MISC Integrated Annual Report 2020

///// Sustainability / Financial Review / Business Review / Leadership / Governance /// MISC Berhad / Integrated Annual Report 2020 7 148 MISC Berhad / Integrated Annual Report 2020 7 149 /// Governance / Leadership / Business Review / Financial Review / Sustainability ///// Section Section PETROLEUM & PRODUCT SHIPPING Sustainbility Pillar Initiatives and outcomes Shareholders We leverage on a strong environment, social and governance (ESG) proposition to tap into new markets and expand our footprint in existing markets. Our ESG-led business development approach enhances investment returns by allocating capital to more promising and more sustainable opportunities. AET’s secured income strategy focuses on long-term contracts, which delivers sustainable returns for shareholders. This has proven to be a financially sustainable strategy given the COVID-19 crisis. Customers We strengthened our customer engagements and collaborations to continue building relationships of mutual trust and respect. In 2020, AET and Total announced the agreement of the time charter of two LNG dual-fuel VLCCs. The two newbuilds are scheduled to be delivered to AET commencing 2022. When in service, they will emit around 20% less CO2 greenhouse gases than conventional vessels, 85% less NOx and 99% less SOx. Besides that, 99% fewer fine particles will be released. As part of our emissions reduction strategy, we partnered with Shell to promote LNG as a sustainable marine fuel. We supported the US Coast Guard Foundation’s Virtual Awards Fundraiser as a guardian sponsor, our first in-person event with customers in 2020, in compliance with Texas’ social distancing requirements of a maximum 10 pax. In 2020, AET conducted the biennial Customer Engagement Survey to gain deeper insights into our customer expectations and requirements. The Customer Engagement Survey results showed that 60% of our customers were ‘Satisfied’ with our services while another 40% of the customers were ‘Very Satisfied’. Please refer to the Anchoring Sustainability @ MISC section on page 104 of this Integrated Annual Report for more details. Governance and Business Ethics In June 2020, AET established our own Anti-bribery Management System (ABMS) and published the ABMS Manual in our Business Process Management (BPM). The Anti-bribery and Corruption Policy was approved by our Board of Directors and has been published on both our external website and in our BPM. Along with the ABMS Manual and Anti-bribery and Corruption Policy, we have also introduced the Third-Party Due Diligence SOP and Joint Venture Management Framework and Guideline SOP. As well as that, we revised our Global Disciplinary Policy and Recruitment processes and conducted multiple employee awareness sessions on our ABMS and anti-bribery and corruption controls across all our offices. We also received the ISO 37001:2016 certification, an international Anti-Bribery Management System standard designed to help organisations combat bribery risk in their own operations and global value chains. This certification signifies to our customers, industry partners and employees that as an organisation, we have robust anti-bribery management systems in place, building on our strong global culture of integrity and governance to tackle bribery and corruption risks. To embed the Code of Conduct and Business Ethics (CoBE) as a key and fundamental constituent of the AET culture, we provided Ethics and Compliance Training for our people through an e-learning platform. All AET shore employees have completed this module. In order to increase employee awareness on AET’s compliance policies, we launched a new learning initiative using artificial intelligence (AI) named Clever Nelly. KEY DEVELOPMENTS Against the COVID-19 backdrop, AET took delivery of a series of tankers including two LNG dual-fuel DPSTs; Eagle Blane and Eagle Balder and five eco-efficient DPSTs; Eagle Petrolina , Eagle Paulinia , Eagle Paraiso , Eagle Passos and Eagle Pilar (delivered in January 2021). Despite challenging market conditions brought about by everchanging health policies and requirements due to the pandemic, all seven vessels have been safely delivered in full compliance with the customers’ stringent acceptance tests and are operating on long-term charters in the North Sea and the Brazilian Basin. As part of our VLCC fleet rejuvenation strategy, AET entered into an agreement with Chartering and Shipping Services SA, a wholly owned subsidiary of Total for the construction and time charter of two of the world’s