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Are the High Seas off the Hook?

In the wake of a new global agreement for international waters, investors have an opportunity to support sustainable fishing. 

Almost two-thirds of the planet’s surface is covered by oceans, housing up to 95% of Earth’s total habitat by volume. These waters extend far beyond our coastlines, and yet, until the High Seas Treaty was agreed last month, only 1% of the high seas (waters beyond national jurisdiction) fell under any kind of protection protocol, with just 39% of the ocean falling under national jurisdiction. 

International waters haven’t escaped the effects of climate change, with Australian scientists recently warning that rapidly melting Antarctic ice will slow global deep-sea currents by mid-century, prompting accelerated sea level rise. As noted by the Intergovernmental Panel on Climate Change (IPCC) Synthesis Report, our global supply of fish has also already been “adversely affected” by ocean warming and acidification.  

“Although the ocean is and will be massively impacted by climate change, other threats are also important to take into account as they will further amplify these [impacts],” Lisa Hubert, Investment Director at Mirova, tells ESG Investor. 

In 2020, 92.7% of global fish stocks were either fully exploited (64.6%) or over-exploited (35.4%), predominantly due to overfishing, according to the UN Food and Agriculture Organisation (FAO). Across the high seas, 86% of fishing activity is undertaken by just five countries: China, Taiwan, Japan, South Korea and Spain. 

Oliver Ashford, Ocean Programme Associate at the World Resources Institute (WRI), says that unsustainable fishing techniques (such as bycatch) disrupts natural ecosystems and contributes to habitat destruction. Further, a “significant portion” of ocean pollution “is related to lost fishing gear”, he says.  

Rebuilding over-exploited or depleted fisheries should play an important role in both bolstering global food security and biodiversity, the IPCC’s Synthesis Report said. 

While the High Seas Treaty charts a course toward improved international cooperation to promote more sustainable fishing practices, the public sector will need support from private investors to turn ambitions into reality. Experts agree that investors have been slow to act.  

It is estimated that restoring depleted global fisheries will cost in excess of US$200 billion, yet between 2004-15 just US$42 million of private capital was committed to sustainable fisheries and aquaculture projects, according to the International Institute for Environment and Development (IIED).  

Andreas Hansen, Senior Policy Advisor on Ocean and Conservation Finance at The Nature Conservancy, says that “the unsustainable management of fisheries is resulting in forgotten benefits of around US$83 billion a year”.  

“Fishing is going to be part of our future; it’s a significant part of the global food industry and a significant portion of protein available to humans,” argues Paul Holthus, Founding President and CEO of the World Ocean Council.  

“What the industry needs is responsible investors to find ways to move the dial towards more sustainable practices.” 

Murky depths  

Sustainable fishing is mostly “out of sight and out of mind” for private investors, says Karen Sack, Executive Director of the Ocean Risk and Resilience Action Alliance (ORRAA). 

The UN Sustainable Development Goal (SDG) 14 – life below water – is one of the most underfunded, but will require US$174.5 billion of investment a year until 2030 if it is to be achieved. 

One of the biggest barriers limiting private sector involvement is the opacity of the fishing sector, say experts.  

Just 8% of 100 assessed listed and private seafood companies disclosed the exact species they are invested in for their entire portfolio, making it challenging for investors to accurately assess their exposure to risks and opportunities, according to a 2022 report by think tank Planet Tracker.  

Rolando Morillo, Senior Vice President and Portfolio Manager of Rockefeller Asset Management’s (RAM) thematic equity offerings, adds that there is also limited disclosure on companies’ understanding of the risks involved in shifting their business models to “incorporate forms of land-based aquaculture, given the limitations of future commercial fishing operations”.  

“Unfortunately, investors are not doing enough to address these issues and some of the largest public commercial fishing companies still do not provide enough disclosures on their suppliers and may not be fully aware of emerging risks,” he says.  

Lily Stuart, Manager of Research and Engagements at the FAIRR Initiative, says limited transparency and traceability leaves the industry “open to criminality and exploitation, health and safety risks, illegal fishing and destructive environmental practices”.  

Illegal fishing alone exposes investors and policymakers to considerable reputational and legal risks, as it is often also associated with human, weapons and drug trafficking.  

“Illegal, unreported and unregulated (IUU) fishing thrives where there are weak governance frameworks,” says RAM’s Morillo, adding that investor engagement with fishing companies and their supply chains is pivotal to “persuade companies to enhance sustainability initiatives, mitigate risk, and seek alternative opportunities for their business models”.  

Morillo says RAM is currently engaging with public companies in the Japanese commercial fishing industry to provide increased transparency on different tiers of their supply chains and in the sustainability of procured marine resources.  

Despite the scale of work to be done, the World Ocean Council’s Holthus is optimistic that currents are shifting.  

“Over the past few years, there has been a growing level of awareness and interest from investors we speak to about the blue economy and the risks within it,” he says.

Building a blue pipeline 

Investors have a “golden opportunity” to bring together sustainability and profitability in the fishing sector, says WRI’s Ashford.  

