Climate change is considered one of the most pressing issues of our time. It has also been identified by IUMI as a major concern to marine insurers. The effects of global warming are already evident and are changing the nature of the insured assets. The frequency of weather-related catastrophes has increased significantly which drives up losses and leaving some assets uninsurable. The potential impact of climate change is therefore a fundamental issue for regulators. International shipping emitted around 1,056 million tonnes of CO2 annually in 2018 and is responsible for approximately 3% of global greenhouse gas emissions. The Paris Agreement on Climate Change and the work of the International Maritime Organization (IMO) are examples of regulatory efforts to address climate change.
Actions taken by the International Maritime Organization (IMO)
In 2018, the IMO adopted an Initial Strategy on the reduction of GHG emissions from ships, setting out a vision which confirms IMO’s commitment to reducing GHG emissions from international shipping and to phasing them out as soon as possible. In July 2023, IMO adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships in accordance with the agreed programme of follow-up actions.
The 2023 IMO GHG Strategy also introduces indicative checkpoints to reach net-zero GHG emissions from international shipping, namely:
- to reduce the total annual GHG emissions from international shipping by at least 20%, striving for 30%, by 2030, compared to 2008;
- to reduce the total anual GHG emissions from international shipping by at least 70%, striving for 80%, by 2040, compared to 2008
- to peak GHG emissions from international shipping as soon as possible and to reach net-zero GHG emissions by or around, i.e. close to, 2050.
Actions taken by the European Union
The European Union (EU) is discussing its own regional legislation. On 7 July 2020, the European Parliament’s Environment Committee voted to include CO2 emissions from the maritime sector in the EU Emissions Trading Systems (ETS). The ETS covers greenhouse gases from specific activities, focusing on emissions that can be measured, reported and verified with a high level of accuracy. From 2024, the EU ETS covers emissions from maritime transport, specifically 50% of emissions from voyages starting or ending outside of the EU and 100% of emissions from voyages between two EU ports and when ships are within EU ports.
The EU ETS works on the ‘cap and trade’ principle. A cap is a limit set on the total amount of greenhouse gases that can be emitted by the ship operators covered by the system. The cap is reduced annually in line with the EU’s climate target, ensuring that emissions decrease overtime:
- 2025: 40% of emissions reported for 2024 must be covered by emission allowances
- 2026: 70% of emissions reported for 2025
- 2027 and beyond: 100% of reported emissions
The EU ETS Directive applies to cargo and passenger ships of or above 5000 gross tonnage (GT) from 2024 and to offshore ships of or above 5000 GT from 2027.
UN Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction (BBNJ)
On 19 June 2023, the UN adopted the Agreement under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction (the BBNJ Treaty). BBNJ has been the subject of decades of international negotiations and has been welcomed as a landmark agreement to protect areas beyond national jurisdiction. This means the high seas and the Area, being the sea and seabed area beyond nations’ 200nm Exclusive Economic Zone (EEZ). The BBNJ Treaty lays down a framework for managing and conserving marine natural resources on the high seas and in the Area in four key parts:
- The collection of and activities relating to marine genetic resources (MGR), such as benefit-sharing;
- The establishment of area-based management tools (including marine protected areas or MPAs) on the high seas;
- Conducting environmental impact assessments (EIAs) for planned activities in areas beyond national jurisdiction; and
- Capacity-building and transfer of marine technology.
Part II of the BBNJ Treaty sets out the framework for collecting and sharing of benefits of MGR.
The BBNJ Treaty provides an international framework for nation states to develop legislation and it is unclear how long it may take for the treaty to be ratified, thereby giving it legal force. More information can be found in this briefing.
Private sector initiatives
The Poseidon Principles for Marine Insurance (PPMI) are a framework for quantitatively assessing and disclosing the climate alignment of marine insurers’ underwriting portfolios. They have been established to engage with the shipping industry and support net-zero insurance as a main focus area. They provide a framework for transparent disclosure based on four principles (Assessment of Climate Alignment, Accountability, Enforcement and Transparency) and they are a first tangible step towards enabling hull & machinery insurers to support shipowners in reducing greenhouse gas (GHG) emissions. The PPMI were launched in December 2021. IUMI is a Supporting Partner of the initiative and encourages interested marine insurers to look into the scheme.
