A Sustainable Investment in Journalism

A sustainable business requires diverse revenue streams. ESG Investor now operates a subscription service as of Tuesday 14th May. To find out more please get in touch with our subscription team on subscriptions@esginvestor.net

Commentary

A Virtuous and Self-sustaining Cycle

Early-stage investors must focus on the ocean economy to make waves in the climate race, according to Ed Phillips, Investment Director at Future Planet Capital. 

As we move into the summer months, we can expect headlines to be filled with record-breaking temperatures and unprecedented wildfires driven by climate change. While what happens on land will make our changing climate visceral to many, the damage happening to our oceans may continue to go unheeded and unnoticed.

This year’s World Oceans Day was therefore a helpful moment to reflect on the need for action and to put our oceans higher up the climate finance agenda, not only to mitigate the damage happening to this vast and important resource, but to also capitalise on the solutions it offers.

The ocean, which covers more than 70% of our planet, is the natural engine room when it comes to climate management. It produces 50% of the world’s oxygenabsorbs 30% of global carbon dioxide emissions, and captures 90% of the excess heat produced by these emissions.

Beyond these capabilities that must be protected, we should also be turning more to the ocean’s additional climate potential. Ocean-based climate solutions, such as ocean-based renewable energy and utilising low-carbon food from the ocean, hold the potential to reduce the emissions gap by up to 35% on a 1.5ºC pathway.

The economic argument is also strong. The global ocean economy is estimated to sit at around US$1.5 trillion per year, making it the seventh-largest economy in the world. With the right expertise, motivated investors could access ocean assets that total out at an estimated US$24 trillion!

Despite all this, what has been labelled the world’s greatest ally against climate change, still finds itself snubbed when it comes to investment. The ocean receives less than 1% of all climate finance, and the UN’s fourteenth Sustainable Development Goal – Life Below Water – remains the most underfunded of all.

Clear blue future

As headlines will remind us, there is a clear imperative to unlock the potential of our ocean if we are to take timely strides against climate change. But vast amounts of capital are still required to achieve this. So, how do we get more capital floating into the ocean economy?

Part of the solution might seem quite simple – putting the ocean at the forefront of the global climate change regime. Given its known importance – and potential – you’d be forgiven for thinking this was already the case. Not least because of the acceleration of efforts against climate change over the past decade.

However, ocean-based solutions have only just started to become more seriously recognised by investors, and the translation to tangible work and investment remains slow. The ocean economy remains stuck in its old ways, led by legacy industries such as shipping and oil and gas, where the implementation of enabling technologies such as automation, cloud computing, and analytics has been delayed. At least in comparison to the terrestrial economy.

This is largely down to the difficult operating environment, which has made developing and deploying new innovations unattractive. Incumbents also haven’t had the incentives and drivers to do so. As a result, and as the demand for action becomes very real, we face supply chain and technical challenges as well as very real investment inertia. To address these issues, early- and growth-stage investors – those that have the mandate and appetite to take greater risk – must play their part by overcoming these barriers and fast-tracking the development of vital ocean-based emerging technologies.

And these very much exist. In fact, we’ve recently seen the first ocean unicorns emerge in the last few years. In our own portfolio, we’re seeing vast potential in ocean start-ups. Rovco, for example, is delivering advanced subsea robotics and integrated survey solutions that will revolutionise the offshore wind industry. Captura, based in the US, is making headway in the carbon capture market through removing CO2 from seawater.

And Regent Craft is transforming coastal travel through fully-electric, zero-emission sea gliders that offer affordable, and sustainable travel alternative for the future.  Beyond climate-related innovations, the ocean is also the setting for many of our greatest geopolitical challenges, not least ongoing tensions in the South China Sea. The ocean-based technologies such scenarios necessitate should also guide venture capital investor focus in the short term.

An interweaving ecosystem

Through investing in such technologies today, we can create an interweaving ecosystem of climate-friendly and resilient industries that will be the backbone of the future ocean economy. For example, a low-emission shipping industry, aligning with the International Maritime Organization’s ambitious net zero target “by or around” 2050, will be powered through a range of low-carbon fuels. However, these fuels, including ammonia, hydrogen and methanol, will only be produced cost-effectively if we can scale renewable energy deployment, especially offshore wind.

The projected 1000GW capacity of offshore wind required by 2050 will be made possible by transferring the expertise, supply chain synergies and capex potential of the oil and gas giants, effectively replacing one ocean industry with another. Finally, underpinning all of this will be the restoration of our oceans, which can be achieved through protecting species, harvesting more wisely and implementing effective habitat restoration. While this may sound expensive in the short term, studies have found that for every dollar invested in marine restoration, the expected return would be US$10.

Ultimately, in identifying and targeting the scale-ups that will make this future ocean economy possible, investors can develop the building blocks needed to transform, replace and create entire new ocean-based industries. More than that, investment in these solutions today will bear new entrepreneurs and technologies, more trailblazing and transformative companies, and a whole host of new investors.

And with that, we might just create a virtuous and self-sustaining cycle of ocean-based investment, innovation and growth that holds the potential to turn the needle in the race against climate change today, and for the future.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap