What is blue finance?
To have a sustainable ocean (or ‘blue’) economy, we need an economic and financial system that can channel financial flows into ocean-related activities. These flows are known as ‘blue finance’. The World Economic Forum estimates that US$175 billion of blue finance will be required to achieve Sustainable Development Goal (SDG) 14, ‘Life Below Water’, by 2030. But, of the 17 Goals, Life Below Water has seen the least investment to date.
How can blue finance be raised?
While sustainable finance is defined by applying Environmental, Social and Governance (ESG) principles in financial services decision-making, blue finance is generated where the use of proceeds or sustainability-linked loans or bonds direct finance specifically towards projects and programmes that have positive impacts for the ocean economy.
Banks, insurers and investors all have a part to play in providing finance for a sustainable ocean economy. The Sustainable Blue Economy Finance Principles were launched in 2018 to provide guidance on how this can be done in a way that aligns with SDG 14, Life Below Water. The principles cover 14 characteristics that signatories endorse, including being protective of the marine ecosystem, transparent with information, and science-led by approach. The principles also provide guidance on how to finance a sustainable ocean economy.
The UN Blue Bond Initiative has developed practical guidance to issuing a blue bond that meets the UN Global Compact and Sustainable Ocean Principles, building on the principles and framework developed by the International Capital Markets Association (ICMA) for the issuance of green, social and sustainability-linked bonds. Green, social and sustainability-linked loans can also be applied to financing the blue economy.
The EU Taxonomy for Sustainable Activities directs finance towards activities aligned with meeting the EU’s climate and energy targets. The Taxonomy recognises the role of the ocean economy and encourages investment flows into ocean-related activities. In 2022, the Platform for Sustainable Finance Technical Working Group issued guidance which included specific reference to: blue economy activities, including sea and coastal transport, hotels and camping grounds, fishing and processing of fish; nature-based solutions for the protection of coastal waters, including the conservation of coastal wetlands, mangrove forests and seagrass beds as a natural barrier for coastal defence; and coastal reef conservation and restoration.
How are different sectors involved in blue finance?
The maritime shipping industry has recently taken steps to reduce the greenhouse gas emissions associated with its activities. In 2023, the International Maritime Organisation (IMO) introduced new regulations which require the global maritime shipping industry to reduce greenhouse gas emissions for new and existing ships to meet the IMO’s greenhouse gas strategy. The financial sector and private sector have collaborated through transparency and reporting of emissions data and financing through platforms such as the Poseidon Principles to fund decarbonisation and the sustainability of the industry, and to provide insurance.
In the seafood sector, several multinational corporations have invested in sustainability-linked loans and bonds that support the blue economy and finance the sustainable development of supply chains. The Marine Stewardship Council (MSC) was recognised by the UN at Biodiversity COP15 as a global indicator for action on ocean biodiversity loss, and the Fishery Improvement Projects tool helps companies and governments to invest in the sustainable future of fisheries, as measured against the UN Food and Agriculture Organisation’s Status of Fisheries and the International Seafood Sustainability Foundation’s Status of the Stocks.
Investment in sustainable coastal tourism is also increasing, including extended responsibility and insurance to support coastal communities and ecosystems to recover from the devastating impacts of extreme weather events that are made more frequent and severe by climate change. Opportunities are also being identified to build resilience in coastal tourism.
Examples of blue finance in action
Blue finance is being used in many ways to create positive impacts for the oceans. For example, capital and equity are being directed to blue economy-aligned activities through impact funds and impact investing. These can be diversified funds aligned with maritime activities seeking to invest in emerging blue economy companies and encourage innovation and impact. Funds can be financed through not-for-profits such as the Nature Conservancy’s NatureVest program, or the MSC’s Ocean Impact Fund. Examples of innovative investment models include Hatch Blue and AquaSpark, which focus on investments in seafood, alternative proteins (e.g. seafood products made from fungi) and related technology.
Among the many examples of blue financing efforts by companies and organisations are the following:
- The Ocean Foundation partnered with Rockefeller Capital Management to launch a climate solutions fund focused on ocean outcomes and guided by a not-for-profit organisation.
- Ocean 14 Capital aligned its outcomes with SDG 14.
- Philanthropic organisations have dedicated practices on the oceans, such as Packard Foundation, Walton Family Foundation and the Gordon and Betty Moore Foundation.
- The Monterey Bay Aquarium is an example of philanthropy that has a mission to inspire ocean conservation, funded by the Packard Foundation and blending finance from other sources to generate a greater impact through awareness and advocacy.
Emerging tools and approaches
Innovative financing mechanisms to drive investment into nature-based solutions are emerging. The Seychelles launched the world’s first sovereign blue bond in 2018 in collaboration with the World Bank to support sustainable marine ecosystems. Since then, the Nature Conservancy has supported the launch of two more sovereign blue bonds, in Belize and Barbados, using an innovative financial approach for debt swaps for nature.
In 2022, a new blue finance programme called Blue Halo was launched at the G20 meetings in Indonesia. Blue Halo aims to use a blended finance approach to combine public and philanthropic capital with private sector investment to generate positive outcomes for ocean conservation, sustainable fisheries and livelihoods, aligned with the UN SDGs.
Tools for financial innovation using nature-based solutions are being developed, including insurance underwriting for coastal protection with mangroves and sustainability-linked finance with specific outcomes for the oceans.
There is also an emerging market for blue carbon credits, which often involves ecosystems like mangroves and seagrass beds, and biodiversity or conservation credits. Blue carbon is the carbon stored in coastal and marine ecosystems, and in the plants and the sediments beneath. The International Blue Carbon Initiative publishes a manual for how to measure and assess the blue carbon stored in ecosystems including mangroves, tidal marshes and seagrasses. Further work on blue carbon sequestration in other marine ecosystems, including in macroalgae, tidal mud flats and kelp forests, is also underway around the world.
It is estimated that every $1 invested in the ocean generates a return of $5 to the blue and wider economy. Dedicated regional ‘blue banks’ are one way to ensure that blue finance can flow to the parts of the ocean economy that most need investment, banking and insurance.
This Explainer was written by Darian McBain.