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Financial institutions buying into mandate for safer shipbreaking practices

Financial institutions buying into mandate for safer shipbreaking practices
Matt Miller | Apr 23 2018

In January, Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, announced it would stop investing in four shipping lines. The reason for such drastic action: The ship owners sell their vessels for scrapping that relies on what critics maintain are dangerous and polluting shipbreaking methods in Pakistan and Bangladesh.

Environmental groups applauded the move, a relatively rare victory in a longstanding fight against these common shipbreaking practices on the beaches of South Asia, where some three-quarters of the world’s annual shipbreaking is still performed in conditions one trade union called “the world’s most dangerous job.”

“It sends out a strong signal to all financial institutions to follow suit,” said Ingvild Jenssen, founder and director of the Shipbreaking Platform, a non-profit organization that monitors shipbreaking and lobbies for environmental improvements in the practice.

Beaching refers to running ships aground at high speed when the tide is high, “docking” the ships on the beach so they can be cut up when the waters recede. The practice divides the industry and those involved in shipping in general.

Critics believe that targeting ship owners may be one way to successfully pressure for change, even if owners sell their ships to intermediaries who do the actual contracting with the yards.

“In the end, it will be a lot of moral, ethical and hopefully financial pressure applied to ship owners, in particular for them to realize they have the potential of being the pariahs of the western world if they carry on operating the way that so many of them do,” said Martyn Day, senior partner at the London law firm Leigh Day. “It’s clear from what we have seen that profit remains the main driver for the ship owning companies and that when they pass on their ships to their intermediaries, they often seem to be totally aware of what’s going to happen to those ships. The ship owners have a big role to play and bear a significant amount of the responsibility of what goes on.”

Day’s firm represented a Bangladeshi worker who lost a leg in a 2015 accident in a Chittagong shipbreaking yard, when a 40-ton ship propeller bounced off a metal platform. Through Day, the worker sued London-based Zodiac Maritime, which owned the ship before it was sold for cash to an intermediary, which in turn contracted with the Ferdous Steel Corp. shipyard in Bangladesh. According to Day, his client settled with the ship owner late last year. The terms of the settlement are confidential.

Supporters of the industry in South Asia, including some of the major cash buyers of ships, counter that yards shouldn’t be automatically excluded for beaching. “Environmentally sound recycling does not depend on the method of docking ships, and it is possible at all major recycling locations including the Subcontinent countries,” wrote Kanu Priya Jain, in an email. Jain is the business coordinator for responsible ship recycling at GMS, which claims to be the world’s largest cash buyer of ships destined for scrapping. He claims his company is the first “amongst competitors to have developed a responsible ship recycling program in Indian yards.”

Environmental groups maintain that beaching by definition is hazardous, adding that worker conditions in the subcontinent are substandard and prone to abuse. “Beaching a ship and scrapping a ship in intertidal areas in India, Pakistan and Bangladesh cannot be seen as environmentally and socially responsible,” said Nicola Mulinaris, the communications and policy officer at Shipbreaking Platform.

A few ship owners have begun to heed the call for industry reform. These lines include Canadian Shipping Line, Hapag Lloyd, Grieg Group, Wilhelmsen Group and Boskalis, all of which follow “sustainable ship recycling policies,” according to Shipbreaking Platform. In addition, European banking institutions have begun to demand that shipping lines have a clear shipbreaking policy in order for ships to be financed. Dutch banks ING, NIDC and ABN Amro and Scandinavian DNB announced the measure last year.

Multilateral policies have attempted to bring pressure as well on the various players. In 2009, the International Maritime Organization (IMO) drafted what is called the Hong Kong Convention. This seeks to insure ship recycling doesn’t pose “any unnecessary risks to human health, safety and to the environment.”

However, not enough countries have ratified the agreement for it to be enforceable, Some Indian yards qualify for inclusion as being compliant, but only one yard in Bangladesh qualifies and none do in Pakistan. According to Jain, some 25%-30% of ships are now recycled through “compliant practices.” The convention doesn’t prohibit beaching per se. And, critics charge, the convention lacks teeth.

“We consider the Hong Kong convention as the first step in the wrong direction,” said Mulinaris. “The enforcement of the regime relies on states and on recycling states, which have no interest in changing current standards.”

By the end of this year, the European Union will begin enforcing strict standards for the recycling of ships flying EU flags. The EU requirements are far more exacting than those sanctioned by the Hong Kong Convention, with regulations requiring facilities to have impermeable floors. Recycled materials can’t come into contact with either the sea or permeable surfaces such as sand. This, in effect, prohibits beaching.

However, the EU can’t prevent these ships from being reflagged before being scrapped, which is common practice in the trade and is something critics believe to be a huge loophole in the new regulation. As it is, only about 5% of the ships recycled globally carry an EU flag, according to Shipbreaking Platform.

“The regulation is a good first step, but it’s not sufficient,” said Mulinaris, who advocates adopting a recent study that recommended requiring a recycling license for all ships calling on European ports.