Our strong environmental, social and governance performance is evidence of successful execution of our strategies to continually reduce our environmental impact, keep our crews healthy and safe, and maintain sound controls and accountability to our stakeholders. We have the people, values, assets, business model, strategies and financial health that position us well for a sustainable future

Striving for ESG Excellence

Despite a significantly weaker dry bulk freight market and despite the volatility, uncertainty, complexity and ambiguity of geopolitics, economics and regulations that increasingly affect shipping and business globally, we generated sound financial results, managed our risks and opportunities well, and continued to make good progress on our long journey of sustainable business development.

Key concerns were – and continue to be – the security, safety and wellbeing of our ships’ crews, as well as emissions reduction and compliance with the coming raft of global and regional greenhouse gas reduction rules. We have an excellent team that takes an ambitious approach to these challenges, and to the 23 other sustainability issues that we consider material to our business.

Our vision to be the first choice partner for customers and other stakeholders is a key motivator of our sustainability thinking, and it is rewarding to receive regular positive feedback from our customers, investors and other partners that evidence our position as their preferred partner in our dry bulk shipping sector. We are also encouraged by our independent ESG ratings that point to continuous improvement in our sustainability approach and performance, which is relevant to stakeholders who are becoming increasingly attuned to the expectations and value of sustainable business.

For a second consecutive year, we were named Bulk Ship Operator of the Year at the IBJ (International Bulk Journal) Awards and won a Gold Award for the Most Sustainable Companies at Hong Kong’s HKICPA Best Corporate Governance and ESG Awards. At the Hong Kong ESG Reporting Awards (HERA), we won three Grand Awards for excellence in environmental positive impact, excellence in ESG governance and best ESG report (mid-cap), with a commendation for excellence in social positive impact.

Almost all of our several ESG ratings improved in 2023, positioning us among the top few in our sector or industry globally, reflecting the professionalism and care demonstrated by our staff around ESG ashore and at sea.

Environmental responsibility

Minimising our impact on biodiversity and managing our waste remain important as we continue to grow our business, but the focus of our environmental programme is the gradual decarbonisation of our fleet for compliance and to achieve our target to have a fully zero-emission fleet by 2050.

Our decarbonisation team is firstly focused on technical and operational fuel-efficiency measures, and on collaborating with our commercial operations team to evaluate and implement new ways to optimise our voyages.

Some of our fuel-efficiency initiatives in 2023 included:

• switching to low-friction silicone antifouling hull coatings that result in less drag for longer periods between dry dockings and a significant fuel saving on application of about 8%. While expensive and less resilient to bumps and scrapes, these silicone coatings represent an effective and economically viable energy-efficiency measure for our type of ships and trades;
• retrofitting pre-swirl vanes (“PSVs”) on a number of our ships (in addition to the several fin, duct and other technologies we have implemented across our fleet over many years) to enhance propulsion efficiency for a fuel saving of about 2% or more;
• adopting strategic power weather routing services that combine continuous weather routing with RPM optimisation for constant power across all sea conditions for a fuel saving of about 3 to 4%;
• installation of smaller, more energy-efficient water pumps on our ships to reduce fuel consumption of our generators;
• further trials of biofuels of different blends. Our findings again showed no adverse effects on our engines, boding well for the future when the gradual uptake of green fuels will be mandatory; and
• introducing an “Energy Saving at Sea” e-learning course for all our ships’ officers and our ship management colleagues ashore, recognising that education and staff engagement will be critical to extracting gradually more energy savings in ship operations.

Initiatives like these are key to maximising the longevity of our conventionally-fuelled existing ships in the face of increasingly stringent regulatory requirements.

Our carbon intensity in 2023 was 40% lower than in our 2008 baseline year, and we expect to have more than halved our carbon intensity by 2030 en route to our long-term target of net zero by 2050.

Living with IMO’s short-term GHG measures

IMO’s global energy efficiency and carbon intensity regulations came into effect in January 2023. Having prepared for the rules early and invested in energy efficiency, our ships are in compliance and well positioned to continue to comply and trade for the next decade or more.

The Energy Efficiency Existing Ship Index (“EEXI”) is resulting in a permanent reduction in maximum speeds for most vessels, which will limit the global fleet’s ability to speed up to meet increases in demand. The Carbon Intensity Indicator (“CII”) will force progressively slower vessel speeds and eventually also accelerated scrapping when older and less-efficient vessels can no longer achieve increasingly strict carbon intensity requirements.

