Chairman's ESG Message

2020 was a gruelling year in which global efforts to contain the Covid-19 pandemic affected the dry bulk freight market, posed practical challenges to our operations and had a real impact on our staff and our seafarers in particular.

Global Crew Change Crisis

Our wide-ranging business continuity initiatives enabled our business to remain fully operational throughout the pandemic with our service continuing seamlessly and substantially uninterrupted, as commended in feedback from our annual customer survey.

However, governments’ Covid restrictions around the world have made it very difficult for ship owners to change crews and get their seafarers home, leaving tens of thousands stuck at sea beyond their original contract periods. We continue to pursue every effort to reunite our seafarers with their families and we have successfully changed and repatriated many of our crews in recent months.

Our seagoing and shore-based staff and management continue to do their utmost to provide our seafarers with support and encouragement so that they remain motivated, feel appreciated, do their professional best and always maintain safe operating practices while global lockdown conditions keep them at sea.

In-house Fleet Management Drives Health, Safety, Quality and Environmental Focus

Having an innovative, comprehensive and world-class fleet management team in-house – with experts covering technical operations, fleet personnel and marine risk, safety and security – represents a significant advantage for us and our stakeholders.

Firstly, we can be directly involved with our seafarers, ensuring they benefit from sound labour standards, workplace conditions and a fulfilling career. Their wellbeing has taken centre stage during the pandemic, and the shore-based support we extend to our crews has been enhanced accordingly. Health and safety on board our ships has always been of paramount focus, underpinned by the investments we make in training, risk management and the policies and practices embodied in our Pacific Basin Management System. It is a great credit to our seafarers and our marine safety team that, despite the extra stresses of the global crew change crisis, we registered a further improvement in our safety KPIs in 2020.

Secondly, having a core owned fleet of around 115 ships run by our own in-house fleet management team also means we have better control of the quality of our ships and the service reliability that we are able to offer our customers.

Thirdly, our experts ensure that we are adequately shouldering our responsibility to continually reduce the environmental impact of our operations and to keep up and comply with all relevant environmental and other laws and regulations in our highly regulated industry.

Complying with Environmental Regulations

The IMO 2020 global 0.5% sulphur cap took effect on 1 January 2020 and our fleet complies mostly by using low-sulphur fuel. Our ships made the fuel switch without any major unplanned operational disruption, as we prepared thoroughly to ensure compliance and seamless service delivery to our customers. The majority of our owned Supramax vessels complies by operating exhaust gas scrubbers.

We are well on track to fitting all our owned vessels with ballast water treatment systems (“BWTS”) by the end of 2022 to comply with the Ballast Water Management Convention ahead of schedule.

Navigating Increasing Decarbonisation Regulation

The goals of IMO’s greenhouse gas (“GHG”) reduction strategy are to improve global shipping’s carbon efficiency by at least 40% by 2030 relative to 2008, and then halve our industry’s total GHG emissions by 2050 with a view to fully decarbonising within this century.

Our owned fleet’s carbon intensity (EEOI) continues to reduce and is currently on course to meet our IMO-aligned target of a 40% improvement by 2030.

Our dedicated optimisation team supported by our technical colleagues will continue to research and adopt new fuel-efficiency technologies and operating practices that, together with our ongoing fleet modernisation and utilisation initiatives, will enable us to meet tightening emissions targets and regulations.

In June 2021, IMO is expected to clarify and finalise new policies, metrics and targets to drive shipping companies to pursue short-term technical and operational measures to achieve IMO’s 2030 carbon intensity goals, using the new Energy Efficiency Existing Ship Index (“EEXI”) and Carbon Intensity Index (“CII”). The EU intends to apply its own market-based decarbonisation measures on shipping by including the maritime sector in the EU Emissions Trading System effective 2023 or sooner.

We also keep a close eye on the much longer term goal of complete carbon neutrality in shipping, which will require the production of green fuels on a massive scale, the creation of global green fuel bunkering logistics and the development of zero emission deep-sea vessels (“ZEVs”). The wide scale roll-out of commercially viable ZEVs needs to start by the end of this decade if our industry is to halve its total GHG emissions by 2050 and fully decarbonise thereafter. The industry-wide discussion about how shipping will achieve this gained visible momentum in 2020, and we are actively involved in this discussion, including via regular working group meetings of the Getting to Zero Coalition. Ammonia and methanol synthesised from green hydrogen are currently among the front-runners in a short list of potential fuels for shipping. We are following closely which of the possible replacement fuels and propulsion technologies will be right for us, and we look forward to adopting new fuel and propulsion technologies when practical and economically-viable options with an appropriate global bunkering infrastructure become readily available.

