Initiatives seek to rebalance ‘blue economy’ away from extractive industries.
New investment commitments to the so-called Blue Economy could be a positive for climate and biodiversity initiatives and good for portfolio diversification, new research claims.
Current commercial investment endeavours in the world’s oceans and seas include oil, gas, and industrial fisheries or human-made infrastructures such as tunnels, aquaculture and artificial reefs. As a result, according to a report from the Ocean Risk and Resilience Action Alliance (ORRAA), economic returns have been made largely by those in the developed world.
To redress the balance and reduce environmental damage, ORRAA launched its UN-backed #BackBlue Ocean Finance Commitment with signatories including AXA, Willis Towers Watson and Palladium.
The Funding Atlantic Network for Blue Economy Technology Transfer (FANBEST) says a lack of funding opportunity means 28% of asset owners are not addressing sustainable blue economy themes and are “missing out investment-ready opportunities that blue economy businesses present.”
While the value of global ocean assets is estimated at over US$24 trillion the blue economy is one of the least invested sectors. The ORRAA report says this poses a risk to UN Sustainable Development Goal 14, which aims to conserve and sustainably use the oceans, seas and marine resources.
“With The UK Environment Bill and COP26 high on the agenda, there is no better time for the blue economy to raise its head above the parapet,” said Andrew Smith, Executive Director at Greenbackers Investment Capital, which works with FANBEST.
“Studies confirm the importance of the blue economy, especially as governments are increasingly prioritising greener, cleaner, ways of working,” he said. “There is a misguided belief that it’s solely the responsibility of the government and NGOs to support blue economy businesses.
“Consequently, growth opportunities are simply being missed, from early-stage enterprises right through to well-established companies.”
Research supported by ORRAA has also shown a lack of investment in the sector, but also new threats.
“We find ourselves in a new phase in humanity’s use of the ocean, dubbed the “Blue Acceleration”, that is rapidly transforming the ocean and having major economic, social and ecological consequences,” said Albert Norström, PhD, Head of Knowledge and Evidence, Global Resilience Partnership, and project lead of new reports at the Stockholm Resilience Centre.
ORRAA’s reports specify food, energy, material and space as major areas of the Blue Acceleration, which has largely been detrimental for the oceans and the communities that live off them.
“If the Blue Acceleration continues unchecked and climate change impacts worsen, communities who depend on the ocean face pressures and the emergence of new interconnected risks,” Norström said.
Norström and ORRAA’s reports highlight that the ocean economy must be equitable, sustainable and diverse if it is to create true economic potential for small islands states and coastal developing countries.
Aspects of the Blue Acceleration show the inequity: of the 18 countries in the world that have installed offshore wind capacity, none are in small island states or the developing world. When it comes to aquaculture – the world’s fastest growing food production sector – only 0.09% of global production is taking place there.
The environmental impacts are also huge: since 2000 an area of ocean floor equivalent to the size of Peru (1.3m sq. km) has been leased for exploratory deep-sea mining.
However, momentum is growing for more sustainable investor engagement with the blue economy. Unveiled this week, ORRAA’s Ocean Finance Commitment is designed to unlock this potential for more sustainable use of the oceans.
Participation in the scheme involves setting net zero targets by joining one of the UN Race to Zero Financial Initiatives and adopting science-based objectives to reach net zero no later than 2050.
The commitment aims to speed “the transition towards a healthy and sustainable ocean through lending, investment, and insurance practices that mitigate ocean risk and build the resilience of climate vulnerable coastal communities”.
Participating institutions are expected to support efforts to raise US$500 million of initial investment into coastal nature by 2030 and create investable finance and insurance projects, the commitment’s statement said.
The initiative also sets out to drive “financial system policy change by adopting corporate ESG standards and disclosures that align with the recommendations of the TCFD and adopting taxonomies on sustainable economic activities.”
There are also aims to invest in nature-positive outcomes for the ocean, which are based on the UNEP FI Sustainable Blue Economy Finance Principles. The principles are designed to “drive investment into coastal and marine nature that halts biodiversity loss and builds the benefits that these ecosystems provide, while improving livelihoods.”
While the SDG14 goals are not out of reach and there are plenty of developing commercial activities to drive investment, the research shows that embracing ESG factors to address equality and sustainability will also be key.
The ORRAA report urges “collective action involving local communities, governments and public and private finance”. It also suggests a switch for the finance industry from ‘enablers’ to ‘gatekeepers’. As gatekeepers, “public and private financiers can ensure investments are directed towards more sustainable practices and decent working conditions. Financial institutions, such as banks and insurers, can leverage their power sustainability by deciding what to finance”.
It reiterates that finance “has an essential part to play but it must take a sustainable rather than a returns-only focused approach. With the right architecture in place, which places guard rails around ocean investment, a truly Blue Economy, can be created.”
According to Norström, the finance industry can help build resilience to oceans by directing investment in ways aligned with ESG principles.
“If the Blue Acceleration continues unchecked, communities in small island states and least developed countries who depend on the ocean face cumulative pressures and the emergence of new risk,” he said.