What are blue bonds and why do they matter?

15 June 2021

Hot on the heels of the green bond market comes the blue bond market, designed to raise capital to finance marine and ocean-based projects that have positive environmental, economic and climate benefits.

While still in its embryonic stages, the blue bond market is estimated to be worth £1.3 trillion and is set to grow amid a global push for environmentally-friendly investments.

Oceans are the largest carbon sink on the planet, absorbing some 90% of Earth’s additional heat, but they have come under threat in recent years. In 2016 alone, almost a quarter of the world’s coral reefs disappeared due to a change in sea temperature and ocean acidification.

Investment experts argue that protecting marine ecosystems and promoting better fishing practices will help economies to become more resilient as well as help ensure that jobs are protected, particularly in the tourism and hospitality industries.

The money raised through blue bonds is directed to specific projects with ‘blue credentials’ and investors receive regular reports on what the bonds have financed.

Despite this, Bryn Jones, lead manager of the Rathbone Ethical Bond Fund (pictured), said blue bond opportunities remain elusive.

“As ethical investors, we are constantly seeking investment opportunities and stand ready to support the blue economy but so far these opportunities are scarce.

“We appreciate the blue bonds are an embryonic market and they should play an important role in maintaining the biodiversity of the oceans to ensure the dynamics of the planet are kept in equilibrium. The issue we face is that it becomes a classic chicken and egg situation – what comes first, the bond or the demand?”

At the start of the year, the Asian Development Bank and the European Investment Bank announced the Oceans Financing Initiative which looks to create investment opportunities for the private sector with a specific focus on Asia and the Pacific Region.

Noelle Cazalis, a manager of the Rathbone fund, commented: “We strongly believe that development banks’ support can help this market to take off. By backing projects, they can ensure the risk-reward profile of these investments meet investors’ requirements.

“They can, for instance, guarantee revenue and lower investors’ risk. This risk sharing mechanism can be a huge step forward for the market and can in turn help countries to reach their Paris Agreement targets.

“Looking at different geographies, Asia seems particularly vulnerable, as it has the longest coastline of any continent and produces some of the richest marine ecosystems on the planet. Australian issuers could also use the blue bond market to protect the Great Barrier Reef or the Ningaloo Reef, the latter of which could be wiped out in less than 30 years.”

Jones added: “With more familiar green bonds, we are on the right path. The market has grown significantly over the last years, and we have been instrumental in pushing green gilts with the DMO. Blue bonds are lagging, but we’re confident this market can grow.

In March 2021, the UN EP FI published new guidance to encourage the transition of key sectors towards sustainable alternatives: seafood, ports, maritime transportation, marine renewable energy and costal and marine tourism. It supports the implementation of the Sustainable Blue Economy Finance Principles and will help build a set of standards needed for the market to gain traction.

“More capital is urgently needed to finance the transition, and we stand ready to look at opportunities to finance a sustainable blue economy.”

Professional Paraplanner