Based on current assumptions about the CII rules, we estimate that an increasing proportion of today’s Handysize to Ultramax bulk carrier fleet will fail to comply with CII before their typical 25-year life expectancy, resulting in increased early scrapping of conventionally-fuelled ships after 2030.

Additional technical and operational initiatives available today may extend ships’ CII compliance by only 1 to 2 more years, unless major retrofits are implemented (such as air lubrication, wind propulsion, shaft generators and carbon capture systems) that are currently prohibitively costly or unsuitable for our vessel types. But technology solutions are evolving.

Sustainable biofuels blended with fuel oil or replacing fuel oil will also help to extend the compliance of many ships, but supply will be limited and our industry will not be able to depend solely on biofuel to achieve its longer-term targets.

We will work hard to extract value from our conventionally-fuelled assets for as long as possible, optimising their deployment as best we can to comply with tightening decarbonisation rules, but we recognise that our growth and fleet renewal strategy must soon include investments in a new generation of low-emission vessels (“LEVs”) that can run on sustainable e-fuels.

Collaborating to develop our first Low-Emission Vessel

In collaboration with our two Japanese partners Nihon Shipyard Co and Mitsui & Co, we continue to progress the design of a dual-fuel low-emission vessel (LEV) capable of running on methanol as well as fuel oil, and we will consider in 2024 whether we are ready to contract to build such a vessel with delivery well ahead of our original 2030 target. We anticipate ordering activity for such mid-size dry bulk LEVs will be limited in 2024. When we do eventually order our first LEV, we believe that our example may help accelerate the transition to low– or zero-emission shipping in our dry bulk sector.

The challenges around such an investment decision are several and significant:

• newbuilding prices are historically high, even before the extra capex of the dual-fuel upgrades;
• there is uncertainty about when, where and if green methanol and other sustainable fuels will be available to shipping in adequate volumes;
• there is uncertainty about how and when the high capex for LEVs and cost of sustainable fuels can be passed along the value chain in the highly competitive market for tramp shipping of low-value dry bulk commodities in which every cent matters; and
• we still need clear, comprehensive and enforced global regulations so that ship owners can confidently plan and invest in green LEVs.

We see IMO, regional blocs, national governments, cargo customers, investors, lenders and other stakeholders increasingly engaged in discussions about the decarbonisation challenge and, while this is a positive development for our industry, we still stress that regulation must lead. Carbon pricing is key to making expensive green fuels competitive against conventional fossil fuels, and regulations that force the uptake of sustainable fuels are necessary to signal to governments and energy companies that they must deliver on the need for massive growth in renewable energy capacity and sustainable fuel production.

Snowballing carbon reduction rules will drive the transition.

Regulation will lead, but it will take some years before the conditions are right to make major capex decisions easier and to pass increased fuel and opex costs along the dry bulk logistics value chain. In the meantime, the raft of coming regulations will pose a significant compliance challenge to many ship owners and operators.

• IMO adopted a revised, more ambitious greenhouse gas (“GHG”) strategy in July 2023, with a goal for international shipping to achieve net-zero emissions by or around 2050, with indicative interim checkpoints. IMO’s target is therefore now aligned with Pacific Basin’s own net zero by 2050 target to which we committed in 2021, and this will translate into tighter CII targets for the period from 2027 onwards.
• IMO will now develop a package of mid-term measures, including technical and economic measures designed to force the gradual uptake of green fuels and to put a price on greenhouse gas emissions, thus making expensive green fuels more competitive. We expect clarity on these measures in 2025, with earliest entry into force in 2027.

  Regional decarbonisation regulations are on the rise too.

• The European Union has included shipping in its Emissions Trading System (“EU ETS”) with effect from 1 January 2024. We started early our preparations to comply with this carbon pricing mechanism, and we pass the cost of compliance up to cargo customers by including the cost of EU Allowances (“EUAs”) in our freight rates for EU-related voyages.
• The European Union’s Fuel EU rules are due to take effect in 2025, forcing the gradual uptake of green fuels.
• The proposed US Clean Shipping Act & International Marine Pollution Accountability Act are under discussion in the US Congress for possible effect in 2027, also covering the uptake of green fuels and a carbon pricing levy.

