As the world prepares for the 29th Conference of the Parties (COP29), a relatively overlooked area is set to increase in prominence and importance: the health and sustainable use of our oceans. Safeguarding the eco-systems of our seas will demand significant investments. It’s critical for businesses to understand the associated climate risks.
Green and sustainable finance are widely understood as tools to help monetise efforts to decarbonise economies and preserve our planet’s natural resources.
Less widely known is the concept of blue finance. While blue finance technically falls under the overarching space of green and sustainable finance, it is important to pay more attention to this sub-category.
What exactly are the ‘blue economy’ and ‘blue finance’?
Ocean covers 70% of the earth’s surface, hosts 95% of the planet’s life and absorbs 93% of the excess heat and 30% of human-generated carbon dioxide. It is facing unprecedented challenges, such as overfishing, habitat destruction, marine pollution and climate change. In recent years, people have increasingly recognised the interconnectedness between ocean health and climate change mitigation and adaptation. The term ‘blue economy’ and its role in global sustainability efforts have started gaining significant traction.
Linked to the UN Sustainable Development Goal 14 (Life below Water), blue economy, as the name suggests, refers to the “sustainable use of ocean resources to benefit economies, livelihoods and ocean ecosystem health” (World Bank definition). Blue finance targets the conservation and sustainable use of our coastal and marine resources.
Estimated value of the blue economy
Source: World Wildlife Fund
Current blue finance international frameworks and guidelines
|
Organisations
|
Framework/Guidelines
|
Features
|
|
|
2018
|
United Nations Environment Programme (UNEP) European Commission WWF World Resources Institute European Investment Bank |
The world’s first global guiding framework in blue finance 14 voluntary principles designed to complement existing frameworks in sustainable finance and comply with IFC Performance Standards and EIB Environmental and Social Principles and Standards |
|
|
2019
|
United Nations Global Compact |
Builds upon and supplements the Ten Principles of the UN Global Compact and provides framework as reference point on ocean sustainability |
|
|
2020
|
United Nations Global Compact |
Benchmarks, frameworks and some pillars of best practices in respect of issuing a blue bond aligned with a sustainability strategy |
|
|
2021
|
Asian Development Bank |
Developed in line with the Green Bond Principles and UNEP’s Sustainable Blue Economy Finance Principles |
|
|
2022
|
Asian Development Bank |
Guidance on the project categories that meet ADB investment criteria under its Action Plan for Healthy Oceans and Sustainable Blue Economies |
|
|
2022
|
International Finance Corporation |
Identify eligible blue project categories to guide IFC’s investment to support the blue economy Building on the Green Bond Principles and the Green Loan Principles, and taking into account the ICMA Handbook for Impact Reporting |
|
|
2023
|
International Capital Market Association (ICMA) International Finance Corporation (IFC) United Nations Global Compact (UN Global Compact) United Nations Environment Programme Finance Initiative (UNEP FI) Asian Development Bank (ADB) |
Guidance on the key components involved in launching a credible blue bond, and how to evaluate the environmental impact of the projects Building on the Green Bond Principles, the Social Bond Principles, the Sustainability Bond Guidelines and the Sustainability-linked Bond Principles |
Using the Blue Guide
The various guidelines provide significant value to the blue finance space. The Blue Guide, as the most recent guidelines, has been built upon experiences arising from existing sustainable finance frameworks, rather than replacing them. Although focused on the blue bond space, they provide equally important clarity and guidance to the blue loan space. When structuring a blue loan, the Blue Guide should be read in conjunction with the Green Loan Principles, Social Loan Principles, and the Sustainability Linked Loan Principles as well as related guidelines.
The Blue Guide provides a non-exhaustive indicative list of blue project categories, including:
- coastal climate adaption and resilience
- marine ecosystem management
- conservation and restoration
- sustainable coastal and marine tourism
- sustainable marine value chains
- marine renewable energy
- marine pollution
- sustainable ports
- sustainable marine transport.
These categories correlate to one or more of the five environmental objectives: climate change mitigation, climate change adaptation, natural resource conservation, biodiversity conservation and pollution prevention and control.
Examples are also provided in respect of excluded activities, project outputs and impact indicators for the above blue project categories. Additional information on excluded activities can also be found in the UNEP FI publication ‘Recommended Exclusions for Financing a Sustainable Blue Economy’.
What does a blue finance product look like / what types are there?
Similar to green finance instruments, blue finance products are either use of proceeds products or sustainability-linked general purpose products.
The indicative blue project categories (listed above, as set out in the Blue Guide) can help borrowers, bond issuers and financiers to determine whether the contemplated projects constitute eligible blue projects. To the extent a use of proceeds blue project may have co-benefits from a green and social perspective, its classification can depend on, among others, the primary objective of the project. Additional practical guidance is in the Guidance Handbook published by ICMA in June 2024.
If the borrower/issuer does not have any project that fit the eligibility criteria for a use of proceeds blue finance products, it can consider sustainability linked blue bond or blue loan that incorporate blue key performance indicators (Blue KPIs) and sustainability performance targets into its overall sustainability strategy. Illustrative examples for selection of Blue KIPs can be found in the Illustrative KIPs Registry published by ICMA[1].
As mentioned above, blue finance guidance is in addition to, not in lieu of, the existing green and sustainable finance products. As such, the core components applicable to green and sustainable instruments shall continue to be followed when structuring a blue finance product, in other words:
For a blue bond/loan...
- use of proceeds
- process for project evaluation and selection
- management of proceeds, and
- reporting
For sustainability linked blue bond/loan...
- selection of KPIs
- calibration of SPTs
- bond/loan characteristics
- reporting, and
- verification
The tides to come
Statistics indicate that the global green finance market is valued over USD4 trillion in 2023 and expected to exceed USD28 trillion in ten years. The blue finance space is still in its infancy, much like green finance a decade ago. This is partly because of the difficulty in pricing the true cost of nature when it comes to ocean risks, and the fact that many ocean reliant countries are not major economies.
However, studies have shown that if we continue with business as usual, the impact and consequence would be significantly more severe than what many people think. For example, USD8.4 trillion is at risk based on one estimate, along with 66% of globally listed companies that depend on the ocean economy with various levels.
While it requires a joint effort by public and private sectors to transition to a sustainable blue economy, we anticipate this emerging blue finance market will accelerate in the coming years.
Please refer to all sections relating to ‘Water’ under the Sustainability Theme column. KPIs under some other themes can also be applicable to blue finance as appropriate.
Discover the trends shaping tomorrow's markets. Stay ahead in Asia.
