The Wonder of the Seas, owned by Royal Caribbean and considered the largest cruise ship in the world, left on his last visit to the Balearic Islands a trail of criticism and toxic smoke that pollutes “almost 10 times more than all the cars in Palma de Mallorca together,” denounced the anti-cruise platform.
Since the NGO Transport & Environment put figures to the pollution emitted by these vessels (the equivalent of 100 million cars), the four major shipping companies, Carnival, Royal Caribbean, Norwegian Cruise Line, and MSC Cruises, are redoubling their efforts to reduce their emissions.
In its latest ESG report, which brings together environmental, social and governance metrics, Royal Caribbean CEO Jason Liberty noted that they are focused on “delivering the best possible vacations while doing so in a responsible way” and put the focus on achieving zero emissions by 2050 with actions such as the introduction of a fuel cell hybrid, a shipbuilding portfolio in which each new class of ship is 20% more energy efficient than its predecessor or managing waste to convert it into energy.
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Royal Caribbean, Carnival and Norwegian offer a medium level of unmanaged sustainability risks
Norwegian also has 2050 as its goal to be emissions neutral. In its new sustainability report it commits to offsetting three million metric tons of CO2 equivalent in three years and wants around 70% of its fleet to be equipped by 2025 to connect its ships to shore-side power grids.
Despite these good intentions, the truth is that ESG ratings do not yet reflect these intentions. Excluding MSCI Cruises, which is not listed, the other three shipping lines receive a rating of more than 20 out of 100 from Sustainalytics, which means a medium level of unmanaged sustainability risks (between 0 and 10 these risks are negligible and above 30, high). The worst is Norwegian, with 26.6.
S&P Global (where the higher the number from 0 to 100 means a better grade) gives Carnival a 40, Norwegian a 41 and Royal Caribbean a 56. And for MSCI, which designates leaders in ESG risk management with triple A or double A, it grades Carnival with a B, Royal Caribbean with a double B and leaves Norwegian without a grade.
The recommendation is hold
Despite the good numbers forecast for tourism in what is expected to be the year of consolidation of the post-pandemic recovery, cruise companies are being caught up in a perfect storm on the stock market, with annual declines of more than 50% on the stock market. These declines have brought to the surface nearly triple-digit 12-month potential, which, on the other hand, has not changed the consensus analysts’ minds, who recommend holding their stocks until the storm subsides.
“High fuel prices, inflationary pressures on food, and significant increases in costs for cruise ships to reach their port of departure are incremental hits on margins,” Deutsche Bank noted.
In the case of Royal Caribbean, these experts believe that “there remains solid operating momentum in the here and now and the company is trending towards a much more comfortable cash position, but obviously the markets are at this point more focused on potentially less rosy economic scenarios for the U.S. consumer for the coming year.”
Indeed, the German bank’s analysts believe that “until one of the cruise operators is willing to offer formal guidance for 2023, we believe the path of least resistance for many consumer discretionary investors is to stay on the sidelines.”
Less pessimistic is Citi on Norwegian, for whom while it remains rated neutral/high risk given its exposure to geopolitical events and changing pandemic conditions, “if the company can simply achieve some stability on these fronts, we should see substantial improvement across the board in the coming months,” he said.
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First published in elEconomista.es, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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