More companies are recognising the necessity of better reporting and considering how a collaborative approach can help, writes Dr Paul Stanley, the CEO of Achilles.
A combination of tightening regulation and the trend towards ESG reporting are creating market pressure for supply chain due diligence and transparency across many sectors. The maritime industry is no different.
From ports and shipyards to suppliers, shipowners and operators, organisations are increasingly seeking to understand how their partners perform in terms of labour standards, human rights and environmental protection.
Vessel owners and operators in Norway and the European Union were some of the first to come under pressure from clients and investors to comply with ethical sourcing programmes and to report on labour practices and human rights in their supply chain. Now, interest is growing in the Middle East and Asia, especially where carriers are operating assets and moving cargo for western clients.
Given the gradual spread of regulation and a desire for best practice, it is surprising how little attention supply chain due diligence has received until now.
Despite some residual cynicism around the topic of ESG in the shipping industry, vessel operators are beginning to address it with greater seriousness. However there is a need for these often internal dialogues to evolve from an arm’s length view to recognition of the near term risks.
Even where national legislation doesn’t demand detailed reporting, there is a growing desire to align with the prevailing trend. This increased awareness reflects the emergence of the issue as a reputational risk, particularly thanks to investigations by the media, NGOs and IGOs.
Beyond the baselines of the OECD best practice framework and ISO standards, the primary driver to the increased focus on reporting are two European Union instruments, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD).
The related ESRS reporting index will introduce new rules for maritime companies to report on their social and environmental credentials.
The measures are estimated to affect 50,000 companies globally and are already in force for qualifying EU-domiciled businesses. The EU has given until 2028/29 for non-EU companies that do business in the EU to meet its requirements.
Other countries with whom the EU is a major trading partner are developing similar requirements and aligning them with the directives. Nations including Canada, Australia and Singapore have either enacted or are considering regulations, while others have developed voluntary guidance on due diligence from a human rights perspective.
For some actors in the industry, the desire to look closely at their supply chain is tempered by the understandable concern about what they may find.
Audits conducted by Achilles have uncovered troubling conditions at construction and repair facilities in the Middle East and Asia. Facilities in these regions commonly employ migrant labour recruited through agencies and abuses have included debt bondage, passport retention and even forced labour.
In some cases, companies are paying lip service to the issues. Many have a modern slavery statement on their website and they probably believe this indicates they are taking the issue seriously.
A well drafted statement could run to 20 or 30 pages. We know of at least one maritime company whose statement extends to just two pages.
Highlighting the issue in a July 2024 publication, maritime lawyers Norton Rose Fulbright noted that: “The maritime shipping industry remains an area of high modern slavery risk given the vulnerabilities of seafarers, recognised as among the most essential yet vulnerable working populations in our global economy. These vulnerabilities are exacerbated by the fragmentation of regulatory oversight among flag states, limited visibility of conditions on board, complex supplier arrangements and practical limitations on effective enforcement of working standards.”
The truth, as anyone familiar with the shipping industry knows, is that standards vary widely, whether by flag state, vessel operator, port or inland carrier. Some sectors, including fishing fleets have become regular targets for activists concerned about the treatment of workers based on historic issues of abuse.
It can be easy to underestimate the due diligence required for ESG and supply chain reporting and across a large fleet. What appears a simple process can quickly become unwieldy. Internal and external audits are a continuous source of pressure and stress both for suppliers and buyers – in part because there are no agreed standards.
The vast majority of companies employ a manual onboarding process using spreadsheets, since legacy purchasing systems do not support the full breadth and width of the data sets required, including sanction checks.
Often the forms designed to gather information from suppliers include poor levels of data quality, lack detail or contain no questions about environmental performance or labour practices.
Service providers are typically asked to disclose supply chain data multiple times by different clients. In a cost-sensitive trading environment it makes little sense to duplicate this effort, wasting both time and money.
Even some of the largest companies are not doing as well as they might. But by sharing data with a neutral third party there is an opportunity to improve reporting for buyers and suppliers alike. By recognising the scale of the challenge, this can be done in a collaborative way that generates a wider industry benefit.