Bond market must enter its Blue Period to bridge ocean funding gap
The biggest challenge facing ocean health is finance
For too long, blue bonds have been overshadowed by their more established green sisters. But to address the critical funding gap for ocean health, it is time for the capital markets to embrace the blues.
Climate change, pollution and overfishing are all damaging the health of our oceans. While science and policy are important tools to protect these waters, the biggest challenge is finance.
This where blue bonds come in — labelled debt instruments whose proceeds are earmarked for projects to improve the sustainability of fishing and protecting oceans by stemming the flow of pollution and waste.
The problem is that these bonds are few and far between, while the sizes of the individual offerings so far have been underwhelming. Blue bonds need an upgrade from small novelty deals to market transforming transactions. More issuers need to look at these products and more investors to demand them.
Given that blue bonds are essentially an extension or subset of green bonds, they can readily be issued off an existing green bond framework in line with the Green Bond Principles. Every borrower that issues green bonds can also issue blue bonds — that is a large and growing slice of the market. Most SSAs — the most natural issuers of blue bonds — already have green or SRI frameworks. So the infrastructure and potential investor base are already there.
Public sector borrowers tend to at the forefront of innovation and direction in the capital markets. This means they have a responsibility to set the standard for others to follow.
That is what the Asian Development Bank was aiming to achieve with the sale of a pair of debut blue bonds last month.
“Governments can adopt ADB’s approach and issue their own blue bonds as either a thematic bond or as part of their green bond framework to finance projects covered by the scope defined in the blue bond framework,” Ingrid van Wees, ADB’s vice president for finance and risk management told GlobalCapital. “ADB stands ready to support our DMCs [developing member countries] who wish to pursue blue bonds. The battle against climate change will be won or lost in Asia and the Pacific. ADB is bringing new ideas and new resources to meet this battle — we believe blue bonds have potential to help address this challenge.”
Supranational agencies such as the World Bank and the Nordic Investment Bank have also issued blue bonds, while Seychelles brought the first sovereign blue back in 2018 with — a $15m transaction.
Iceland could be next. The Nordic country just unveiled its sustainability framework, which will allow it to issue an array of labelled bonds including blue bonds.
Demand has never been higher for socially responsible bonds, of which new issuance is expected to reach a record $1tr in 2021. But while every other format of socially responsible bonds has seen rapid development over the last few years, blue bonds have lagged behind.
Oceans are a crucial part of the environment, so it’s time for market participants to think about blue as well as green.