Blue bonds

Blue bonds offer a financial mechanism to address pressing challenges relating to marine conservation and sustainable resource management. Practitioner’s guidance recently published by ICMA aims to support issuers, investors and underwriters interested in “blue” formats in order to catalyse investment in the sustainable marine economy.

In an era fast becoming defined by environmental challenges, we must become increasingly diligent and targeted in our search for solutions. Where financing these solutions is concerned, particularly in the form of debt financing, this often requires the creation of clear guidelines and standards in order to direct funds towards appropriate projects, and to ensure adequate follow-up and transparency. With the aim of unlocking finance to support a sustainable ocean economy, 

The importance of marine ecosystems

As our oceans face mounting threats from overfishing, resource extraction, pollution and climate change, the need to safeguard these vital ecosystems has never been more pressing. Data from the World Wildlife Fund reveals that the current state of ocean health is already regrettably poor, with marine species populations having declined by nearly 50% since 1970, and that . Further, it is not only ocean life that is impacted by the declining health of our marine ecosystems. Covering 70% of our planet, these ecosystems play an irreplaceable role in regulating the Earth’s climate. In addition to regulating patterns in our climate through their currents and moisture exchange, the oceans have absorbed over 90% of excess heat generated by human-induced climate change since the 1970’s

The human and economic impact, and funding opportunity

Beyond climate and ecosystems, there is a clear documented human and economic impact from declining ocean health. According to a report by the United Nations, over 3 billion people worldwide depend on marine and costal biodiversity for their livelihoods, making the preservation of these ecosystems not only an ecological necessity but a social and economic imperative.

The opportunity for funding, and more importantly protecting, a currently underfunded and overexploited  sustainable ocean economy is clear. Ocean trade alone is estimated to be worth $2.5 trillion a year and the full potential of the marine economy, including currently untapped areas such as ecosystem services, is estimated to be worth at least $24 trillion. Aiming to draw sustainability-aligned funding from the global financial market’s largest asset class, blue bonds have the potential to pull investments towards sustainable marine activities and to kickstart initiatives that will benefit ocean ecosystems and societies that rely upon them.

What is a blue bond?

Similar to green bonds, blue bonds are a use-of-proceeds format, meaning that money from the bonds is explicitly earmarked for financing activities that fall under pre-defined categories deemed beneficial for the development of a sustainable marine economy. Such bonds serve the function of connecting investors seeking “blue” investments with issuers in need of funding for projects considered beneficial to ocean or marine environments.

Central to the issuance of a blue bond, eligible projects for financing must be identified. In line with the existing Green Bond Principles criteria, blue bond projects must fall within one of the five categories in order to be considered eligible:

1. Climate change mitigation
2. Climate change adaptation
3. Natural resource conservation
4. Biodiversity conservation
5. Pollution prevention and control

These categories are rather broad, as they predate the latest blue bond guidance and are applicable elsewhere. ICMA has therefore identified an indicative list of blue project categories and sub-categories to aid issuers in the identification of suitable projects. While further detail is provided directly in the guidance, the following list serves as an indication of project types that are expected to be commonly supported by the blue bond market and align with observed best practices:

• Coastal climate adaptation and resilience
• Marine ecosystem management, conservation, and restoration
• Sustainable coastal and marine tourism
• Sustainable marine value chains
• Marine renewable energy
• Marine pollution
• Sustainable ports
• Sustainable marine transport