With the global economy heavily reliant on ocean health, a sustainable future is paramount.
Covering more than 70% of the surface of the planet, holding 97% of all water and 80% of all life forms, the ocean and its ecosystems are vital to life on earth. Changes in the ocean drive weather systems that influence both land and marine ecosystems. To date, the ocean and its ecosystems have provided significant benefits to the global community, including climate regulation, coastal protection, food, employment, recreation and cultural well-being. Those benefits depend, to a great extent, on the maintenance of ocean processes, marine biological diversity and related ecosystem services, says the UN.
The global economy relies on the health of the ocean, says Dennis Fritsch, Project Coordinator, Sustainable Blue Economy Finance at the United Nations Environment Programme Finance Initiative (UNEP FI). Most global industry sectors and economic output are linked to the ocean, either by the impact they have on it, the impact the health of the oceans have on them, or both.
The ocean economy, estimated to be worth US$2.5 trillion annually, has attracted just US$13 billion in sustainable investment during the past decade.
This explainer looks at the calls for a ‘sustainable blue economy’ and the role investors can play.
What is the scale of the problem?
The UN’s Second World Ocean Assessment report published in 2021 found that a failure to achieve the integrated management of human uses of coasts and the ocean is increasing risks to the benefits traditionally drawn from the ocean, including food safety and security.
As human activities in the marine environment continue to increase, particularly in areas beyond national jurisdiction, they will exert growing pressure on natural resources, threatening marine biodiversity and, in turn, ecosystem services. Impacts are uncertain because relatively little is understood about how social and ecological processes interact to determine marine ecosystem benefits, the UN said.
The UN categorises two types of threats to the oceans: extractive, including fishing, mining, offshore hydrocarbon exploration and extraction, offshore and marine renewable energy installation and mangrove exploitation; and non-extractive, such as ocean warming, pollution and acidification.
In early March, a UN resolution to end plastic pollution was endorsed at the UN Environment Assembly. The resolution will help to forge an international legally binding agreement by the end of 2024. The UN said more than 800 marine and coastal species are affected by plastic pollution through ingestion, entanglement and other dangers. Around 11 million tonnes of plastic waste flow into the ocean each year, an amount that if left unchecked could triple by 2040.
What is a sustainable blue economy?
In a sustainable blue economy, all investors and corporates will be taking ocean health into account when making investment decisions, says Fritsch. UNEP FI is working towards integrating the use of sustainable finance practices in support of ocean health by the global financial community. “The sustainable blue economy is a vision for each ocean-linked sector, providing a high-level framework of financial principles accompanied by practical guidance,” he says.
The Sustainable Blue Economy Finance Principles are UNEP FI’s ‘foundational keystone’ to invest in the ocean economy. Launched in 2018, they act as a global guiding framework for banks, insurers and investors. They promote the implementation of UN Sustainable Development Goal 14 (Life Below Water), and set out ocean-specific standards, allowing the financial industry to mainstream sustainability of ocean-based sectors.
The fourteen principles include commitments to seek to develop knowledge and data on the potential risks and impacts associated with investment, banking and insurance activities, as well as encouraging sustainable finance opportunities in the blue economy. Those signing up to the principles should also endeavour to base investment decisions on holistic and long-term assessments that account for economic, social and environmental values, quantified risks and systemic impacts and adapt their decision-making processes and activities to reflect new knowledge of the potential risks, cumulative impacts and opportunities associated with their business activities.
The principles are designed to ensure that investment, underwriting and lending activities are aligned to SDG 14 and to enable financial institutions to “rebuild ocean prosperity, restore biodiversity and regenerate ocean health”, says Fritsch. They were developed by the European Commission, World Wide Fund for Nature (WWF), the World Resources Institute and the European Investment Bank (EIB) and are hosted by UNEP FI as part of the Sustainable Blue Economy Finance Initiative.
The negative impact on investors of existing practices could be significant. In examining sustainability pressures and financial risk in the blue economy, WWF warned that if ocean resources continued to be extracted at current rates, “we increase the risk of ‘stranded assets’ materialising in portfolios, i.e. through assets suffering unanticipated or premature write-offs, downward revaluations or conversions to liabilities”.
According to the WWF, it is imperative that financial institutions assess and manage marine-related financial risks and assess and disclose their portfolios’ impact on ocean resources and ecosystems, as they do for climate change, to ensure investments in the blue economy are targeted at the most sustainable pathways possible.
What can investors and financial institutions do to support ocean sustainability?
Lenders, investors and insurers hold significant leverage by providing much-needed capital to turn the situation around at pace, says Fritsch. “Financial institutions can take action to ensure sectors transition to a sustainable future and can also support and scale up those business models that are already doing the right thing.”
The blue economy is heterogeneous and each sector will have ‘no go’ activities that investors should avoid. UNEP FI’s guidance materials highlight what is relevant in each sector, why investors should care and what actions they can take now.
“Large-scale investors can engage with companies, using our existing sustainable blue economy guidance and principles, to help these companies transition to sustainability. It is also important to help those companies that are taking an innovative approach, many of which are small start-ups. Accelerators and venture capital funds focused on the ocean are emerging that will enable investors to become involved in various stage companies,” says Fritsch.
