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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.
This is a Financial Promotion
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.
SDG number 14 outlines a vision for reforming marine industries and achieving some recovery of the marine ecosystems.
Its main targets are:
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.
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.
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 Compact1 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.
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.
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.
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.
According to research carried out by Credit Suisse and Responsible Investor2, over a third of large institutional investors see the sustainable Blue Economy as one of the most important sustainable investment topics in 2020, yet it remains one of the least invested themes across impact investors due to the lack of available solutions.
Increasing numbers of private and institutional investors are keen to support companies that are already good stewards of the ocean. There is also a growing trend of using the influential position of shareholders to impact positively the activities and behavior of companies by holding them accountable to ESG standards. This concept of "engagement" is one of the fastest growing responsible investment strategies across the globe. In the context of the Blue Economy, opportunities for investor engagement include climate change mitigation and adaptation; maritime renewable energy; plastic pollution prevention; and sustainable fisheries and aquaculture.
At Credit Suisse, we expect the Blue Economy to become increasingly important as an investment theme over the coming years. There are many ways investors can actively engage in improving ocean health and generate returns.
Every investment involves risk, especially with regard to fluctuations in value and return. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income.
Investment principal on bonds can be eroded depending on sale price, market price or changes in redemption amounts. Care is required when investing in such instruments.
