What’s the future for “blue finance”?

On the Fijian island of Van­ua Levu in the South Pacif­ic, plans are under way to cre­ate a ‘Blue Town’—a mod­el for devel­op­ing sus­tain­able com­mu­ni­ties that can help con­serve coastal areas, man­groves and coral reefs. If suc­cess­ful, the ini­tia­tive would be fund­ed through an emerg­ing asset class known as blue finance, a type of green invest­ing that sup­ports water-relat­ed projects.

The part that focus­es on coral reefs is one of a num­ber of poten­tial marine projects that are being iden­ti­fied for invest­ment by a con­sor­tium of con­ser­va­tion­ists, phil­an­thropists, pri­vate com­pa­nies and mul­ti­ple Unit­ed Nations agen­cies. Those include the UN Devel­op­ment Pro­gramme through the Glob­al Fund for Coral Reefs, which aims to raise and invest $500 mil­lion to pro­tect reefs over the next decade.

“Coral reefs are in a dire sit­u­a­tion, 90% of the world’s coral reefs will be threat­ened or very threat­ened by 2050, and the finance to save the reefs is just not there—it’s esti­mat­ed the financ­ing gap is cur­rent­ly about sev­en times short of what is need­ed,” says Maxime Philip, fund design coor­di­na­tor at the UN Mul­ti-Part­ner Trust Fund Office.

While coral reefs are at risk from cli­mate change and warm­ing oceans, these chal­lenges are exac­er­bat­ed by pres­sures from a range of human activ­i­ties, such as over­fish­ing, tourism and waste­water runoff, par­tic­u­lar­ly from agri­cul­ture. Those stres­sors can dam­age reefs and make them more sus­cep­ti­ble to cli­mate change.

David Mey­ers, exec­u­tive direc­tor of the Con­ser­va­tion Finance Alliance, which is help­ing the fund devel­op its invest­ment plan, says blue finance ini­tia­tives can improve coral reef resilience by fund­ing busi­ness­es that reduce the impact of those activ­i­ties, such as local waste­water treat­ment plants, eco­tourism or bet­ter fish­eries man­age­ment.

The Fiji project, for instance, aims to invest in sus­tain­able busi­ness­es such as san­i­tary land­fill and oys­ter hatch­eries.

Conserving marine ecosystems

One of the chal­lenges with blue finance is that there is a lim­it­ed pipeline of bank­able ocean con­ser­va­tion projects that have the abil­i­ty to gen­er­ate returns for investors. That means grants and oth­er con­ces­sion­al mon­ey is often need­ed to help devel­op and incu­bate projects to make them a more attrac­tive invest­ment.

To solve that prob­lem, the Glob­al Fund for Coral Reefs is using a blend­ed financ­ing approach that brings togeth­er grant mon­ey, con­ces­sion­al loans and pri­vate invest­ment. That approach has also been cham­pi­oned by the apt­ly named social enter­prise Blue finance, an organ­i­sa­tion which helps man­age and sus­tain­ably finance marine pro­tect­ed areas (MPAs). 

“We’re com­ing from a world where marine con­ser­va­tion has been sub­sidised by grants and gov­ern­ment mon­ey, and every two years you have to ask for more, so we need to break that cycle by cre­at­ing sus­tain­able rev­enue streams for MPAs to finance them­selves,” says Nico­las Pas­cal, co-founder of Blue finance.

Those include sell­ing blue car­bon cred­its through man­grove and sea­grass con­ser­va­tion and restora­tion, ecotourism—such as charg­ing entry fees for marine park use—and sus­tain­able fish­eries.

Blue finance already has two pilot projects run­ning in the Domini­can Repub­lic and the Philip­pines, with a fur­ther three planned in Belize, Cam­bo­dia and Cape Verde. Pas­cal hopes to have 20 MPAs under the scheme by 2030.

Anoth­er way ocean con­ser­va­tion is being fund­ed is through bond issuance. Back in 2008, the World Bank issued the first ever green bond, cre­at­ing a mar­ket that has since seen almost $850 bil­lion of issuance, accord­ing to Dealog­ic. In 2018, the World Bank then worked with the Sey­chelles to issue the world’s first blue bond—a $15 mil­lion deal to sup­port sus­tain­able marine and fish­eries projects.

Impact investment opportunities

While the blue bond mar­ket remains in its infancy—only a hand­ful have been issued since—the World Bank has also been work­ing on a series of water and ocean themed sus­tain­able devel­op­ment bonds that are aligned with the UN’s Sus­tain­able Devel­op­ment Goals. The bank has raised around $5 bil­lion so far, high­light­ing chal­lenges around marine plas­tics and ensur­ing peo­ple have access to clean water and good san­i­ta­tion, says Heike Reichelt, head of investor rela­tions and sus­tain­able finance at the World Bank.

Pierre Rousseau, BNP Paribas’ senior sus­tain­abil­i­ty advi­sor, believes that banks are like­ly to play a cen­tral role in devel­op­ing the com­mer­cial blue bond mar­ket, fol­low­ing the Bank of China’s debut deal in Sep­tem­ber. Yet it is anoth­er blue econ­o­my indus­try that he thinks will real­ly pro­pel blue bond issuance in the future.

“Sea­weed can become the largest blue econ­o­my indus­try of tomor­row because sea­weed can be used for many things—for food, for pack­ag­ing, for tex­tiles, for bio­med­i­cine, for cos­met­ics, for bio­fu­el,” says Rousseau. “If we devel­op sea­weed farm­ing we will be able to real­lo­cate a lot of resource that we use on land and move it to the ocean.”

The OECD esti­mates that the blue econ­o­my will be val­ued at $3 tril­lion by 2030, dou­ble what it was worth in 2010, and gen­er­ate around 40 mil­lion jobs.

BNP Paribas has also been devel­op­ing a blue finance invest­ment solu­tion that allows investors to buy shares in an index fund that tracks the stock-mar­ket per­for­mance of water-relat­ed companies—such as water treat­ment and desali­na­tion businesses—while also donat­ing a small por­tion of their invest­ment to the Tara Ocean Foundation’s research and explo­ration projects.

“The blue econ­o­my is not just about the ocean, but also about how we use water on land, so we see it as an issue for all water on the plan­et and how we man­age that,” says Neven Grail­lat, head of the sus­tain­able invest­ment solu­tions struc­tur­ing team at BNPP.

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