Meeting the needs of present and future generations is now a societal imperative, a demand from investors, financiers and customers/suppliers, and a major concern for regulators and industry.
A shipping company cannot be expected to operate in a transparent and environmentally responsible manner without the same commitment to its social role. The underlying idea is that the effectiveness of a shipping company’s engagement is critical to a just transition that leaves no one behind, and ultimately to its long-term success.
It is well-known that social sustainability is a pillar of ESG (Environmental, Social and Governance). In the shipping context, the social pillar of ESG refers to the impact of shipping on people and society. Among other things, social sustainability is relevant to social dialogue, social rights, health, safety, welfare, diversity and inclusion, and community engagement.
Social sustainability should be a critical part of any business because it affects the quality of business relationships (United Nations (UN) Global Compact). According to the International Chamber of Shipping (ICS) the term ESG describes data collection in relation to those factors that help businesses assess the risks and opportunities that may arise from environmental, societal and governance developments with stakeholders. Social sustainability is expected to mitigate risk and create opportunities.
Just think about the retention and attraction of new talent or business partners. “Social measures contribute to enhancing fair and equal employment opportunities, working environments. This may include, for example: preventing abuse within supply chain, compliance with labour standards; providing sufficient training, supporting health and safety and wellbeing of personnel; promoting safeguarding of human rights, equality in the workplace, diversity and inclusion as standard; ensuring product is safe and customer data is secure” (ICS).
Seafarers, but also shore-based personnel, are at the heart of social sustainability. International Labour Organization (ILO) Maritime Labour Convention (MLC), requires ratifying Member States to ensure that their laws respect seafarers’ fundamental rights (e.g. freedom of association and the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labour, the effective abolition of child labour and the elimination of discrimination in respect of employment and occupation) (Article III). In the same vein, the Convention states that every seafarer has the right to a safe and secure workplace that complies with safety standards, a right to fair terms of employment, a right to decent working and living conditions on board ship, and a right to health protection, medical care, welfare measures and other forms of social protection.
Furthermore, each ratifying State must ensure “within the limits of its jurisdiction, that the seafarers’ employment and social rights […] are fully implemented in accordance with the requirements of this Convention. Unless specified otherwise in the Convention, such implementation may be achieved through national laws or regulations, through applicable collective bargaining agreements or through other measures or in practice” (Article IV).
The Convention addresses the full range of working and living conditions of seafarers on board ships, including challenging areas such as hours of work and rest, harassment and bullying, occupational health, and grievances.
In addition to the mandatory element of the social pillar, which includes binding regulations, shipping companies can seek to be proactive through initiatives and voluntary actions that they prioritize according to their agenda. One shipowner may choose to focus on smoking-cessation awareness campaigns, campaigns on healthy nutrition or gym use, real-time advice for seafarers and/or real time feedback from seafarers, while another may choose to focus on mental health sensitization, wellness reviews or the needs of female seafarers.
Against this background, at the regional level, i.e. at the level of the European Union (EU), there are very interesting developments that point to further regulatory compliance:
The so-called Corporate Sustainability Reporting Directive (CSRD) (Directive 2022/2464) replaces the EU’s Non-Financial Reporting Directive (NFRD), which was adopted in 2014. Environmental, social and governance elements are covered. The CSRD was adopted in 2022 and entered into force on 5 January 2023. The Directive had to be transposed by EU Member States by 6 July 2024. In Greece, the implementation of the CSRD has given rise to an electronic public consultation which ended on 28 November 2024. The bill (Ministry of Development) was finally adopted in December 2024 through Law 5164/2024 (Government Gazette A’202).
The shipping industry is directly and indirectly affected by the CSRD. This important instrument was due to be applied to certain companies from 1st January 2024 onwards with reports due in 2025 and subsequent years. The Directive applies to large EU companies meeting certain criteria, to listed Small and Medium-sized Enterprises (SME) and to certain non-EU companies. A tailored approach is needed to determine whether an organization falls within the scope of the legislation and how to ensure compliance. For forward-thinking companies, the Directive, as implemented in national legal systems, is seen not only as a reporting requirement (something like financial reporting), but also as having the potential to mitigate risks and create long-term business opportunities in a rapidly evolving world. In addition to the above, the adoption of European Sustainability Reporting Standards (ESRS), that relate to disclosures in a standardized comparable format, are mandatory for companies within their scope regardless of which sector they operate in. The first set of ESRS was published in the Official Journal of the EU on 22 December 2023 (Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023).
Another piece of EU legislation complements the landscape: The so-called Corporate Sustainability Due Diligence Directive (CSDDD) (Directive 2024/1760), also known as the EU Supply Chain Act, establishes a corporate due diligence duty. CSDDD entered into force on 25 July 2024. Transposition by EU Member States must take place by 26 July 2026. The Directive requires companies falling under its scope to identify and address adverse human rights impacts and environmental impacts in their operations and across their global value chains. CSDDD is expected to affect large companies with 1,000 employees and more than €450 million in turnover worldwide as well as large non-EU companies (> €450 million turnover (net) in EU); SMEs may be indirectly impacted, including as suppliers to large companies.
All in all, this is a changing landscape that requires awareness, prompt action and a vision for a fairer business environment based on trust. Although most of the exposure concerns large companies, it is no exaggeration to say that the above measures will bring in a new era for shipping, given its multifaceted exposure to all sectors of the economy and its cross-border nature.
By Dr. Iliana Christodoulou Varotsi
Senior Legal Consultant & Lead Industry Trainer
