Putting in place enforceable regulations and achievable means of compliance for ESG targets is the only pathway to a secure a sustainable shipping industry for the future, writes Wikborg Rein’s Laura Hyne. ESG (environmental, social and governance) considerations have gone from a ‘nice to have’ to a ‘must have’ in the maritime sector, spurred on by increasing regulation and the potential for ESG to be a commercial differentiator. While regulations specific to the maritime industry are increasingly being introduced following the introduction of the IMO’s target for the maritime industry to reach net-zero greenhouse gas (GHG) emissions by 2050, many companies may already have been complying with ESG-related regulations for a number of years. Since 2017 in the EU, certain large companies have had to comply with the EU Non-Financial Reporting Directive and disclose certain ESG matters in annual reports. As of this financial year, under the EU’s Corporate Sustainability Reporting Directive, a broader set of large companies and listed SMEs will also be required to publish yearly ESG reports. Additionally, some non-EU companies will also have to report if they generate over EUR 150 million on the EU market. In the UK, select companies have been required to make climate-related financial disclosures in their annual reports since 2022. Several regulatory bodies in the US also guide ESG reporting state side and federal laws making reporting mandatory have been proposed. Getting regulatory buy-in Experience gained from compliance with ESG reporting requirements, has demonstrated the need for a sufficient balance of both ‘carrot’ and ‘stick’ to ensure the maritime industry meets the 2050 environmental targets set by the IMO. On this front, there is still much progress to be made. A good example is the IMO’s carbon intensity regulation (CII), which has been criticised for lacking sufficient ‘teeth’ as it does not make clear exactly who or how the regulation will be enforced. It is possible that the ports of member states could refuse entry to vessels rated ‘D’ or below, but it is unclear if this will happen in practice. The CII has been equally criticised for not offering sufficient incentivisation. A ‘C’ rated vessel will be deemed acceptable, but the IMO envisages rewards being given to those vessels achieving ‘A’ or ‘B’ ratings. What those rewards will be and who they will be administered by however remains to be seen. Shipowners should be properly incentivised to improve their vessels from the acceptable ‘C’ rating to the improved, and more environmentally friendly, ‘A’ or ‘B’ ratings. Positive impact Regulation aside, those who are slow to adopt ESG initiatives may lose out commercially. For example, German shipping line Hapag-Lloyd recently won the first-ever low-emission freight tender from Zero Emissions Maritime Buyers Alliance. Big name cargo owners such as Amazon, Meta and Nike, have committed to pay for low-emission container freight for two years, starting from 2025, between Singapore and Rotterdam. Hapag-Lloyd will use its waste-based bio-LNG service to achieve this and is expected to benefit from at least a 90% reduction of greenhouse gases on a lifecycle basis relative to fossil fuel-powered service. It seems that customers (at least those concerned with their own ESG impact) are prepared to pay for sustainable shipping, the industry just needs to be able to offer it. ESG performance is also increasingly relevant for companies trying