Illegal, unregulated, unreported (IUU) fishing
Seafood is a nutritious meal for millions of people across the world and an essential food protein in many developing countries. A major problem for sustainable fisheries management is illegal, unregulated and unreported fishing (IUU fishing). Vessels engaged in IUU fishing activities do not use legal fishing gear, do not follow fisheries management regulations and/or do not comply with regulations on quotas, fishing areas, closed seasons or prohibited species. The IUU catch is not recorded in catch registers. This is an important aspect because fishing stocks are estimated based on these registers. IUU fishing destroys marine habitats, adds pressure to fish populations that are already at risk of over-exploitation and undermines efforts to responsibly manage and protect the ocean. It exploits the natural resources of coastal nations, reduces economic opportunities and threatens food security, particularly in developing countries, and has therefore environmental and social implications.
Marine insurers can support the suppression of IUU fishing activities by refusing or cancelling insurance to vessels which have been blacklisted for involvement in illicit actions. The ocean conservation group Oceana in cooperation with UNEP FI’s PSI have engaged with marine insurers and associations including IUMI to develop guidelines to mitigate the risk of insuring vessels and companies associated with IUU fishing.
Oceana has further developed an information-sharing tool intended to facilitate and foster the exchange of information on IUU fishing vessels between companies that provide services to the global fishing sector, including marine insurers. Through the tool, companies can exchange information with other businesses on when a vessel on the official IUU vessel list of any RFMO has sought and been denied services or had services cancelled, and in addition they will be notified when new vessels get added to the IUU vessel lists. To register to the tool please visit Pull the Plug on Pirate Fishing.
A separate initiative is Vessel Viewer developed by the Ocean Risk Alliance (ORRAA). This IUU fishing risk assessment tool is intended to help insurers quickly evaluate the risk that a vessel or a group of vessels may engage in or support IUU fishing. Through the tool, insurers are able to access key information on vessel identity, behaviour and risk indicators.
IUMI supports the adoption of the Cape Town Agreement (CTA) of 2012 on the Implementation of the Provisions of the 1993 Protocol relating to the Torremolinos International Convention for the Safety of Fishing Vessels. This IMO treaty to address fishing vessel safety is not in force yet. The absence of an international mandatory regime makes effective control and monitoring of fishing vessels difficult. The CTA sets minimum requirements on the design, construction, equipment, and inspection of fishing vessels of 24 meters in length and over. The agreement further facilitates better control of fishing vessel safety by flag, port and coastal States. Swift ratification of the CTA is therefore desirable and supported by IUMI.
Plastic litter
Over 300 million tons of plastic are produced every year for use in a wide variety of applications. At least 8 million tons of plastic end up in the oceans annually. Researchers estimate a plastic leakage into the ocean in 2040 of 29 million tons. Under the influence of UV radiation, wind, currents and other natural factors, plastic fragments into small particles, termed microplastics (particles smaller than 5 mm) or nanoplastics (particles smaller than 100 nm). Marine species ingest or are entangled by plastic debris which causes severe injuries and death. Plastic pollution threatens food safety and quality, human health, and coastal tourism.
The main sources of marine plastic are land-based. However, ocean-based plastic originates primarily from the fishing industry, nautical activities and aquaculture. In 2018, the IMO’s Marine Environment Protection Committee (MEPC) adopted the IMO Action Plan to address marine plastic litter from ships. It aims to enhance existing regulations and introduce new supporting measures to reduce marine plastic litter from vessels. One aspect of the Action Plan is a compulsory mechanism to declare the loss of containers at sea.
