From deadly industry to source of jobs and business prospects

Bangladeshi ship-recycling was known to be one of the world’s most hazardous industries. Each week, another worker would die due to the unsafe working conditions.

End-of-life ships were brought to the coastline where labourers dismantled them manually, right there on the beach. Working without safety equipment at great heights. They carried away huge pieces of steel from dismantled ships without protective clothing. At high tide, it was not uncommon to see oil, asbestos and other toxins wash into the sea, destroying coastal ecosystems. Gas leaks would regularly cause explosions.

The financial sector in Bangladesh is one of FMO’s largest investments in South-East Asia. Most banks in the country, if not all, had legacy exposure to the ship-recycling industry. A $1.5 billion-dollar industry, the sector is renowned for supplying more than 60% of domestic steel and providing jobs for thousands of people. Poor labour conditions coupled with destruction to the natural environment could put FMO’s continued investments in the financial sector at risk. Back in 2009, a high court injunction was issued which required that all ships to be dismantled locally must show proof of having been decontaminated at source before being imported into the country. A full ban went into effect in 2010, putting more than 20,000 people out of work.

A bold and creative solution was clearly needed to break this vicious circle.

Investing in hope

FMO decided that to continue to invest in Bangladeshi banks, it must help improve working conditions within the ship-recycling industry. FMO mediated between government, industry and banks and in 2013, the ship-recycling industry and the banking sector signed a joint commitment to improve the industry’s environmental and social standards and promote sustainable ship recycling practices.

FMO gave support and guidance to improve working and environmental conditions. While PHP, who had total ownership of the project, embraced the Hong Kong Convention guidelines on limiting risks to health, safety and the environment.

When PHP finally applied for a sustainability certificate, the accrediting body initially didn’t even want to check the yard. Why bother? No Bangladeshi yard could ever meet the criteria. But when they finally did visit, they were impressed. And after some further improvements, PHP became the first ever certified Bangladeshi shipyard under the Hong Kong convention.

Opening up opportunities

The vicious circle had been transformed into a virtuous one. PHP is now even planning to apply to join the EU’s approved list of ship recycling yards. Which in turn should inspire other yards to follow the strategy of PHP, who are now well-positioned to become a preferred ship-recycling yard for any client or investor considering their own social reputation.

On a larger scale, FMO has opened up a market for local and foreign banks and investors to invest and work together in making the Bangladeshi ship-recycling industry safer and more sustainable.

The next challenge

Though FMO’s contribution to the ship-recycling initiative has ended, it hopes to reach two important future milestones. First, that the Bangladeshi central bank consider including “improvements in shipyard facilities” on its green finance products list. This will enable shipyards to apply for concessionary loans to improve their ship-recycling practices and to become internationally certified. Secondly, FMO hopes that Bangladesh will join the league of countries to sign and ratify the Hong Kong Convention for sustainable ship-recycling.

There still remain many practices in the shipwrecking industry that need to be changed. But the first steps have been made. Showing it’s possible to turn around even the most brutal industry. Improving working and social conditions, protecting the environment, ensuring the right climate for investment, and creating more jobs and greater prosperity.

See the improvements PHP has made.