The ocean economy has the potential to double in annual value by the end of the decade compared with its size in 2010—growing from US$1.5trn to US$3trn. Key to this growth are blue bonds, which can be issued by governments, financial institutions and private companies wanting to fund projects to restore ocean health, protect wildlife and secure the livelihoods of coastal communities. But demand is outstripping supply.
One roadblock to the market is the lack of a globally standardised way to issue a blue bond, according to Dennis Fritsch, senior project coordinator sustainable blue economy at the United Nations Environment Programme Finance Initiative (UNEP-FI).
“Right now, it’s a bit of a wild west where everyone can just do whatever they want. This results in investor hesitation to get involved,”Dennis Fritsch, senior project coordinator sustainable blue economy at the United Nations Environment Programme Finance Initiative (UNEP-FI).
Collaborating to overcome blue bond blockages
Five major organisations have come together to draft a global practitioner’s guide on how to use sustainable bonds to provide and access financing for blue economy projects and strategies in a credible way.
The International Capital Market Association (ICMA), UN Global Compact, International Finance Corporation (IFC), the Asian Development Bank (ADB) and UNEP-FI launched the draft for consultation at the UN Ocean Conference in Lisbon, Portugal (June 27th – July 1st).
The guide will support governments, financial institutions and corporations on how to finance blue economy projects under existing voluntary standards for green and other sustainable bonds published by ICMA. It will provide eligibility criteria, step-by-step processes and case studies for applying ICMA’s principles to blue bond issuances.
ICMA’s involvement in particular will boost confidence, according to Suzanne Johnson, senior advisor to the UN Global Compact’s Sustainable Ocean Business. ICMA publishes the standards underpinning the global sustainable bond market. In 2021, 98% of all sustainable bonds issued internationally were aligned with these principles.
“If 98% of the world is looking to ICMA for their basic principles, then this sends the signal that this is the go-to reference for blue bonds.”Suzanne Johnson, senior advisor to the UN Global Compact’s Sustainable Ocean Business
The guidance will also aim to reduce confusion around what kind of investments would be eligible for funding with blue bonds, according to Ms Johnson.
Ocean-focused solutions such as scaling up offshore renewables, decarbonisation of shipping, nature-based blue carbon projects and sustainable aquaculture have rocketed up the political agenda since the realisation that ocean health is tied closely to climate change mitigation and adaptation, she says. According to the High Level Panel on the Sustainable Ocean Economy, these activities could collectively contribute more than 20% to the goal of limiting global warming to 1.5 degrees celsius above pre-industrial levels. However, Ms Johnson adds that these can have many other benefits, including many elements in the UN’s Sustainable Development Goal 14 on “Life below water”, such as tackling pollution and improving working conditions and food security.
A key difference between blue bonds and green bonds is that the latter predominantly use one metric—tonnes of carbon— to measure a variety of initiatives. For blue bonds, there is great diversity in the types of projects that are eligible, and an equally diverse set of indicators.
Many projects can improve ocean health even if that is not their primary purpose; for example, sanitation projects in Ocean states have great potential for improving coastal water quality for marine life. But there is low awareness that such projects could be eligible for funding through a blue bond.
Highlighting one recent example of what a good sovereign blue bond issuance looks like, Ms Johnson cites the US$200m sovereign blue bond issued by the Bahamas in February, which was backed by a policy-based guarantee approved by the Inter-American Development Bank (IDB). The island nation is heavily reliant on the blue economy, with more than 50% of wages and 73% of employment attributed to it. The bond will support business recovery for micro, small and medium-sized enterprises that rely on ocean health. It will also fund digitisation in the blue economy, improve climate risk management in coastal and offshore areas, enhance the management of marine resources and reduce marine pollution.
“The bond was a good size for the market, which is looking for large bankable projects. The IADB recognised its potential for supporting the blue economy and helped to de-risk it. We expect to see corporate issuances come to market which highlight solutions in the market.”Suzanne Johnson, senior advisor to the UN Global Compact’s Sustainable Ocean Business
Ms Johnson highlights the Thai Union Sustainability Linked Bond as another strong corporate example of a bond to benefit the ocean. It includes targets related to carbon emissions as well as monitoring wild caught tuna supply chains.
Providing clarity for the market
Overall, the guidance aims to coalesce thinking on blue bonds. A plethora of principles and frameworks on blue carbon already exist, written by multilateral investment banks and international organisations, including by the five involved in the new guidance, she says.
“This is an effort to combine some of the important ones out there so that issuers globally have a focal point for clarity on what blue investments are.”Suzanne Johnson, senior advisor to the UN Global Compact’s Sustainable Ocean Business
The consultation process on the guidance has begun, and the five organisations backing it hope the document will be finalised by the end of 2022.
“It really is unusual that five such large organisations have come together to work on this. It will hopefully go a long way to instilling confidence into the investment market to start scaling up investment in truly sustainable blue bonds.”Dennis Fritsch, senior project coordinator sustainable blue economy at the United Nations Environment Programme Finance Initiative (UNEP-FI).
Source: The economist group