Sustainability Areas for the Marine and Offshore Industry

Sustainability is now an accelerating global trend.  A slew of new legislation and regulations are pushing businesses and some entire industries towards sustainability.  Ambitious targets are set for decarbonisation, energy efficiency and zero emission.  Regulations, carbon pricing, public sentiments and global competition are pushing oil majors and shipowners to adopt higher sustainability standards.  Their suppliers and subcontractors risk losing their market competitiveness if they fail to meet the increasingly stringent ESG criteria.  Therefore, local companies must take the sustainability trend seriously.  They should start studying the sustainability areas that will have a big impact on their market competitiveness in the near future.  Urgent actions must then be taken to mitigate those risks identified.  The Singapore Government has already rolled out a suite of support programmes, grants and financing to help local companies make the transition.

The Regulatory Imperative

Since the 2016 Paris Agreement, many countries and international organisations have passed legislation and industry regulations to push for sustainability and climate actions.  The International Maritime Organisation (IMO) also has an ambitious strategy to cut shipping emissions and achieve net zero by 2050.  IMO also mandates new energy efficiency standards under MARPOL EEDI and EEXI regulations.  Shipowners and ship managers atop the marine industry value chain have to keep up with stricter IMO regulations.  These regulations cover emission targets, energy efficiency, carbon intensity, maritime pollution and maritime safety.  For the offshore industry, the oil majors and main contractors are facing huge pressures and even litigation from the public and investors to do more.  All these will greatly impact the market competitiveness of their contractors, subcontractors and suppliers in their global supply chains.  Local companies in the marine and offshore industry must take urgent actions to mitigate these risks.

Scope 3 Emissions

More large marine and offshore companies are legally required to start reporting on their Scope 3 Emissions.  In 2023, Seatrium started to report on its Scope 3 emissions, which constitute 78% of its total emissions.  Local companies will find themselves increasingly uncompetitive against their peers who had taken sustainability actions early to reduce their carbon footprint.  Large companies in every industry now face increasing public scrutiny of their choice of suppliers and contractors.  Unilever had to publish a list of their palm oil processors and invest in technologies to trace their supply sources.  Take steel for example – Seatrium, the largest marine and offshore group in Singapore, used 1,031,715 metric tonnes of steel products in 2023.  Steel products from China are currently very competitively priced.  However, this can change significantly once emissions are factored in and priced in with carbon tax.  This is because Chinese steel is mostly produced by the blast furnace method.  This method can produce 2.5 times more CO2 compared to the Electric Arc Furnace method.  Local stockists would have to be more discerning about where they source their steel and how they were produced.

The Carbon Tax

The Singapore Carbon Tax applies to all industrial facilities with an annual direct GHG emissions of at least 25,000 tonnes of carbon dioxide equivalent (tCO2e).  It started at S$5 per tonne from 2019-2023 and raised to S$25 per tonne for 2024-2025.  It will be increased again to S$45 for 2026-2027 and projected to reach S$50-$80 per tonne by 2030.  This is a significant cost, especially when priced into high-volume purchases of carbon-intensive industrial products like steel, paints, petrochemicals and gases.  Seatrium has initiated an internal carbon price in 2024 to drive its GHG emission reduction targets for Scope 1 and Scope 2 emissions.  The company may also need to start buying carbon credits to meet its 2% decarbonisation goal.  Pricing carbon emissions into contracts and purchases will thus directly impact a seller’s market competitiveness.  The carbon tax is another strong impetus for local companies in the marine and offshore industry to embark on their sustainability journey.  A good start would be to assess the carbon footprint of their products and services.

The Digitalisation Boost

Digitalisation is necessary to support data collection, analysis and reporting on sustainability activities and relevant metrics.  Data platforms can be used to automate a seamless, traceable and efficient ESG workflow by aggregating data across the supply chain.  The platform can also be extended to suppliers upstream and stakeholders downstream for their inputs to improve Scope 3 emissions reporting.  The platform can also serve as the foundation for better data collection and management through Internet of Things (IoT) tools and apps.  These technologies enable real-time monitoring, feedback and remote management.  Artificial intelligence can also be used to enhance data analysis, reporting, energy management and asset optimisation through cloud and 5G connectivity.  The data platform can also support an Energy Management System (EMS) with real-time monitoring and management.  A digitalised EMS will greatly improve energy efficiency, reduce energy wastage and reduce the carbon footprint across all its buildings and facilities.  Strong IT infrastructure is critical to ensure data security and privacy while enhancing visibility, corporate governance, risk management, compliance, controls and business resilience.

Disclosures and Reporting Sustainability

As large companies like Seatrium expand their sustainability disclosure and reporting scope, their suppliers and subcontractors must also be able to support them.  This requires new skills which current employees may lack so it is vital to start training and upskilling them.  A comprehensive structure for the collection of data throughout the supply chain is required to capture, analyse, report, store and retrieve these data.  This may require restructuring the reporting structure and reorganising workflows and processes.  An organisational structure rebuilt for sustainability will improve visibility to Management, strengthen corporate governance, improve risk management and accountability.  These companies must also be ready to subject themselves to more external audits and data verifications from their customers.