We will continue to closely monitor and prepare for these and other new and changing GHG reduction measures to come, all of which will further incentivise vessel owners to slow down and eventually retire early their conventionally-fuelled ships and transition to low-emission vessels and fuels.

Responsibility to our people

Notwithstanding the industry’s focus on decarbonisation, our first priority remains the safety and security of our staff, our ships and our operations, especially in times of heightened and more widespread threats to our seafarers’ security and wellbeing.

While piracy and hijacking have been on the decline since spiking in 2008-2012, hotspots remain, and increased incidents have been evident in recent months in the Middle East and Indian Ocean.

Attacks on cargo ships in the Red Sea and the Gulf of Aden have recently dominated maritime news and caused many shipping companies to avoid the key Red Sea and Suez Canal waterway, choosing the much longer route around Africa instead. Since the attacks began, our own practice has been to avoid the Red Sea, other than in a few cases where voyages were already in progress or transits were deemed safe. In all cases, risk assessments were made and protective actions taken.

Commercial shipping has become increasingly plagued by illicit drug smuggling operations, largely due to the continued expansion of the global narcotics market and because of Covid-related disruption to air and land transport that had been key modes of narcotics trafficking internationally.

In July 2023, drugs were found in the crane housing of one of our ships on arrival in Lagos, Nigeria after a voyage from Brazil, despite arranging extra security cameras and a search using sniffer dogs and underwater divers prior to departing Brazil. Following its detention, the ship was released and half of our crew were allowed to return home against payment of a sizeable bail bond. However, 10 crew members remain detained (albeit with some freedom to move around) subject to a legal process which we fear will take a long time, despite there being no evidence to suggest our crew were involved. We are once again dismayed by the automatic detention and criminalisation of seafarers in such cases; we stand by our detained colleagues, but we respect the rule of law and are working with authorities to try to expedite the process.

On a very happy note, Captain Yu Yihai was finally cleared of involvement in a 2021 drugs case and released in August 2023 after two years in an Honduran prison to be reunited with his family in China. We greatly appreciate the support we received from authorities in Hong Kong and China, and from the Hong Kong Shipowners Association, the International Chamber of Shipping, the IMO, ILO and others who helped raise attention to Captain Yu’s case to ultimately ensure due process and a fair trial. We have found ways to support Captain Yu and his family through their recovery from the trauma they endured, and we wish them well with their further recuperation.

These incidents serve as a reminder of security risks in the maritime field and the frequent automatic criminalisation of seafarers who serve a vital role in global trade and deserve that their rights be better respected and protected.

In 2023, our crews registered 14 lost-time injuries in almost 21 million man hours, which translates to an LTIF injury rate of 0.67 that is back up to pre-Covid levels. We understand that the much reduced injury rates in 2021-2022 and the rebound in 2023 was industry-wide, which we attribute to two factors. Firstly, 2023 saw enhanced ship maintenance (when the risk of injury is elevated) after a few years of less intensive maintenance when seafarers were stuck on ships for long periods and superintendent visits were largely suspended due to global ship boarding and disembarkation restrictions. Secondly, doctor’s visits to ships were mostly impossible during Covid, resulting in fewer prescriptions for “time off” or repatriations.

Our injury rates for 2023 were still low by historical sector standards, but our ambition is to continue to gradually reduce and eventually substantially eliminate injuries over the longer term.

Sadly, two crew members died on our ships in 2023. While both were non-work-related fatalities, we still owe it to our seafarers to support their physical health and mental wellbeing as best we reasonably can, and we are doing this through the continuing development of our training strategies, enhancement of our safety and wellbeing programmes, engagement of remote physical and mental health service providers, and implementation of additional psychometric screening for all our seafarers before joining our ships.

Our culture of proactive risk management and vigilance is key to mitigating the risks to our colleagues’ security, safety and wellbeing.

Our people are our most important resource, and we continue to challenge ourselves on what it means and takes to cultivate an optimally equipped, competent, engaged and diverse workforce.

At sea and on shore, we continue to uphold the highest health and safety standards and train our colleagues to enable them to tackle evolving business challenges while looking after their – and each other’s – overall wellbeing. Our investment in training and development extends across our operations, from the critical training needs of our seafarers to our traineeship programme ashore, and up the organisation to coaching for a stronger, more informed and effective senior leadership team.

