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February 27, 2009

Report Finds that Shipping Companies Face Financial Risks Due to Pollution Costs
    by Robert Kropp

Eurosif and Trucost find that investors in shipping companies are exposed to profit risks as regulatory agencies are expected to internalize environmental and health-related costs. -- A majority of the shipping companies in the MSCI All World Developed Index analyzed by Trucost, an environmental research organization working with companies, investors and government agencies to understand the impacts companies have on the environment, could face losses if they had to pay for health and environmental damages associated with air pollution from their operations.

Visit the
Prospectus Ordering CenterThe report on the shipping sector, published in cooperation with Trucost by the European Social Investment Forum (Eurosif), a European non-profit entity dedicated to addressing sustainability through the financial markets, warns that investors are exposed to profit risks from air pollution costs incurred by shipping companies that delay or cancel investments in cleaner, more efficient vessels. Regulatory agencies such as the European Commission are expected to internalize environmental and health-related costs into transport pricing to help make the sector more sustainable.

Merchant shipping CO2 emissions are currently estimated at 1.12 billion tons, which equal 4.5% of global emissions and are almost twice the amount emitted by airplanes. Global CO2 emissions from shipping are projected to rise by 30% to 1.5 billion tons by 2020. Ship engines also emit 15% of global nitrogen oxide (NOx) emissions annually, which contribute to smog and acid rain.

Trucost calculates that the combined external damage costs for air pollutants emitted from the shipping operations of the 11 companies studied in the report amount to $9.85 million. The environmental damage costs of air pollution from the transport sector in Europe could total $268 billion by 2020.

If these and other damage costs were internalized, they would reduce the companies' combined earnings before interest, tax and amortization (EBITDA) by 69%.

In addition to air and marine pollution, other areas of financial risk associated by the report with the shipping industry include ship recycling, waste management, and seafarers' working conditions.

The report recommends that shipping companies manage their environmental impacts by such means as switching to cleaner fuels, using shore-side electricity in ports, and recycling of scrapped vessels by green facilities.

Carbon-efficient shipping companies stand to gain from shifts in freight away from carbon-intensive air transport, according to the report. However, lack of environmental disclosure by shipping companies in Europe makes it difficult for investors to assess which companies present the greatest carbon risks or opportunities. Of the 11 companies studied in the report, only four report air pollution emissions.

The report notes that 28 freight carriers, cargo shippers and multinational manufacturers have joined a Clean Cargo working group that is dedicated to integrating environmentally and socially responsible business principles into transportation management.

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