Helping the sea to fight climate change
A compelling recent example of the EIB’s role as a “crowding-in” bank is its support for the Althelia Sustainable Ocean Fund (SOF), the first close of which was announced in September.
The EIB is a cornerstone investor in this $100m fund, which is dedicated to making pioneering impact investments in marine and coastal projects. This in turn will help to build resilience in coastal ecosystems and underpin sustainable growth in the so-called blue economy, which is defined as all economic sectors that have a direct or indirect link to the ocean. The OECD has forecast that by 2030, the blue economy could outperform the growth of its global counterpart in terms of value added and job creation.
The imprimatur of the EIB’s support as a fund investor is critical in sectors traditionally regarded by other lenders as unbankable. “The idea is to help to build momentum by typically taking 20% of a fund, which then gives others the confidence to invest,” says Martin Berg. He is Head of the Environmental Funds and Climate Finance Policy Unit at the EIB in the Equity, New Products and Special Transactions Department. This has been responsible for channelling the EIB’s investment into several funds dedicated to sustainable development. One example is the Land Degradation Neutrality Fund (LDNF), which is expected to become operational in the coming weeks and has been developed in partnership with the United Nations Convention to Combat Desertification (UNCCD) and the Agence Française de Développement. LDNF will target projects in areas like sustainable commodities and agriculture, helping to combat desertification, in line with Sustainable Development Goal (SDG) 15.
Oceans: A Common Good
In the context of the blue economy, initiatives such as the Althelia Fund are helping to channel much-needed investment into areas such as fisheries, which have historically been regarded by commercial banks as too risky. Supporting enhanced efficiencies in fisheries could increase profits in the sector by 115% to $51bn, according to some studies. Given that more than 90% of people whose livelihoods depend on fishing live in developing countries, the impact of this increase on job creation, living standards and poverty alleviation is self-evident.
As an example of the sort of initiative that could help to address each of these social ills, Berg points to the economic benefits that could be generated by supporting micro-enterprises fishing for lobsters in Belize. All too often, he says, those operators are able to export only lobster tails, because they lack the storage or freezing facilities to make the rest of the resource commercially marketable. The result is considerable wastage, with the unused parts of the lobster thrown back into the sea.
Promoting Partnerships and Risk-sharing
Berg says that an important feature of the Althelia SOF is the support it has received from the US Agency for International Development (USAID) in the form of a risk-sharing guarantee of up to 50% of losses incurred by investors. According to USAID, its Development Credit Authority (DCA) facility will “allow private capital to flow, at scale, towards financing sustainable business models in the ocean economy by providing loan guarantees directly to portfolio investments in the SOF.”
Another notable way in which partnerships are supporting the SOF is in the endorsement it has had from several influential non-government organisations (NGOs). “It’s impossible to please all the NGOs,” says Berg. “But from a reputational risk perspective our technical team draws comfort from the support given by Conservation International and the Environmental Defence Fund to initiatives such as the SOF.”
Life Below Water
Understanding of the full significance of the environmental as well as the economic role played by the world’s oceans is a relatively recent phenomenon. Aside from the biodiversity they sustain, the contribution made by the oceans to combating the impact of climate change is a function of their role as a carbon sink, a natural reservoir that absorbs and stores the atmosphere’s carbon. It is now estimated that oceans may concentrate as much as 50 times more carbon than the atmosphere, putting them in the front line of the planet’s defence against climate change.
More broadly, the size of the blue economy is such that it makes a very considerable contribution to global economic activity – much of which is concentrated in under-developed regions. Globally, the market value of marine and coastal resources is estimated at $3tr per year, or about 5% of global GDP.
It is against this backdrop that the EIB has reiterated its support for the sustainable development of the blue economy as a key priority, in accordance with SDG 14 (Life Below Water). “SDG 14 dovetails with the strategy we had been pursuing in any case, which is to put more emphasis on the blue economy,” says Jonathan Taylor, EIB Vice-President in charge of climate and environment. “This is not at the expense of our support for the green economy, but as a complement to it.”
Taylor says that, beyond initiatives such as its investment in the Althelia Fund and the provision of facilities for borrowers such as the Caribbean Development Bank (CDB), the EIB is engaged in a number of other programmes to support the blue economy. Foremost among these is the initiative which was announced at the Oceans Conference organised by the EU in Malta in 2017 to develop a set of Sustainable Blue Economy Finance Principles. This 14-point framework is a commitment to promote SDG 14, set out ocean-specific standards without duplicating existing guidelines for responsible investment, and comply with IFC performance standards and EIB environmental and social principles and standards.
These principles are backed by a coalition of large institutions including Althelia Ecosphere, Aviva Investors, the BPCE Group, Seventure Partners, Willis Towers Watson and the World Bank, alongside the EIB and the European Commission. This makes the agreement a compelling example of a multilateral partnership designed to pool resources and expertise in order to address the challenges presented by sustainable development.