We recognise the great value of having diverse staff of different ages, genders, cultures and backgrounds who bring to our team diverse experience, perspectives and opinions that make our business more dynamic, vibrant, innovative and successful. Our shore-based team comprises executives of 33 nationalities. While our gender distribution ashore is relatively well-balanced overall, we recognise the lower representation of female colleagues in middle and senior management and on our Board of Directors. This has much to do with the significantly lower proportion of female applicants for shipping industry roles, but we are trying to improve in this area and we in any case leverage our strong employer brand to build diverse teams.

We want to encourage and support each individual’s unique efforts to contribute to our business and to remove barriers to inclusion and equality of opportunity.

Responsible value creation for our stakeholders

We value long-term relationships with our stakeholders and are committed to serving our customers, society and sustainable trade, and our wider stakeholders for more resilient and sustainable dry bulk supply chains. Such initiatives are often characterised by a degree of collaboration and innovation.

Since March 2023, we have been collaborating with our cargo customer Rio Tinto as part of their Designated Owners & Operators Standard initiative to enhance safety and crew welfare in the dry bulk industry.

In December 2023, we successfully concluded our first sustainability-linked credit facility (an unsecured US$150 million revolver) that aligns with our commitments to sustainability, with interest margin adjustments tied to carbon intensity and crew safety performance which we prioritise among our most important ESG issues.

We continue to be involved with the Maritime AntiCorruption Network (MACN) and TRACE which draw on collective action to eliminate corruption in our industry and advance commercial transparency in areas of anti-bribery, compliance and good governance. In January 2024, we were vocal participants in a special conference involving the US Coast Guard, BIMCO, Interpol and other security agencies and maritime organisations to discuss and begin to address the recent surge in drug smuggling on merchant ships and its harmful consequences on ships’ crews.

These initiatives are just a few examples of the increasing engagement and collaboration with like-minded stakeholders that we consider valuable to better tackle our industry’s main challenges and promote a responsible, ethical, inclusive and resilient global marketplace.

Responsible business fundamentals

We strive to evolve and enhance management and governance practices for best-in-class risk management, reporting, transparency, corporate stewardship and stakeholder confidence.

Responsibility for Pacific Basin’s sustainability rests with our Board of Directors who in January 2024 elevated its delegated board-level oversight of sustainability from the Audit Committee to a dedicated new Sustainability Committee. In line with best practice, this will facilitate greater board-level bandwidth to ESG matters for better sustainability oversight, approach, priorities, performance and reporting, and also free up time in board meetings and Audit Committee meetings for other business. The Sustainability Committee comprises two independent non-executive and one non-executive director, and is chaired by Dr. Kirsi Tikka.

Management and a dedicated sustainability team are supported by a Sustainability Management Committee in coordinating and enhancing our approach to sustainable business practices and investments, in ensuring compliance with growing ESG requirements for companies engaged in shipping and listed on the Hong Kong Stock Exchange, and to better integrate more precise and deliberate sustainability thinking into our culture and business operations.

We believe our enhanced sustainability governance structure will further improve the effectiveness of our approach to sustainable development, the resilience and reputation of our business, and the confidence our stakeholders place in us.

Effective platform for a sustainable business

I believe Pacific Basin has made commendable progress in addressing our most significant sustainability issues in recent years, and this is supported by the external recognitions that I mentioned in my opening paragraphs on page 4. With dedicated sustainability, decarbonisation, safety, HR and other relevant teams, and with the closer oversight of a dedicated board-level Sustainability Committee, we have experienced people and an effective platform with which to tackle our ESG challenges and make good progress on our sustainability journey.

Last year, we started to arm all our colleagues and teams with a better understanding of ESG issues most pertinent to them, and our internal engagement will continue in the next couple of years as we collaborate to refine and update our ESG ambitions and targets and continue to integrate sustainability into every aspect of our business. In the process, we seek to further embed sustainability in our culture and make more progress towards ESG excellence.

We are fortunate to have such outstanding and committed colleagues in our Pacific Basin family. I thank them all for their exceptional contributions, and for the manner in which they deliver value for our customers, shareholders and other business partners and stakeholders, as well as for the environment. They are all ambassadors for Pacific Basin who underpin the reputation and resilience of our company.

I thank also our shareholders, customers and other stakeholders for their continuous support, including markedly increasing interest in and expressions of encouragement for our ongoing ESG efforts.