With private markets catching up on the trend of sustainability, we are starting to notice greater investment in green bonds, funds, and indexes, all being used to improve climate practices or mitigate emissions. But among the hubbub of environmental investments and projects lies an unknown but crucial player. Blue finance.
According to the London School of Economics, one definition of blue finance is where the “proceeds or sustainability-linked loans or bonds direct finance” towards bringing positive change and improvement to what is known as the ocean economy.
But what is the ocean economy, and what makes it so important? We are all aware that in the world there are many types of economies, ranging from domestic economies to continental economies. The ocean economy is largely unknown however; it provides countless sources of income, from fisheries, to aquaculture as well as globalization through maritime transport. Sources show that the total ocean economy is valued at roughly $1.5 trillion per year, with total asset value being estimated at $24 trillion. This makes it the seventh largest economy in the world, supporting nearly half the population that depends on fish and around 60 million people who depend on it for work.
As well as being of economic value, our oceans are indispensable with regard to the climate and slowing down climate change by mitigating greenhouse gas emissions. Statistics from the United Nations show that the ocean provides 50% of the oxygen the planet needs, all while absorbing 25% of all CO2 emissions and capturing 90% of excess heat generated by emissions. This means the oceans act as an important buffer for our fight against climate change, giving us some form of protection.
However, climate change is reducing the overall value of our blue economy, and quickly. Global warming and the mistreatment of our oceans are weakening their overall strength and resilience. For example, global emissions have increased temperatures significantly via the greenhouse gas effect, which has had detrimental effects on water temperatures and the wildlife in it. Since 1950, coral populations have fallen by 50% through a process known as bleaching, where the warm or acidic conditions of the water stress them and kill them. These are natural species that are capable of absorbing 70 to 90 million tons of CO2 a year. This is just one of the organisms in this blue economy that is struggling.
A way we see blue finance becoming more of a reality and reinvesting in our oceans can be seen in what are known as debt-for-nature swap deals. This is where a country can have its external debt restructured on more favorable terms in return for investing in marine protection or restoration. In 2015, the country of Seychelles had US$21.6 million of external debt restructured by directing funds for marine conservation and climate adaptation, helping to prop up sustainable fisheries as well as reducing the country’s level of debt.
Blue finance and reinvesting in the health of our oceans will be a crucial step towards decarbonizing our future and achieving a newfound balance with nature and the economy. Institutional investors and governments need to address financing in the blue economy just as much as more conventional green investments such as renewable energy.