The ESG Interview: Diving into the Blue

Tackling climate change depends on support for ocean finance, but marine-focused projects lag their land-based counterparts, explains ORRAA’s Karen Sack.

Last month, the UK government’s £500 million Blue Planet Fund committed £2 million to the Ocean Risk and Resilience Action Alliance (ORRAA) as a demonstration of its G7 summit commitment to tackling climate change.

The fund will allocate funds to various marine-focused organisations that target the disproportionate impact of global warming on the world’s oceans and seas. The investments underpin UK support for the Global Ocean Alliance’s 30×30 initiative, which aims to place 30% of oceans under protection by 2030.

ORRAA’s Co-Chair Karen Sack, says the funding is critical given the Intergovernmental Panel on Climate Change’s (IPCC) bleak forecasts published in August. The IPPC report says coastal areas – home to 40% of the world’s population – will see continued sea level rise throughout the 21st century, contributing to more frequent and severe coastal flooding in low-lying areas, while extreme sea level events that previously occurred once in 100 years could happen every year by the end of this century.

Sack says: “The G7 has essentially reiterated their support for ORRAA, and for strengthening its work. The Blue Planet Fund support is a real boost in the work that we’re looking to achieve.”

Yet given that Sustainable Development Goal (SDG) 14, which covers ‘life below water’, is forecast to need US$174.52 billion per year to meet its targets, the UK’s £2m commitment is just a, ahem, drop in the ocean.

Sack says: “SDG 14 is the sustainable development goal that receives the lowest levels of investment. Only about 1% of total climate finance is going into the ocean space.”

Novel finance initiatives

To tackle the lack of investment, Sacks says that more ocean-related finance opportunities are being developed which will encourage asset owners to value blue finance as part of their overall environmental commitments.

Blue carbon credits, for example, are gaining a gradual recognition as a viable component in ESG portfolios, as more projects emerge. Around since 2018, blue carbon credits tap into the established carbon credit marketplace and – according to AXA XL, the US arm of the global insurer and one of the market’s big-name backers – enable significant carbon offset.

Coastal wetlands can seize and store CO2 for millennia and if they were restored to their 1990 extent, would have the potential to sequester enough CO2 each year to offset the burning of more than two billion barrels of oil.

ORRAA is working with AXA XL, the Nature Conservancy and others to further develop blue credits which are set to be a major force in managing the impact of climate change for coastal communities.

Sack says: “We need to continue to develop blue carbon resilience credits, while coastal resilience bonds and blue bonds are also in development.”

Once commercially available, corporations will be able to offset their carbon footprint by buying blue carbon resilience credits, which finance vulnerable communities and fund coastal restoration and conservation projects. For example, carbon credits have already raised US$1.2 million to improve coral reefs, mangrove and sea grass habitats in Belize. The project is also expected to have a direct impact on the local economy by benefitting small-scale fisheries, promoting responsible tourism, and creating new jobs.

Alongside blue carbon comes parametric insurance, which pays out when a triggering event occurs. This might be damage to a coral reef, seagrass meadow or mangrove following a storm.

A pilot was developed by Swiss Re and The Nature Conservancy in Mexico at Quintana Roo. This has been followed by an ORRAA investment with the MesoAmerican Reef fund for four sites along the reef in Honduras, Guatemala, Belize and Mexico, expanding coverage and the application of this type of insurance.

Sack explains: “If a major storm hits and reaches a particular wind speed, an insurance pay-out can be made within two weeks. That money goes to work employing local residents who have been trained in advance of the storm as a kind of reef resilience corps. The parametric insurance helps keep people employed repairing the reef which builds resilience and allows them to adapt to a change in climate.”

The MesoAmerican reef insurance was brokered by Willis Towers Watson and AXA Climate has been selected as the insurance carrier.

“ORRAA will continue to expand these projects which is what part of the Blue Planet Fund support will go towards,” Sack says.

Creating a blue taxonomy

A paper from Nature Communications says much more still needs to be done to create realistic ocean finance initiatives that cater for a broader investor market.

The authors state: “There is a lack of high quality, investible projects with appropriate deal size and risk-return ratios to match available capital. While there is no shortage of investment capital available globally, the immediate lack of high quality, investible projects that would contribute to a sustainable ocean economy is a substantial challenge. Many ocean interventions require grant capital that generate very low, or no financial returns at all.”

What makes developing ocean finances challenging, according to Sack, is the absence of an agreed blue taxonomy to inform investor decision-making.

“There is much less science and data on the ocean space than there is on land. We need to agree disclosure methodologies and develop the accounting methodologies that value nature, allowing us to put a price on that value and understand how that impacts on investment strategies,” Sack says.

Efforts to create a blue taxonomy are underway. For example, the United Nations Environment Programme’s Sustainable Blue Economy Finance Principles aim to integrate sustainability standards into financial market practices, and the Taskforce for Nature Related Disclosures also has contributed to a plan to “map the ocean’s finance for a new decade”. But Sack would like to see more done.

Much rests on the upcoming COP26 in Glasgow this November and Sack is optimistic that this year’s climate summit will be more fruitful than COP25.

“There is no question we are more enthusiastic now the US has a new administration. [US Special Presidential Envoy for Climate] John Kerry is a significant and determined advocate for climate and ocean issues and will be doing his best to secure resources in the US and globally.”

Sack is keen to ensure less developed countries are afforded appropriate attention by attendees at COP26, given their disproportionate impact from rising ocean temperatures.

She says: “It is really important that the G7 and G20 listen to the climate-vulnerable countries. I think less developed countries are sick of lip service and want to see action take place.”

Sack is clear, however, that the private sector should not wait for direction from politicians.

“Governments can sit at the policy table and make pronouncements and invest in funds but the capacity of the private sector to move quickly when it decides to do so is incredibly powerful.”

Sack adds: “What we need now is to look at these large asset holders and see them come to the table to make those commitments regardless of politicians.”

While oceans account for 70% of the earth’s surface, they have been unable to attract the same financial support as that given to rain forests and other land masses. This year’s COP26 will need to raise SDG14’s profile if ORRAA is to achieve its ambition of driving US$500 million into ocean finance by 2030.


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