The contents of lost containers contribute to marine litter. The carriage of so-called “nurdles” (pre-production plastic pellets) is a particular concern. Nurdles are in widespread use and large quantities of containers of this commodity are being shipped. In October 2011, the ‘Rena’ ran aground on the coast of New Zealand resulting in the loss of containers of plastic resin pellets. In Hong Kong after Typhoon Vicente in July 2012, containers with over 150 tonnes of plastic resin pellets were lost at sea which later washed up on the southern Hong Kong coast. In 2017, a spill of approximately 2 billion plastic resin pellets (49 tonnes) from a shipping container in Durban, South Africa, required extended clean-up efforts, with pellets also washing up on the shore in Western Australia. Similarly, the ‘Trans Carrier’ spill in the German bight resulted in a loss of 13 tonnes of nurdles and pollution of Danish, Norwegian and Swedish coastlines. In May 2021, the MV X-Press Pearl spilt 11,000 tonnes of plastic pellets off the shore of Colombo, Sri Lanka. If nurdles are lost overboard, the consequences to the environment are significant as they float and can be widely distributed. Marine wildlife often mistake nurdles for food, causing injury and entering the food chain.
Considerations are ongoing in the IMO’s Sub-Committee on Pollution Prevention and Response (PPR) to address the risk of plastic pellets ending up in the oceans. Moreover, at the 5th United Nations Environment Assembly (UNEA-5) in Kenya in March 2022, a total of 175 nations endorsed the resolution to end plastic pollution, which has grown into an epidemic amounting to some 400 million tonnes annually – a figure that is projected to double by 2040. The resolution establishes an Intergovernmental Negotiating Committee (INC) that will begun its work in 2022 with the ambition of completing a draft global legally binding agreement by the end of 2024. The INC is expected to present a legally binding instrument that would address the full lifecycle of plastics, the design of reusable and recyclable products and materials, and the need for enhanced international collaboration to facilitate access to technology, capacity building and scientific and technical cooperation.
Ship recycling
Vessels are considered hazardous waste under international environmental law such as the Basel Convention and the EU Ship Recycling Regulation. According to the NGO Shipbreaking Platform, 443 ocean-going commercial vessels were sold to the scrap yards in 2022. Of these vessels, 292 large tankers, bulkers, offshore platforms, cargo and passenger vessels were dismantled in Bangladesh, India and Pakistan, amounting to 80% of the gross tonnage broken up globally. The process of dismantling often does not occur in safe and environmentally sound working conditions. The practice of “beaching” vessels to break them up poses significant risks to the health and safety of the workers. It also causes environmental damage due to the toxic materials released during the process.
The IMO’s Hong Kong Convention is aimed at ensuring that vessels when being recycled do not pose any unnecessary risk to human health and safety or to the environment. The Hong Kong Convention was adopted in May 2009 and will enter into force in June 2025. Regulations in the Convention cover the design, construction, operation and preparation of vessels to facilitate safe and environmentally sound recycling and the establishment of an appropriate enforcement mechanism for vessel recycling, incorporating certification and reporting requirements. Vessels to be sent for recycling will be required to carry an inventory of hazardous materials which will be specific to each vessel. IUMI welcomes the ratification of the Hong Kong Convention to ensure a minimum standard of safety and environmental standards during the dismantling of vessels.
The EU put in place its own regulatory measure. From 31 December 2018, the EU Ship Recycling Regulation mandates the recycling of all large sea-going vessels sailing under an EU flag to take place in yards included in the European List of ship recycling facilities. The regulation aims to make ship recycling safer and environmentally sound. The 11th edition of the European List of ship recycling facilities was published in July 2023 and contains 48 yards, including 38 yards in Europe, 9 yards in Turkey and 1 yard in the USA.
The EU Ship Recycling Regulation has implications for marine insurance. Insurers involved in actions which may be considered illegal exports of ships to yards not included on the European List of ship recycling facilities may be held liable. Being associated with unsustainable practices such as “beaching” of vessels may further lead to reputational risks. IUMI is raising awareness for this issue by holding presentations and webinars on the topic. IUMI further supports the work of the Ship Recycling Transparency Initiative (SRTI) which aims at ensuring better labour and environmental standards by requiring shipowners to disclose their ship recycling policies and practices.
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