Dramatic evening light illuminates a cargo ship stacked with multiple layers of Maersk shipping containers, with a shadowed figure walking in the foreground
Denmark’s Navigare Capital is targeting $650mn for its third fund focused on sustainable shipping © Sergei Gapon/AFP via Getty Images

Green may be the environmentalists’ colour, but the planet they are fighting for is overwhelmingly blue. Oceans cover 70 per cent of the Earth’s surface, generate half of its oxygen, and absorb up to 30 per cent of the carbon dioxide produced by human activity. They are also economically important: the UN values the ocean economy at more than $3tn a year, comparable to the UK’s GDP. 

Yet, compared with the boom in green financing for land-based projects, the blue equivalent — financing focused on water and the marine environment — remains in its infancy. 

There are signs, though, that enthusiasm for such projects is picking up in the sustainable finance sector. On the private equity side, several funds with a blue economy focus are on the market.

For example, Ocean 14 Capital, backed by the European Investment Fund, recently raised €200mn for aquaculture and other marine projects. Similarly, Denmark’s Navigare Capital is targeting $650mn for its third fund focused on sustainable shipping and, earlier this month, secured backing from Mitsui, the Japanese trading company.

Now, a joint initiative by US asset manager T Rowe Price and the International Finance Corporation, the private sector-focused arm of the World Bank, is looking to entice bond investors with a new fund.

Bar chart of Number of ‘blue’ labelled bonds issued showing blue bond issuance has grown in recent years

The aim of their Emerging Markets Blue Economy Bond Strategy is to raise $500mn to invest in “blue bonds”. These are issued by companies in emerging markets and align with two water-related UN Sustainable Development Goals: SDG 6 on universal access to water and sanitation; and SDG 14 on conserving oceans, seas and marine resources.

Of all the UN’s sustainable development goals, SDG 14 suffers from the largest relative funding gap, according to the World Economic Forum. A 2020 study in the journal Marine Policy found that $174.5bn would need to be spent annually to reach SDG 14’s targets by 2030, yet WEF estimated just $10bn was invested in total between 2015 and 2019.

T Rowe Price and the IFC have each committed $75mn of seed capital for the fund and are looking to raise a further $350mn from other investors ahead of a planned launch in December.

Samy Muaddi, head of emerging markets fixed income at T Rowe Price, says there is currently “a lack of dedicated capital” for blue sustainable investment. He hopes the $500mn fund will “help build a market that doesn’t exist”, to fill the funding gap.

Thomas Eveson, global lead for sustainable finance at research firm Morningstar Sustainalytics thinks the strategy marks a turning point. “You’ve got an ecosystem developing there,” he says. “Many people have described this year as the tipping point for blue bond issuance and adoption.”

While green financing has flourished over the past decade, blue financing has suffered from a lack of confidence that may be partly explained by the absence of indices or success metrics, suggests Imane Kabbaj, head of sustainable investment specialists at asset management firm Carmignac.

Until recently, with no framework to operate in, most issuers of “blue” debt have been sovereign nations or multinational bodies.

“It’s a bit chicken and egg,” Kabbaj says. “Why are there not investable projects? Is it because we’re waiting for the guidelines? Or are the guidelines waiting for the funding?” 

But these obstacles are falling away. Last September, the International Capital Markets Association published its first guidelines for blue bonds, which it is treating as a subset of the green bond market. In the same month, dozens of nations signed the UN’s High Seas Treaty, which is yet to be ratified but aims to protect 30 per cent of international waters by 2030.

The ICMA guidelines — produced in partnership with multilateral financial institutions, including the IFC — provide details of how to launch a credible blue bond and how to evaluate the environmental impact of projects. ICMA defines blue bonds as being primarily about “the sustainable use of maritime resources”, and intended to fund initiatives including coastal climate adaptation, marine ecosystem management, sustainable ports, and renewable energy projects — such as offshore wind farms.

Kabbaj says the guidelines are crucial for attracting capital. “It’s going to help shift that very reductive perception that [blue investment] is just for conservation,” she says. “It’s a huge deal in the fixed income market. ICMA are the ones determining the guidelines of sustainable debt.” 

Kris Atkinson, a portfolio manager at Fidelity International, is supportive of the T Rowe Price and IFC initiative but remains sceptical about whether a market for blue bonds is ready to take off.

Investors need reassurance that they can build a diverse resilient portfolio, he argues. “There isn’t really a good pool of assets to pick from, if you’re trying to build a blue bond fund,” he says. “It’s very difficult to do. I am a little bit surprised that they’ve gone out and made a big noise about it, particularly given that its focus is on [emerging markets], which means the universe is further limited.”

Muaddi is confident the strategy will see capital flow in. “There’s a very common, symmetric pattern here in early stages of capital markets formation. You have this catalyst initially from the public sector or the multilateral sector, and then it passes off into the private sector.”

He compares these early stages of the blue bond market to how the green bond market once looked.

“I don’t think many would have envisioned, 12 years ago, that the green bond market could be [worth] $2tn,” he says. But he acknowledges the strategy will need work to succeed. “It’s achievable, not inevitable.”

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