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Gard News 191, August/October 2008

In today’s corporate world, it is no longer acceptable to focus solely on the bottom line.

Corporate social responsibility
Companies today are expected to be “good corporate citizens” that serve not only the interests of the stockholders or customers but also the communities in which they operate. Corporate social responsibility (or CSR as it has come to be labelled in the business press) has many strands, beginning with good old-fashioned philanthropy. The focus of this article, however, will be on another key component of CSR: environmental stewardship. CSR naturally assumes positive actions beyond those mandated by law. In shipping, environmental stewardship includes minimising air and water pollution as well as cutting greenhouse emissions.

CSR can be seen as a form of risk management. As many in the business of operating or chartering ships can attest, major pollution events harm the reputation of the company involved. The EXXON VALDEZ and ERIKA spills come to mind. It is therefore not surprising to find “Energy and the Environment” and “Community and Society” as topic choices on the ExxonMobil home page or “Corporate Social Responsibility” prominently placed on Total’s website.

It is not only oil majors that herald their good corporate citizenship. Both publicly traded and privately held shipowners and operators do so as well. Overseas Shipholding Group (OSG) prides itself on “doing its part to protect the environment” and has as its goal to set the “Gold Standard” in technical operations, including “establishing operating practices that go well beyond what is required by regulators”. Taiwan-based Evergreen Marine publishes its environmental compliance programme policy on its home page.

What does this trend mean for the industry as a whole? First and foremost, it means that good corporate citizenship through environmental compliance should be a key feature of the company business strategy. Moreover, it is no longer sufficient for the company management to set the environmental policy and then leave it to contractors to carry it out in the absence of corporate management oversight. While elements of vessel operations can be and often are sub-contracted, liability for violations of environmental regulations, both civil and criminal, will always rest with the company.

In the United States, crew non-compliance with environmental regulations can be painful to the company indeed. Corporations have been found vicariously and criminally liable for violations of MARPOL that occur within US jurisdiction. Since 2003 the US Department of Justice has prosecuted more than 70 shipowners and 49 individuals collecting over USD 115.5 million in criminal fines.1 In most of these cases, the crew actions were in deliberate disregard of company policy and mandates.2 These cases demonstrate that setting policy is simply not enough.

Clearly, international regulations such as MARPOL do not require environmental compliance plans, but good corporate environmental citizenship suggests that the company nonetheless conceive and execute such a plan to fit its own organisation and needs. A well-conceived and properly executed environmental compliance plan is an essential risk management tool in today’s shipping world. Thankfully, industry groups have provided guidance on the elements of such a plan.

ICS/ISF guidance on environmental compliance
In 2007 the International Chamber of Shipping (ICS) and the International Shipping Federation (ISF) published the leaflet Shipping Industry Guidance on Environmental Compliance – A framework for ensuring compliance with MARPOL (the framework).3 The framework is intended to be used by shipowners and operators as a template for review of company environmental compliance programmes. The framework is supported by BIMCO, Intertanko, Intercargo, OCIMF and SIGTTO.

In introducing the framework, ICS and ISF acknowledge the prosecution of companies, particularly in the Untied States, for MARPOL violations and comment that “prosecuting authorities have identified the absence of a systematic approach to identifying and managing compliance with environmental requirements as a common failure”. The framework is a tool for companies to use in reviewing their own practices and determining any additional steps that may be needed to ensure compliance with environmental protection obligations. The guidance is relevant to preventing all forms of pollution but can be read in conjunction with the Shipping Industry Guidance on the Use of Oily Water Separators, also published by ICS/ISF.4

The key component of the framework is management responsibility and continual oversight: “Senior management should demonstrate, by behaviour and action, that environmental compliance is a core element of the company’s business plan. Companies should assign the operation of the environmental compliance programme to a high-level executive with named responsibility to take all of the actions necessary to ensure compliance”.

The ICS/ISF recommendations include augmenting crew training in compliance requirements as well as reporting obligations. The effectiveness of the training should also be routinely evaluated. Companies should assess the fleet operations with respect to waste stream management, both where the waste is generated and where it goes and sufficient budget allocated for shipboard processing or shore disposal.

Environmental equipment, for example oily water separators, should be evaluated and replaced or augmented if not operating effectively. Control devices should be installed to prevent tampering with equipment and deliberate discharges.

Essential to company oversight is documentation, both for internal purposes of review and for review by port and flag state authorities: “A sound system of documentary management, including records required for statutory purposes and records kept in accordance with company policy, should be capable of demonstrating a full, complete and accurate record of all matters pertaining to environmental compliance on board each ship and by shore staff.”

In addition to the existing ISM non-compliance reporting system, the company should have an anonymous reporting mechanism that encourages any employee to report suspected violations to the environmental compliance manager. Reports should be investigated and any non-compliance addressed according to company disciplinary policy. Additionally, any violation of MARPOL should be reported to the vessel’s flag administration. In the event the company discovers intentional discharges of waste, the flag administration must be notified immediately and an investigation should be initiated. Additional notice to port state authorities may also be required for discharges within port state jurisdictional waters.

Finally, compliance with the plan should be regularly audited and results presented to senior management.

The benefits of corporate environmental stewardship go to the bottom line
Compliance with regulations designed to protect the environment, like MARPOL, is not discretionary. The US Coast Guard and the US Department of Justice have been aggressively investigating and prosecuting illegal discharges and falsification of records for well over ten years. To the surprise and dismay of many in the industry, crewmen continue to be caught having falsified records to hide illegal discharges, consequently dragging operators into lengthy and extraordinarily expensive criminal investigations in the United States. Putting in place an environmental compliance plan that meets the standards set by the ISC/ISF will not only prevent discharges but should also mitigate harm to the companies’ operations, reputation and bottom line in the event of an investigation.

1 Source: Environmental Enforcement, Finding a way out of the wilderness, by Pierre Olney, LeBoeuf, Lamb Greene and MacRae, Seaways, October 2007.
2 For complete information regarding these types of cases see Environmental Criminal Liability in the United States, A Handbook for the Marine Industry, by Venable, Baetjier, Howard & Civiletti, LLP and published by Chamber of Shipping of America.
3 See the article “ICS/ISF guidance on environmental compliance” in Gard News issue No. 189.
4 Both available at www.marisec.org/environmental-compliance.

Gard News 191, August/October 2008

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.