and has
only a handful of signatories so far.
Courts in Europe are playing a role, too. In March, Dutch
company Seatrade and two of its directors were found guilty of
violating rules banning the transport of waste from the EU to
India when it sailed ships there to have them demolished, one of
the first criminal cases of its kind. ID:nL8N1QX7GF
The case "sets an important precedent", said Ingvild
Jenssen, founder and coordinator of NGO Shipbreaking Platform, a
coalition of environmental, human and labour rights
organisations formed in 2005 which has mapped out direct links
between shipowners and beaching operations.
Skancke said Shipbreaking Platform's work played an
important role in its decision to divest.
BEACHING
In beaching, ships are run to ground in inter-tidal areas
that would normally teem with sea life.
Oil, sludge, paint chips and slag can get washed out to sea
with the tide, environmental and rights campaigners say. Other
toxic materials, like asbestos, get absorbed into the sand.
The yards - centered in Pakistan (mainly Gadani), India
(Alang) and Bangladesh (Chittagong) - employ tens of thousands
of people, of whom dozens are killed each year, the campaigners
say. An oil tanker blast in 2016 in Gadani killed at least 26
workers and injured dozens.
Government officials and shipowners say conditions have
improved significantly in recent years.
"From the day of the (Gadani) accident until this day
improvements have been brought at the yards, like working
conditions," Hashim Gilzai, the government commissioner with
administrative control over the yard, told Reuters.
Bangladesh passed regulations in January to upgrade
facilities and impose tougher penalties, said Shamsul Areefin,
additional secretary with the ministry of industries.
The challenge was how to put expensive infrastructure in
place while remaining cost competitive, said Nitin Kanakiya,
secretary of India's Ship Recycling Industries Association.
"We cannot afford these huge capital investments," he said.
"And if we invest this much, our economic significance will go
away."
FUND'S METHODS DISPUTED
Taiwan's Evergreen, one of the four firms excluded by the
Norwegian fund, said it "specifically demanded" that vessels be
broken up at certified green recycling shipyards. TTA said it
was compliant with all international rules and regulations.
Khalid Hashim, managing director of Precious Shipping, one
of Thailand's largest dry cargo ship owners, disputed the way
the fund was going about its goal because it would be easy to
sell ageing ships to third parties before their end of life.
"In that case we would be whiter than the snow that falls in
Norway but the buyers of our ships would, a few years later,
scrap the ships at the beaches of the Indian sub-continent."
Skancke said the fund's actions were just the beginning of a
process, starting with Pakistan and Bangladesh.
"Now the question remains, can you still do this in a
responsible manner?" he said. "And that is a question that will
have implications for how we view companies which send ships for
beaching in India."
The ICS's Stawpert said continuing improvements in South
Asia operations would allow the region to remain at the centre
of global ship-breaking.
But Shipbreaking Platform's Jenssen said that was not
possible as long as beaching continued.
"Our role is to promote clean and safe solutions and to make
sure that there is no double standard in the way the environment
and workers are protected around the world," she said.
"It is key to make sure that the surrounding environment is
not contaminated. This is impossible on a tidal beach, as is
cleaning up an oil spill."
(Additional reporting by Joyce Lee in Seoul, Stine Jacobsen in
Copenhagen, Joachim Dagenborg and Gwladys Fouche in Oslo, Syed
Raza Hassan and Drazen Jorgic in Islamabad, Ruma Paul in Dhaka
and Sudarshan Varadhan in New Delhi; Editing by Sonya
Hepinstall)
((jonathan.saul@thomsonreuters.com; + 44 207 542 4357 ; Reuters
Messaging: jonathan.saul.thomsonreuters.com@reuters.net))