Ocean preservation and sustainable investing
Tourism, shipping, energy generation, and food production are just a few of the industries that rely on the oceans. Climate change and the unsustainable use of marine resources are deteriorating the health of the oceans, putting ocean-related businesses at risk as well as those whose livelihoods depend on them.
Globally, the market value of marine and coastal resources and industries, otherwise known as the blue economy, is estimated at USD 3 trillion per year or about 5% of global GDP. However, every year, the global community bears huge financial losses caused by ocean pollution and exploitation. The UN puts the figure as high as USD 83 billion.
The UN Sustainable Development Goal (SDG) 14 "Life below water" outlines a vision for reforming marine industries and achieving some recovery of the marine ecosystems. The main targets are:
- Reduce ocean acidification and pollution of all kinds
- Restore ocean ecosystems
- Support sustainable fisheries
- End overfishing
Financing SDGs and the sustainable bond market
Since the inception of the SDGs, the key question has been how to finance these goals. Sustainable bonds are a promising investment vehicle channeling capital toward projects with clear targets, such as those defined by the SDGs.
While still small, the market for social and sustainability bonds is growing fast (USD)
What is a green bond?
A green bond is structurally like any other bond, with the difference that the funds raised through issuing green bonds must be directed exclusively to green projects with clear environmental benefits, such as renewable energy, pollution prevention, sustainable agriculture, and clean transportation.
Green bonds are already well established in the fixed income universe and form the lion's share of the sustainable bond market.
What is a blue bond?
While green bonds are dedicated solely to projects that benefit the natural environment, blue bonds are more complex. As part of the sustainability bond spectrum, they aim to deliver financing to cover the broad scope of environmental, social, and economic issues facing the marine sector. They relate to all SDGs: not only those involving climate change, but also plastic waste, labor rights, and sustainable fisheries.
Recent guidance from the UN Global Compact suggests that blue bond issuers should fulfill two conditions: have a relevant corporate sustainability strategy in place addressing the SDGs, and a clear target for the bonds reflected in one or more KPIs. The two main options are use-of-proceeds bonds and KPI-linked general purpose bonds.
Blue bonds can be applied to a variety of sectors, for example:
Use-of-proceeds blue bond
|An offshore company wants to build a new class of ship that provides installations, maintenance, and services to an offshore wind project to support the renewable energy transition. The company has signed the Sustainable Ocean Principles and incorporated them into its strategy. It issues a five-year use-of-proceeds blue bond to finance innovation and the construction of the ships.|
Use-of-KPI blue bond
|An aquaculture company wants to reduce its overall use of antibiotics by 90% in all locations in Asia, Europe, and North America. The company has signed the Sustainable Ocean Principles and aligned its strategy with them. It issues a three-year KPI-linked blue bond.|
What is in the pipeline for the blue economy?
With the growing global population, the unavoidable energy transition, and necessary change in dietary habits, our reliance on the oceans is set to increase. Sustainable, forward-looking management of the oceans will foster the blue economy today and secure this key resource for the future.
Although the COVID-19 pandemic knocked the world off track in many respects, purpose-driven investors remain active and sustainable investing is doing well as was proven in the market turmoil of the first quarter of 2020. Undoubtedly, stopping and reversing the deterioration of the oceans will be costly, but it is provides growing investment opportunities.