Our planet is often referred to as the blue planet since around 70% of the Earth’s surface is covered with water. However, over the years, our water bodies have been flooded with pollutants, making marine pollution a serious problem.
To tackle this problem, there has been a rise in initiatives and projects geared towards climate change, sustainability, and the restoration of our ecosystem. One initiative is green bonds, which are instruments that finance climate-friendly projects. Green bonds have been around since 2008.
Recently, a new type of sustainability bond has emerged as the latest financing instrument: Blue bonds.
The concept of blue bonds is relatively new and comes at a time when trends suggest that there is a high demand for instruments that support sustainability issues.
Our oceans are not just a habitat to millions of species. They are also a provider of more than half of the world’s oxygen, a major absorber of carbon dioxide, an important source of food and medicines, employment generator and a key determinant of environmental health. Waterways are considered to be the main routes for trade, and international shipping transports more than 80% of global trade all over the world, according to data by the UN International Maritime Organization.
“The annual gross marine product (GMP)—equivalent to a country’s annual gross domestic product—is at least $2.5 trillion; the total “asset” base of the ocean is at least $24 trillion,” according to a report by the World Wild Life. When compared with GDPs of nations, the “ocean economy” emerges as one of the top ten largest economies in the world.
It is estimated that more than two-thirds of the annual base economic value of the ocean is produced by assets that rely directly on “healthy conditions.” However, the health of the ocean is deteriorating due to multiple factors, such as the rising pollution levels, exploitation of marine natural resources, eutrophication, acidification and ocean warming. There has also been an alarming rise in dead zones in recent years from 400 in 2008 to 700 in 2019. According to a research study, if no action is taken to address the projected growth in plastic production and consumption, the amount of plastic that enter the ocean each year will nearly triple by 2040. However, the use of technology and other solutions “together could reduce by 2040 about 80% of the plastic pollution that flows into the ocean annually,” the study said.
The challenges faced by our marine ecosystem are recognized by the United Nations (UN) Sustainable Development Goals (SDG) as Goal 14, which aims to “conserve and sustainably use the ocean, seas and marine resources for sustainable development.”
Enter blue bonds
Blue bonds are pioneering financial instruments that are designed to support sustainable marine and fisheries projects. They are a subset of the green bonds.
The World Bank defines blue bonds “as a debt instrument issued by governments, development banks or others to raise capital from impact investors to finance marine and ocean-based projects that have positive environmental, economic and climate benefits.”
Back in October 2018, the Republic of Seychelles launched the world’s first sovereign blue bond.
“The bond, which raised $15 million from international investors, demonstrates the potential for countries to harness capital markets for financing the sustainable use of marine resources” according to the World Bank.
In January 2019, the Nordic Investment Bank (NIB) launched a 5-year SEK 2 billion NIB Nordic–Baltic Blue Bond to support banks that are lending to selected water management and protection projects in the Baltic Sea. The bond was listed on the Nasdaq Stockholm Exchange in February 2019. In October 2020, NIB successfully launched a new SEK 1.5 billion Nordic-Baltic Blue bond due in October 2025.
To draw attention to plastic waste pollution in oceans, the World Bank launched a blue bond in April 2019. This callable step-up fixed rate bond, which was targeted at both institutional and individual investors, raised $10,000,000.
The fourth blue bond issuance was by the Bank of China in November 2020. The dual currency bond raised the equivalent of $942 million towards protecting the oceans. This was the first blue bond from the private sector, the first from a commercial bank and the first from Asia.
While there have been few formal issuances of blue bonds, a lot of related groundwork has been done prior to them. In 2015, Nasdaq launched the world’s first sustainable bond market, which grew at a robust pace and eventually led to the launch of the Nasdaq Sustainable Bond Network (NSBN) in 2019. Nasdaq has been among the founding partner exchanges of the Sustainable Stock Exchanges (SSE), an initiative that aims to encourage sustainable investment, including the financing of the UN SDGs.
The Nature Conservancy (TNC) has been engaging with countries on the conservation of marine ecosystem by using debt-for-nature swaps. In 2015, the Seychelles’ Conservation and Climate Adaptation Trust was created together with the Government of Seychelles and TNC. These parties concluded the first debt-for-nature swap for ocean conservation, through a $21.6 million debt restructure. TNC took a step further in 2019 and decided to bring more island and coastal nations to unlock funding for conservation by restructuring a portion of their national debt. This program is dubbed as Blue Bonds for Conservation.
While it is too soon to gauge the market growth rate of blue bonds, the instruments definitely help in raising awareness about important marine issues while providing much needed fundings to projects.
Disclaimer: The author has no position in the index or stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.