Hapag-Lloyd receives 3.5 stars out of 5 on environmental reporting

The report is long (120 pages), only some pages shorter than the one by MSC (138 pages), which we reviewed last week. Another similarity is that it is quite "stingy" with numbers, believing that reporting is mainly text when it is not. However, contrary to MSC, it lacks the engaging story-telling that the other has—it is drier. It even has interviews with five logistics and maritime experts as we are used to seeing in many shipping magazines, but, of course, that looks out of place in a Sustainability Report, in which companies report about their activities; otherwise, it looks as if the company is trying to bring external support to make its case (of course, Hapag-Lloyd is a very successful company that does not need any crutches). Given the strong similarities with the MSC report, we consider that 3.5 stars out of 5 are also a fair score for the report by Hapag-Lloyd.

What we have found this year is that European companies are becoming complacent with their Sustainability Reports, may be convinced that they are the world leaders since Sustainability Reports have a European mark of origin. That was true three or even two years ago, but not now, at least not this year. Some of the reports by Asian companies (not all, of course) have more data and are much more precise and to the point—each paragraph says something relevant. Most probably, the Asian companies are trying to behave according to European standards, without realizing that, in the process, they are overpassing some of the European companies by providing more data and more precise analysis, rather than engaging or drier narratives. Let's hope that European companies will go back to the drawing table regarding their Sustainability Reports: now it is their turn to take some lessons from their Asian counterparts. Otherwise, as it has happened with the largest and most complex shipbuilding, which are mainly made in China and South Korea (cruises being an exception), the best Sustainability Reports of the Future will also end as Made in Asia :)

In the section about the materiality assessment, something that most liners are doing (with enormous discrepancies in the results, by the way),* Hapag-Lloyd also includes a section on risks. We raise here an issue that is a weakness of Hapag-Lloyd and most other liners: besides reporting on CO2 emissions, the reports do not mention climate-change-related risks. In other words, of the four components suggested by the Task Force on Climate-related Financial Disclosures (TCFD), the climate change risk component is missing in most cases, as if shipping companies should not have to cope with climate change adaptation, which, of course, it is absurd, starting with the fact that most of them own port terminals that will be impacted by sea-level rise, or another even more obvious: the expected higher intensity of tropical cyclones (also called hurricanes or typhoons depending on the region) will impact navigation. The reason becomes obvious when one looks at the members' database of the TCFD: only two liners have signed the commitment to release a full TCFD reporting—Maerks and Evergreen Marine. The other ten largest liners have not (MOL, KKK, and K-Line have also signed the commitment).

The environmental chapter of the report (67-80 pages) mainly focuses on GHG emissions. As we said above, a fundamental weakness of the report is the scarcity of environmental data. All the relevant numbers one find on those 14 pages for the year 2019 are... six! On fuel consumption: a) bunker consumption for the entire fleet (owned, leased, and chartered) of 4,38 million tonnes, and b) bunker consumption for the whole fleet per slot was 2.59 tonnes. On GHG emissions: c) CO2 emissions of 13,694,652 tonnes (a reduction of 17% compared to 2016; Hapag-Lloyd expects a 20% reduction by 2020), d) CO2 emissions per TEU-kilometer of 40.22 g. On other environmental issues: e) 17 ships can connect to onshore power and are used on routes calling at Californian ports, f) fuel used had an annual weighted sulphur content of 1.95% (below the 3.5% mandatory last year). Those six numbers are all the environmental reporting numbers one finds not only in the environmental chapter but in the entire Sustainability Report by Hapag-Lloyd since there is not a table as an appendix as some other companies do. And all data is only for 2018 and 2019; most companies provide at least 2017. Hapag-Lloyd realized that the new numbers were so few that, contrary to other liners, had to highlight them through the chapter because otherwise, the few numbers would have been drowned by the massive number of words. This is the key weakness we see in the report: no tables, no charts, no appendix with data. COSCO's report, which we also reviewed a few days ago, had more data, although it had only 35 pages and not 120 as of this one.

Regarding power supply to docked ships, Hapag-Lloyd is one of the few companies reporting on alternative measures to cold ironing: "Hapag-Lloyd is testing other options to make the power supply to docked ships more environmentally friendly. One option are PowerPacs, i.e. containers that hold gas-powered generators and a tank of LNG. While berthed, the containers supply the ship with electricity, results in far fewer emissions. We first tested the technology in the Port of Hamburg in 2018. In October 20198, we carried out another test with a double PowerPac, which resulted in double the output. In the next step, an operational and commercial evaluation of the test will be carried out in conjunction with our project partners."

Another relevant comment relates to electricity consumed: "At our headquarters at Ballindamm in Hamburg, 100% of our electricity comes from renewable energy." Scope 2 emissions are almost negligible for shipping companies but, even though, that is a milestone (regrettably, most companies do not include Scope 2 emissions by their branches, which could be relevant since they may have a presence in most countries of the world; Hapag-Lloyd, for instance, has 392 sales offices across the world).

Regarding its membership to different green shipping initiatives, the report does not include the Getting to Zero Coalition, but, of course, it is commendable that Hapag-Lloyd has joined it recently since that is the most ambitious initiative (of all the around twenty we have identified) on reaching the decarbonization of the shipping industry. And something quite relevant was the signing by Hapag-Lloyd of the Ocean Conservancy's Voluntary Arctic Shipping Corporate Pledge: "In October 2019, Hapag-Lloyd was one of the first signatories of the Arctic Shipping Corporate Pledge created by the Nike sportswear manufacturer and the Ocean Conservancy environmental organisation. With this voluntary commitment, we underline our particular responsibility for the oceans, and pledge to avoid the use of Arctic shipping routes so long as serious negative impacts on its unique ecosystem cannot be ruled out." And it is interesting to see that Hapag-Lloyd is the only liner that can say the following: "We also entered into dialogue with Hamburg-based representatives of the Fridays for Future movement." All shipping companies boast about how they take care of the planet's future, but Hapag-Lloyd is the only one that has started a dialogue with the future climate change leaders of the planet. Amazing!

Another commendable action by Hapag-Lloyd, which is not usual among liners (or at least they do not report about it). is the way the company integrates and interacts with the City of Hamburg: "We communicate our perspectives on infrastructural matters, such as the expansion of the port, the dredging of the Elbe and the modernisation of rail infrastructure." And, as they added, they held an annual meeting with delegates from the Hamburg Parliament and members of the German Bundestag from Hamburg, and the regular participation of the CEO, Rolf Habben Jansen, in events organized by Hamburg associations. The fact that the City of Hamburg is one of the company owners must be an important reason, but, nonetheless, all companies should also be reporting on that since a critical stakeholder is a community from the city in which a company is headquartered.

In summary, the report of Hapag-Lloyd does not deliver enough data, which should be the core of any environmental reporting. The report is long but discursive, with few cases that deserve to be highlighted. However, the report shows that the company is promoting dialogues that we do not see (or at least are not reported) by other carriers: the one with the city of Hamburg, but, in particular, the dialogue with the Fridays for the Future is a bold step.

Gliese Foundation

November 3rd, 2020

*Once we finish the independent reviews of the environmental reporting by the twelve largest liners, we will write policy briefs about some cross-sectoral issues such as the treatment of materiality assessment, SDGs, CO2 emission numbers, and a few others.