Until then, we will progress our carbon intensity reduction initiatives, including maintaining our high laden-to-ballast ratio, continuing to modernise our fleet by gradually trading up to modern, larger, more energy-efficient second-hand ships, and investing in fuel-efficiency technologies and operating practices, such as slow steaming, engine tuning, weather routing technology, trim and draft optimisation and many other voyage optimisation initiatives.

In the short term, what the industry can and should do to reduce GHG emissions and improve profitability is to slow down existing ships and, as we are doing, refrain from ordering newbuildings with traditional fuel oil engines. Upcoming EEXI and Carbon Intensity Indicator requirements will almost certainly lead to slower speeds for most vessels.

We have offset our 2020 carbon emissions from our global offices and onshore activities by buying carbon credits generated by Hong Kong power company CLP’s windfarms and related community projects in India. Our next step will be to offer our cargo customers the opportunity to voluntarily purchase carbon credits to offset emissions from the transportation of their cargoes on Pacific Basin vessels starting in 2021. You can read more about our decarbonisation and other environmental initiatives on page 18 of our sustainability report.

As the world decarbonises, Pacific Basin will continue to carry the non-fossil fuel commodities that will be the mainstay of future global seaborne trade.

An Experienced, Reliable Team

Being on the cusp of the fourth propulsion revolution, new environmental regulatory and technical challenges ahead will require a keen understanding of the issues and astute decision-making. We have an outstanding team of people across our business who provide the world-class expertise we need to tackle these challenges.

Our Board continued to evolve during the year, with Daniel Bradshaw retiring and John Williamson joining as a new Independent Non-executive Director, bringing with him considerable financial, governance and risk management experience.

As addressed in our Annual Report, Mats has decided to retire on 30 July 2021 and will be leaving behind a strong and focused company with an excellent team, efficient cost structure and a clear strategy. His successor Martin Fruergaard is currently CEO of Ultragas and previously occupied senior positions in the Maersk group. Considering his lifelong maritime experience, proven leadership credentials and keen interest in sustainability, the Board is confident that Pacific Basin’s prominent position in the minor bulk segments will continue to develop and prosper under Martin’s leadership.

Effective Platform for a Sustainable Business

In 2020, in compliance ahead of schedule with new requirements of the Hong Kong Stock Exchange’s ESG Guide, we rolled out a more formal stakeholder engagement process for assessing the materiality of ESG topics, we set and have disclosed Environmental KPI Targets and steps to achieve them, and we further strengthened our sustainability governance and board engagement with the establishment of a Sustainability Management Committee (“SMC”). Reporting to the Audit Committee, our SMC comprises our CEO, CFO and six senior executives from different functions to ensure that members with different backgrounds and expertise are represented so that our sustainability strategy delivers meaningful outcomes.

Pacific Basin’s stakeholders increasingly require detailed disclosures on our ESG policies, practices and performance. Similar to the Poseidon Principles established in 2019 by the ship finance industry, major charterers adopted the Sea Cargo Charter in 2020 with a commitment to track, assess and disclose the emissions and climate alignment of their shipping activity. We engaged with banks and charterers to help ensure meaningful outcomes from their respective frameworks, and we gladly disclose to them our relevant voyage data. We also disclose our comprehensive ESG policies, practices and performance data to Hong Kong Quality Assurance Agency who, on behalf of Hang Seng Indexes, assesses the ESG performance of Hong Kong-listed companies.

In 2020, HKQAA awarded Pacific Basin a sustainability rating of AA-

In addition to the quality of our people and their professionalism and know-how, we have a robust, sustainable, cargo-focused business model that enables us to generate vessel earnings that outperform the market indices, which we did in 2020, generating positive cash flow despite the weak Covid-impacted market in the first half of the year. Our ability to navigate such challenging periods while still delivering an excellent and seamless service to our customers and safeguarding our financial health speaks volumes about the Pacific Basin platform that we have built over many years. It also reinforces our confidence in our preparedness for the future.

The focus of these pages is on how, at all levels of our business from the Board down, we tackle our responsibilities towards the safety and wellbeing of our staff, ethical business practice, the environment and the communities in which we operate. As a large player in our sector with an ambitious vision for the future, we recognise our responsibilities in these areas which have a bearing on the long-term sustainability of our business.

David Turnbull

Chairman

Mats Berglund

Chief Executive Officer

Hong Kong, 25 February 2021