UNEP FI members have taken action to innovate in the blue economy. Case studies include the Blue Impact Bonds for Nature, a joint project between HSBC and The Nature Conservancy Australia to identify nature-based restoration activities on the mid-north coast of New South Wales. The project will establish a framework for capital market assets that can be used to raise conservation finance. The Australian-first project is built on the previous Mapping Ocean Wealth Australia, which quantified the economic contribution of marine ecosystems and the role blue carbon plays in protecting the environment.
“Rehabilitation of coastal areas is an important factor in the transition to net zero, as it can increase carbon sequestration, create new fish habitats and improve resilience to flooding and rising sea levels,” said HSBC Australia’s Head of Sustainability, Alpa Bhattacharjee, when the Blue Impact Bonds were launched in May 2021.
What are the investment opportunities from supporting a sustainable blue economy?
A sustainable blue economy will create “tangible opportunities for new jobs and businesses”, according to the European Commission, which recognises it as a crucial element in its European Green Deal. The opportunities will be created by work to mitigate the impacts on oceans and coasts and to build a resilient economic model based on innovation, a circular economy and a respectful attitude to the ocean. “This means that businesses that use or generate renewable resources, preserve marine ecosystems, reduce pollution and increase resilience to climate change will be incentivised, while others will need to reduce their environmental footprint,” it said.
To scale up public and private investment in the blue economy, the Commission will cooperate with European financial institutions such as the EIB to align efforts to reduce pollution in European seas, particularly the Mediterranean. Other initiatives will include the creation of a framework to facilitate the use of shared management financial instruments for a sustainable blue economy and helping smaller businesses that have transformative ideas to access capital via the BlueInvest platform.
Global climate change investment and advisory firm Pollination recently announced that it had advised on the sale of the first tranche of three million carbon credits from the world’s largest mangrove restoration project, Delta Blue Carbon Project in Pakistan. Pollination said the scale of the project “marks a critical turning point for the blue carbon market and the role of nature-based solutions in tackling the world’s carbon challenges”.
Trafigura, Carbon Growth Partners and Respira International will purchase the first verified offsets generated by the programme, which could see up to three million carbon credits traded. Over the six years of the project, more than 73,000 hectares of degraded mangrove forests and tidal wetlands have been replanted. It has been estimated that during the next 60 years, the wetlands will sequester an estimated 142 million tonnes of CO2e. CEO of project co-owner Indus Delta Capital, Nadeem Khan said the sale had secured the project’s future and will help the firm to scale up its activities. “Projects such as these require large-scale financing. Private sector investment through the carbon market is unlocking this new frontier in conservation.”
The Funding Atlantic Network for Blue Economy Technology Transfer (FANBEST) recently warned that a lack of awareness of funding opportunities available to maritime businesses, how to access investment platforms and the quantifiable environmental benefits that directly result from investment, are hindering the innovation and growth of blue economy businesses.
Adrián Dios from University of Santiago de Compostela, lead partner at the FANBEST Consortium, says transnational efforts to enable blue businesses to make the adjustments necessary to accelerate their development should be coordinated. “The blue economy plays a critical role in preserving our planet, with work carried out in sustainable development and the safeguarding of the world’s oceans – we need to give it the support it deserves to thrive.” The blue economy represents around 5.4 million jobs and generates almost €500 billion a year, says FANBEST.
FANBEST provides a range of support services, aimed at bringing companies and investors into contact. The organisation helped tidal power company HydroWing to raise around £200 million to develop its solution for remote and isolated communities.
What activities should investors avoid?
UNEP FI has published an overview of the recommended activities to exclude from financing in the sustainable blue economy, based on its guidance. The activities cover five sectors: seafood, ports, maritime transportation, marine renewable energy, and coastal and marine tourism.
Throughout the overview, options are given with both basic verifications to be completed in all instances and expanded verifications to be completed wherever possible for a more complete and objective picture. This further lowers the risk to financial institutions of basing financing decisions related to the blue economy on incomplete or unreliable information.
Sometimes conflicts can arise from competing priorities. Environmental analysts Planet Tracker issued a recent warning about the impact of deep sea mining, to source rare earth minerals. While supporters of the practice say it has potential to provide materials required for a decarbonised future, the environmental effects have been “catastrophic” and have “irreversible implications for biodiversity”. It cites the Micronesian island of Nauru, which plans to conduct deep sea mining in two years.
What is the outlook for the sustainable blue economy?
Just ten years ago, the idea of building blue economies was “a far-fetched concept that no one was taking seriously”, Cristina Mittermeier, wildlife photographer, conservationist, and Co-founder and President of SeaLegacy and Only One, wrote in UNEP FI’s Diving Deep, a new science-based, actionable toolkit for banks, insurers and investors. “Today, it is estimated to stand at a global gross value- added of US$1.5 trillion, a figure expected to double by 2030, making it a catalyst for why the global goal of achieving 30% ocean protection by 2030 is gaining traction. Financial institutions provide the financing, investment and insurance required to power ocean-related sectors, which means that the financial decisions made today affect the lives and livelihoods of future generations.”
UNEP FI’s Fritsch says the UN resolution on plastic pollution is very timely and he hopes it will mobilise efforts towards the sustainable blue economy. “It has the potential to act like a Paris Agreement for pollution, including plastics which end up in the ocean, pushing companies to engage on the issue. We can learn from the Paris Agreement process and move fast on ocean plastics. Plastic pollution is a big driver, encouraging many investors to engage on ocean health.”