most environmentally friendly VLCCs in the market. Delivery of these vessels will commence in 2022. This will contribute to our objectives of increasing both secured income from long-term contracts and number of eco-efficient vessels in our fleet. The contracts secured with Petrobras in early 2020, coupled with our contracts with Shell in December 2019 have enabled AET to expand our presence in Latin America and strengthen our relationships with customers in the region. This enhanced Latin American presence places AET in a sweet spot for West-East crude trades which we envision will continue to grow, driven by Latin American exports to the Asia Pacific region. In 2020, we reviewed our mid-sized tanker fleet portfolio to ensure we continue to operate an optimum portfolio of vessels without compromising our services to our customers. As a result of this review, we accelerated the sale of two older Aframax tankers from 2023 to fourth quarter of 2020 that were no longer aligned with our sustainability ambitions, as well as to improve our operating and financial performance in view of the pandemic driven challenging market environment and outlook. The 10 DPSTs currently on long-term charter contracts with Equinor and Petrobras have notably contributed to AET’s earnings during the year and will provide a firm base as we enter 2021. From late 2021 to 2022 we will take delivery of another six DPSTs on long-term charters with Shell and Petrobras. In addition, two LNG dual-fuel VLCCs are scheduled for delivery in 2022, which will be on long-term charter contracts with Total. We will continue to ensure that these tankers are constructed and delivered as per our customer expectations. These vessels when delivered will improve our financials further. Purposeful sustainable profitability will always be our guiding principle in our commercial strategy and portfolio management. Our continuous commitment to upholding the highest levels of HSSE was recognised by the Maritime and Port Authority (MPA) of Singapore’s International Safety@Sea Award in acknowledgement of AET’s rescue of three French sailors in the Bay of Biscay. The CSA’s Jones F. Devlin Awards recognised our outstanding safety records for a combined 54 ships and 4 workboats in our fleet. CSA also recognised 56 ships and 2 workboats with the Environmental Achievement Awards, reflecting industry recognition of our stringent HSSE and environmental protection measures. SUSTAINABILITY We maintained our sustainability commitments during the year, to create value for all our stakeholders as follows. MARKET REVIEW In early 2020, the tanker market was focused on ensuring compliance with the International Maritime Organisation (IMO) 2020 sulphur regulation. The resulting time out-of-service for scrubber retrofits is estimated to have reduced the active crude tanker capacity by 1.1% and product tanker capacity by 0.5% in 2020, and provided some support to the tanker market during the year. In the first half of the year, the crude tanker market fundamentals were largely positive, despite some early signs of demand destruction due to the COVID-19 pandemic. After the collapse of Organisation of Petroleum Exporting Countries and its allies (OPEC+) talks in Q1 2020, oil supply from some Middle Eastern crude producers increased significantly with a sharp drop in oil prices leading to inventory building in some regions, and significant floating storage requirements. The unprecedented demand for floating tonnage, which peaked at 12% of the fleet by the end of May 2020 took away tanker capacity from the active trading fleet supporting freight rates that reached record highs. Starting June, subsequent production cuts implemented by the OPEC+ to mitigate against the oversupply of oil pressured seaborne crude trade, and tanker earnings weakened substantially. The tanker market continued to ease back in the second half as impacts from COVID-19 and deep supply cuts by OPEC+ intensified. On the tanker supply side, the tanker fleet grew by 1.1%, a modest growth on the back of a limited orderbook. Ship owners have been cautious in newbuilding orders, for a combination of factors, with only 81 newbuild crude tankers ordered in 2020 compared to 102 in 2019. Overall, only 189 crude vessels were on order at the end of 2020, which represents just 8.9% of overall deadweight tonnage (DWT) capacity compared to 12.6% DWT capacity a year earlier in January 2019. On the scrapping front, for the large part of 2020, the incentive to scrap remained low due to the tonnage demand for floating storage.