Danske Bank analysts have picked out Scandinavia's top-performing public shipping companies for environmental, social and governance (ESG) initiatives.

"ESG has not been high on the shipping agenda, but this is changing fast," Anders Redigh Karlsen and Hakon Hjelstuen write in their introduction to the report.

Companies within Danske Bank's coverage
  • Avance Gas
  • Belships
  • BW LPG
  • Norden
  • Flex LNG
  • Frontline
  • Golden Ocean
  • Hafnia
  • Hoegh LNG
  • Ocean Yield
  • Odfjell
  • Stolt-Nielsen
  • Torm
  • Wallenius Wilhelmsen

"In our view, ESG is likely to become a competitive factor as companies face increased scrutiny by authorities and customers."

The analysts do not see ESG factors having an impact on share prices yet, but noted "significant variation" between the companies' status.

Among the companies within the analysts' coverage, Flex LNG is the best positioned to reach the International Maritime Organization's goal of reducing CO2 emissions from shipping by 40% by 2030, compared with 2008 levels, the bank said, while Stolt-Nielsen has the furthest to go.

"We expect each company to increase its focus on emissions in the years to come," Danske Bank said.

"We believe Hafnia, BW LPG and Belships may be the relative winners in their respective segments."

The Danish bank leveraged Big Data to run its own analysis to estimate how far shipping companies have come on their path to reach the IMO 2030 goal.

"Some companies and segments have come a long way, while others are likely to see an increase in capex [capital expenditure] to reduce emissions in the years to come," the report said.

The bank noted that Flex LNG’s emissions performance is already close to the IMO 2050 target of cutting greenhouse gas emissions from shipping by at least 50% compared with 2008 levels, which means it has low technological and capex risk in the years to come.

But analysts were less complimentary about Stolt-Nielsen, pointing to the fact that the tanker owner has made only a tiny reduction to its Energy Efficiency Operational Indicator (EEOI).

Danske Bank has named Flex LNG as having the best relative emissions performance among the companies in its coverage. The company is already close to emitting the IMO 2050 target level. Photo: Flex LNG

"Even with fairly low relative emissions, Stolt-Nielsen is not making the right efforts to be a player in the future of maritime transportation, in our view," the report said.

"From 2018 to 2019, Stolt-Nielsen reduced EEOI by 0.5%. To compare, Odfjell had a reduction of 7.7%.

"Hence, in our view Stolt-Nielsen might see an inferior valuation from ESG considerations in addition to a potential capex risk."

Stolt-Nielsen is looking at ways to reduce its carbon intensity through innovations, improved efficiency and investments, but Danske Bank noted that "most of these actions seem to be in the planning stage".

Subjective

Oslo-listed supramax specialist Belships and Danish owner-operator Norden were ranked highest by the bank for corporate governance; Stolt-Nielsen ranked lowest.

The bank scored companies based on how well they comply with the 15 sections in the Norwegian Code of Practice for Corporate Governance, noting that its rankings were "to some extent subjective" and up for discussion.

Belships chief executive Lars Christian Skarsgard said his company was pleased to have been placed in the top, but it won't be getting complacent.

"We’re pleased about being ranked in front. However, we’ll take this as motivation to continue seeking improvements rather than resting on our laurels. We are not at the finish line," he told TradeWinds.

"In our view, governance is the starting point towards achieving efficient pricing in the stock markets. Much is said about net asset value and shipping companies, but having good governance principles is often the forgotten differentiator.

"With investors and society in general increasingly focusing on ESG factors, transparency is a key factor towards creating a sustainable business."

Looking ahead

Danske Bank believes shipping companies that proactively improve their ESG performance will have a competitive advantage in the long term.

The same goes for companies with low average fleet age and those that have already made significant strides in cutting emissions.

Such companies are likely to have an advantage over competitors that are now having to make investments in new tonnage to lower their emissions, the bank said.

"Customers are becoming more focused on their total emissions, including transportation," it said.

"This may, over time, provide those shippers with the lowest emissions a competitive advantage in terms of higher utilisation of their assets, and push others to invest in emission-reducing initiatives.

"In our view, the future winners will be the ones able to hold off investing until a ‘future-proof’ [vessel] design has materialised. This will depend on industry developments as much as the companies themselves."