Netherlands-headquartered Aqua-Spark invests in aquaculture across the value chain globally, hitting €300 million in AuM in 2021. Classified as Article 9 under the EU’s Sustainable Finance Disclosure Regulation (SFDR), SWEN Blue Ocean targets investments addressing three existential threats to ocean health: overfishing, pollution and climate change. 

Mirova’s Althelia Sustainable Ocean Fund (SOF) invests in scalable and impact-aligned businesses contributing to sustainable seafood, the circular economy and ocean conservation.  

Antoine Rougier, Marine ESG Analyst at Mirova, says the asset manager applies “a strict ESG policy and sets ambitious goals in other social impact areas, beyond the targets covered by SDG 14, that are specifically related to the marine environment”.

“The aim is to contribute to the SDGs that cover climate, conservation, sustainable industry and innovation, as well as supporting the fight against poverty, inequality and gender discrimination,” he says.  

RAM’s Morillo also points to efforts being made by the Seafood Business for Ocean Stewardship (SeaBOS) and the High-Level Panel for a Sustainable Ocean Economy to serve as “cross-sector collaborative platforms that can work with private industry and shareholders toward a sustainable blue economy”.  

ORRAA’s Sack outlines how it’s “trying to build out the investable pipeline and develop a broader ocean finance ecosystem to de-risk investments in this space”.  

The alliance recently secured multi-year investment commitments from the US, Canada and the UK at the Our Ocean Conference in Panama to build ocean resilience, targeting projects such as bolstering the financial resilience of small-scale fishing communities with data, traceability and market platforms.  

Sack also points to ORRAA’s Vessel Viewer. Originally developed as a tool to help insurers avoid underwriting illegal fishing vessels, she tells ESG Investor that the 30 insurers involved in developing Vessel Viewer “identified one of its benefits as serving as a useful tool for all investors to conduct ESG analysis in this space”. 

Other initiatives are also being launched to improve the availability and quality of corporate disclosures. Planet Tracker launched Seafood Database to promote greater transparency across the US$1.8 trillion seafood supply chain, consolidating data sources and allowing investors to filter through companies to assess their exposure to overfishing, illegal fishing and other sustainability risks.  

Making waves 

Although it will take time before the full impact of the High Seas Treaty is realised, it nonetheless provides investors with more of the “certainty and coherence” they need to target sustainable fishing investment opportunities, according to Hansen from The Nature Conservancy.  

“It took 20 years of negotiations to get to this point, and while it is only the first step, we wouldn’t be able to go further without it,” he says.  

The treaty includes an agreement to provide a legal framework for establishing marine protected areas (MPAs) across the high seas to prevent unsustainable activities like overfishing. It also states that companies planning commercial activities or other large projects that involve the high seas will be required to carry out environmental impact assessments. 

Experts say that the High Seas Treaty also serves as an anchor for the Global Biodiversity Framework’s centrepiece 30×30 goal: preserving 30% of the planet’s land and sea against negative nature impacts.  

“There are clear synergies [between the two global agreements],” says WRI’s Ashford. “The treaty will play a critical role in extending the 30×30 goal across the entire surface of the planet – not just terrestrial and near-shore areas.” 

One of the other key benefits to consider is the relationship between the High Seas Treaty and Regional Fisheries Management Organisations (RFMOs), adds Ashford. 

“Globally, nearly 20 RFMOs have been created with the remit of sustainably managing fish stocks,” he says. “However, their coverage is incomplete both geographically, and in terms of the species they manage. The treaty may help to fill in these gaps through the designation of its MPAs.”  

It is estimated that only around 5% of global fish biodiversity in the high seas are assessed by RFMOs, meaning that there is “great opportunity” to assess a wider spectrum of fisheries’ impacts and “provide tighter management of the targeted (or to be targeted) marine resources”, such as sharks, turtles and sea birds, says Mirova’s Rougier.  

From an investor perspective, the High Seas Treaty will likely “accelerate the development and use of new financing vehicles, such as blue bonds and blue finance sustainability-linked bonds that incorporate KPIs linked to ocean health”, says Morillo.  

Obstacles to progress

But questions remain.  

In particular, there are concerns that the treaty’s provisions will not overrule regulations that have already been implemented by authorities overseeing existing high seas activities. These include shipping (the International Maritime Organization), deep sea mining (the International Seabed Authority), and the aforementioned RFMOs. Military activities and existing fishing and commercial shipping are also exempt from the treaty.  

“This reduces substantially the scope of the treaty’s benefits for existing activities,” says Rougier. 

Although an initial agreement has been reached, it could take several years of further debate before the High Seas Treaty is ratified in the national parliaments of at least 60 countries and can then enter into force. 

In the interim, policymakers and investors should not rest on their laurels, insists ORRAA’s Sack.  

“We have to act quickly to incorporate oceans into our climate and nature [policy and investment] ambitions, because changes to our oceans will impact every part of our lives,” she says.  

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.

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