The importance of the world’s oceans in our daily lives cannot be overstated. As the planet’s largest ecosystem, the ocean covers 71% of the its surface and hosts 80% of its biodiversity. It provides half of our oxygen, is the largest carbon sink on the planet, a major protein source for more than three billion people, a valuable source of medicines, enables more than 90% of world trade and has an estimated annual economic value of $2.5tn.
Yet the ocean’s health, and consequently the health of all who live in or around it, and all who depend on it, remains under severe threats arising from climate change, pollution and overfishing.
Oceans and waterways are key to climate change mitigation and protecting against biodiversity loss, but there is a distinct lack of finance flowing into the sustainable blue economy. We have seen green finance initiatives springing up everywhere, but it has been a different story for sustainable blue finance.
SDG 14
Goal 14 of the UN’s Sustainable Development Goals (SDGs), ‘Life below water’, has received the least amount of investment of all the SDGs, with the Friends of Ocean Action’s ‘Ocean Finance Handbook’ commenting that the financial system has not yet realised the full extent of sustainable blue economy opportunities, nor fully recognised the value of the capital and services related to the ocean.
There are multiple ways for banks to influence and finance the transition to a sustainable blue economy, and this transition is needed now more than ever.
The Sustainable Blue Economy Finance Principles, supported by the Sustainable Blue Finance Initiative, provide a global framework defining a ‘sustainable blue economy’ as one that “provides social and economic benefits for current and future generations; restores, protects and maintains diverse, productive and resilient ecosystems; and is based on clean technologies, renewable energy and circular material flows”.
There are multiple ways for banks to influence and finance the transition to a sustainable blue economy
In its March 2021 guide ‘Turning the tide’, the UN Environment Programme Finance Initiative (UNEP-FI) defines ‘finance for the sustainable blue economy’ as “financial activity … in, or in support of, the development of a sustainable blue economy, most notably through the application of the Sustainable Blue Economy Finance Principles in financial decision-making, [environmental, social and corporate governance (ESG)] frameworks, and reporting”. This includes finance for sustainable blue projects and finance supporting ocean-related sectors more broadly.
Therefore, sustainable blue finance could take many forms; it could be financing specific projects for marine renewable energy (including offshore wind, waves and floating solar panels), ocean or marine biodiversity conservation, or involve financing corporates in ocean-related sectors, such as seafood, fishing and aquaculture, ports, shipping and marine transportation, or coastal or marine tourism. The UNEP-FI guide is helpful in exploring many of these sectors and is accompanied by a recommended list of activities to exclude from financing due to their adverse impact on the ocean.
Blue finance
Sustainable blue finance could be structured in multiple different ways: it could be in the form of a bond or a loan; structured like ‘green’ finance, but with a specific use-of-proceeds for a ‘blue’ purpose; or be sustainability-linked, incorporating ‘blue ESG’ key performance indicators and targets.
Not much finance has been given a ‘blue’ label yet, although there have been some ‘blue bonds’ since the Seychelles issued its sovereign blue bond in 2018. There is still a long way to go before sustainable blue finance really comes into the mainstream. Interestingly, UN guidance around such finance notes that many bonds that are currently labelled as green could actually be considered blue; however, there needs to be more blue bond tagging and labelling for this to become recognised in the market.
A key concern regarding labelling is the risk of ‘greenwashing’ (or ‘bluewashing’) due to the lack of globally consistent standards for sustainability disclosure and reporting. Developing frameworks including the EU taxonomy and the Taskforce for Nature-related Financial Disclosures may assist with setting international standards. The UNEP-FI acknowledges that further sector-specific guidance, tools and metrics must be provided to give financial institutions resources to implement the Sustainable Blue Economy Finance Principles and have positive impacts on ocean health.
Focus on this is likely to increase with the UN declaring this the “decade of ocean science for sustainable development”, and with COP15 and COP26 later this year. It will be interesting to see the impact that these meetings have and when we will start to see an increase in labelled sustainable blue financial products.
Sharon Smith is senior practice development lawyer at law firm Pinsent Masons.
