No rest and relaxation for the environment
Seagoing vessels – whether they be merchant vessels or holiday liners – are among the most environmentally harmful forms of transport. The cruise industry is booming: According to the Cruise Lines International Association (CLIA), around 24.2 million people went on a cruise holiday in 2016. This figure is expected to rise to a total of 25.3 million passengers in 2017 when, according to CLIA figures, 26 brand new ocean, river and special cruise ships will embark on their maiden voyage. Most cruise ships are effectively small floating towns with a self-contained infrastructure, capable of accommodating up to 9,000 passengers. The problem lies in the fact that where other means of transport are heavily regulated, these giants of the sea roam the international waters largely unrestricted.
Major environmental challenges
The majority of cruise ships still run on heavy fuel oil. Modern environmental technologies are often disregarded to save costs. Germany’s Nature and Biodiversity Conservation Union (NABU) estimates that 80 per cent of all ships in use in Europe alone either do not have any exhaust gas purification system or, at best, meet the statutory minimum standards. This leads to high emissions of air pollutants such as soot, ultra-fine particles and nitrogen oxide, which are harmful for the environment and also directly affect the health of passengers. In 2016, NABU published its fifth annual cruise ranking, examining vessels of the largest cruise lines with regard to the impact of their exhaust gases on human health and the environment. However, a genuine assessment is difficult, because the cruise lines do not communicate directly with NABU. Instead, they submit data to the umbrella organisation CLIA, which passes the information on. In light of this, NABU itself has reservations about the extent to which these Aggregate figures are reliable and meaningful. Union Investment has therefore intensified its efforts in 2016 to communicate directly with publicly listed tourism groups in order to discuss problems within the industry, such as those raised by NABU, and seek solutions. The aim of the dialogue is to improve the eco-footprint of cruise ships. “As a sustainabilityoriented investor, we feel an obligation to use our resources to exert influence on companies and encourage them to reduce their harmful impact on the environment,” says Duy Ton, a portfolio Manager in the Sustainability and Engagement team at Union Investment. “From our point of view, the environmental damage increases the regulatory and reputational risk attached to the shares that we hold.” Major companies that Union Investment identified as part of the target group and subsequently approached to discuss this topic include TUI AG, Royal Caribbean Cruises ltd., Norwegian Cruise Line Holdings ltd. and Carnival plc.
#Gas as an alternative fuel
Aida Cruises, Germany‘s market leader, wants to prove that things can be done differently. It has commissioned a new generation of cruise ships from a shipbuilder in Papenburg in the North of Germany. The two new ships will be fuelled entirely by liquefied natural gas (LNG), which is more eco-friendly than diesel or heavy fuel oil. The first ship will be deployed for seven-day trips to the Canary Islands from December 2018. The completion of its sister ship is scheduled for spring 2021.
The Cruise Lines International Association (CLIA) was founded in 1975 and is now the largest umbrella Organisation of the global cruise industry. In Addition to its role as an advocacy Organisation for 60 cruise ship operators, 300 Partner businesses (e.g. suppliers) and a large number of travel agencies, the CLIA also provides training, advisory and promotional services for the industry.
Where there’s a clean will, there’s a clean way
Union Investment has holdings in tourism Groups that operate cruise ships as part of their business. As a sustainability-oriented investor, we regard the serious environmental harm caused by These ships as problematic. It’s staggering – a large cruise ship emits as much pollution as 350,000 cars. Of course, we don’t want to spoil people’s holidays. But the damage to the environment should be limited as much as possible, especially now that cleaner options are available. Retrofitting ships with systems that can run on marine diesel or, ideally, liquefied natural gas rather than heavy fuel oil would be a big step forward. Many engines are already equipped to handle marine diesel oil, because heavy fuel oil is banned in the waters off the coasts of the US and Canada. But as soon as the ships are back out on the open sea, the engines are switched over and the cheaper heavy fuel oil is used. We regard this as a very serious problem. As a shareholder, we can exert pressure on the companies on this point and can seek a dialogue with their management to push for a more ecofriendly business concept. If no corresponding measures are taken, the reputational and regulatory risks attached to the shares that we hold will increase. Our voting right is also a useful lever. Due to the aggregation of funds we hold on trust and the cooperation with other sustainability-oriented investors, this is another way in which we can influence company policy. The technology required to build very clean ships is already available. We are working towards seeing it applied.
Portfolio manager in the Sustainability and Engagement team at Union Investment