The Clean Oceans Initiative
The size of this challenge explains why the creation of partnerships and the use of co-investment and guarantee models is critical if the formidable financing requirement is to be met. A significant example of a partnership targeting marine protection is the agreement being signed this week between the EIB, Germany’s Kreditanstalt für Wiederaufbau (KfW) and the French Agence Française de Développement (AFD) to establish the Clean Oceans Initiative.
Richard Amor, Head of the EIB’s Implementation and Business Development Unit in the Global Partnerships Department, says that the EIB/KfW/AFD Clean Oceans Initiative is committing €2bn over the next five years to support viable, sustainable projects targeted at decreasing pollution levels in the world’s oceans. These will make a decisive contribution to reducing marine litter – especially plastics – as well as untreated wastewater discharge.
The initiative will build on the institutions’ strong track record of underpinning projects that reduce marine pollution by providing long-term loans to private and public sector borrowers with a view to crowding-in like-minded private sector investors. In line with the EIB’s broader sustainability finance agenda, it will deploy technical assistance to advise on the development and implementation of viable projects. The initiative will also provide investment grants and explore innovative financing structures in support of private enterprises joining the battle against marine pollution.
The EIB/KfW/AFD initiative will be global in nature, but with a particular focus on projects in riverine or coastal areas in developing countries in Asia, Africa and the Middle East.
Inside the EU, meanwhile, the three institutions may look to complement the initiative by backing innovative projects in the plastics and biotechnology sectors that support the transition towards a regenerative circular economy minimising wastage from diminishing natural resources.
“Protecting the oceans from pollution is one of the major challenges we face, requiring a co-ordinated and targeted international response. We have therefore joined forces with the European Investment Bank to launch the Clean Oceans Initiative to pool and expand our respective activities,” announced the CEO of KfW, Günther Braunig, recently.
Local Challenges; Local Solutions
Partnerships are also being explored by the EIB as a way of helping local companies in regions most seriously vulnerable to degradation of oceans to pursue innovative ways of addressing the challenge. Amor points to the example of a company exploring ways of collecting plastic on the surface of the ocean off the coast of Latin America and Africa. This is then recycled into flat-packed ground-sheeting and walls for use in refugee camps and other temporary structures. In other words, this is an example of a classical circular economy initiative turning an environmental nuisance into a social benefit.
“It is a wonderful initiative and precisely the sort of project that we would like to be financing,” says Amor. “It is essential that we help to build capacity on the ground and allow local enterprises to take ownership of marine protection projects, applying a local solution to a local problem.”
One reason the formation of partnerships is especially important in the blue economy is that consumers don’t need to get their feet wet to cause considerable damage to the oceans. Unsettling evidence of this is the apparently inexorable rise in plastic waste deposited in the world’s oceans. According to a report launched by the Ellen MacArthur Foundation at the World Economic Forum at Davos in 2016, about a third of the world’s plastic now ends up in fragile ecosystems such as the world’s oceans. If nothing is done to prevent the oceans from being used as a dumping ground, at current rates there will be more plastic by weight than fish in the sea, according to the Ellen MacArthur report.
Cleaning up the Nile
Given that as much as 90% of the plastic that ends up in the oceans is disgorged by 10 rivers, it is little wonder that projects addressing river pollution at their source are being prioritised by the EIB. “Effective marine protection begins on land,” says Amor.
One of these 10 rivers is the Nile, which since 2008 has been a notable beneficiary of the Mediterranean Hot Spots Investment Programme (MeHSIP). This provides direct technical advice and support to promoters for the preparation of investment projects in the water and environmental sectors in Egypt, Jordan, Lebanon, Morocco, Palestine and Tunisia. The EIB has also been working for several years alongside KfW, Agence Française de Développement (AFD) and the Egyptian government on a €300m project to improve waste collection and water treatment in the Delta Region of Egypt.
“By removing a significant amount of plastics from wastewater effluent, this is having a very real and tangible positive impact on sectors such as tourism and fisheries,” says Luca Lazzaroli, deputy head of operations at the EIB. He notes that more than 500,000m3 of water is expected to be treated and cleaned daily as a result of this project. As the water is then discharged into the Nile and ultimately into the Mediterranean Sea, this will improve water quality for almost 7 million people.
Alongside the provision of technical and financial support for projects to combat the degradation of oceans, a critical component of the EIB’s marine protection programme is monitoring, measuring and communicating the results of these initiatives. “Impact measurement is a key focus for us,” says Lazzaroli, adding that for every marine project, the EIB is analysing a series of key indicators with a view to quantifying the waste extracted and treated.