A new guide for global practitioners intends to promote blue bonds and their role in financing a sustainable ocean economy.
- A new report on blue bonds provides guidelines for market practitioners for a sustainable ocean economy.
- In light of recent threats such as climate change, overexploitation and marine pollution, it is essential for markets to account for the critical importance of marine environments and their resources.
- Moving traditional marine investments to deal with rising physical, regulatory and climate risks, thus promoting ocean-themed bonds, will help preserve the integrity of the market.
The guide was published by a collaboration of the Asian Development Bank (ADB), International Capital Market Association (ICMA), International Finance Corporation (IFC) United Nations Environment Programme – Finance Initiative (UNEP FI) and United Nations Global Compact (UNGC).
This was conceived as a tool for global practitioners to promote a sustainable blue economy, denoted by the sustainable usage of coastal and marine resources, and appropriate investments that recognise growing risks to the ocean environment.
“A healthy ocean is not only a vital carbon sink and home to 80% of all life on earth, it can also be a source of innovation to improve climate, nature and livelihoods. Blue bonds are a crucial instrument to deliver financing for marine-based solutions such as clean energy; transport and food systems,” said Sanda Ojiambo, UNGC chief executive and executive director.
Achieving a sustainable blue economy
These risks are primarily arising from issues linked to climate change, environmental degradation due to overexploitation of resources, and marine pollution, which can lead to the severe loss of biodiversity and ocean acidification.
Efforts to restore, maintain and protect marine ecosystems include halting the loss of ocean biodiversity, enhancing energy efficiency through renewable resources such as wave and tidal power, expanding low-carbon aquaculture, decarbonising maritime transport and developing circular material flows to drastically reduce marine pollution.
All of these goals contribute to building a sustainable economy for the environment, while ensuring the livelihoods of coastal communities.
The endangerment of marine environments poses a threat not only materially but also financially, as traditional marine investments are currently facing growing physical, regulatory, reputational and nature-related risks. The creation of a sustainable blue economy therefore provides an opportunity for investors to enhance asset value, improve resilience and enhance economic productivity in the face of future challenges.
The bond market in particular, as the largest asset class in the global financial market, plays a significant role in the development of a blue economy. For this reason, issuers of sustainable bonds can access the financial potential that lies within the blue economy and create long-term opportunities that are mindful of finance’s interconnection with natural capital.
What is a blue bond?
The World Bank defines blue bonds as debt instruments issued by governments, development banks or other entities to raise capital from impact investors to finance ocean-based projects that have a positive impact on the environment, the economy and the climate.
Inspired by the more widely known concept of green bond, a blue bond focuses specifically on the promotion of sustainable economic activities in relation to the ocean and marine resources. In 2018, the Seychelles archipelago was the first country to issue a blue bond, raising $15 million to facilitate a sustainable fishing industry transition and protect surrounding marine areas.
The issuance of blue bonds over the last five years reflects the growing interest in ocean-themed bonds and the need for financing a sustainable ocean economy.
A voluntary guide
Bonds to finance the sustainable blue economy provides criteria, practices and examples for the lending and issuances of blue bonds in favour of a sustainable economy.
It draws from existing global market standards such as the Blue Finance Guidelines, the Sustainable Blue Economy Finance Principles and practical guidance documents such as the UNGC Practical Guidance to Issue a Blue Bond amongst others.
The recommendations help identify the eligibility of projects for blue bonds, which should contribute to coastal climate adaptation, the restoration of marine biodiversity, the promotion of sustainable marine tourism and value chains, marine renewable energy, the reduction of marine pollution and the development of sustainable ports and marine transport.
Additionally, guidance on the blue bond issuance process is presented to suggest key performance indicators, showcase recent case studies and clarify the complexities of launching credible bonds to support the creation of a sustainable economy in this sector. It also contributes to highlighting the necessity for increased financing and the contribution of tools such as blue bonds in achieving global sustainability targets.
SGV TAKE
Blue bonds should be promoted as a way to finance a sustainable ocean economy that is able to endure the challenges of a changing climate, resource depletion and poor management. Because they are a relatively new instrument, the new guidance should help the financial community gain clarity on their scope and how they work.
More fundamentally, the recognition of climate-related risks and the importance of nature capital in financial practices must be taken into account for the benefit and future of the environment and the market. Sustainability is therefore a necessity for the survival of both.
