As a recent podcast from the Overseas Development Institute highlights, the Multilateral Development Banks (MDBs) occupy a unique role in combining the financing of development with the provision of essential public goods, including research and forecasts, technical knowledge and policy advice. How they engage with partner countries in supporting the Blue Economy is hence of critical importance for successful realisation of economic outcomes which improve livelihoods for coastal communities and ocean health and resilience. Listening to country needs is crucial for adapting in-house tools and approaches to unique national and cultural circumstances.
As highlighted in our previous articles in the current series, some of the major MDBs are pioneering new approaches to Blue Economy finance and strengthening policy. These include Asian Development Bank’s (ADB) new incubator supporting sovereign and corporate borrowers to devise blue bonds and a practitioners’ blue bond guide in development with the International Finance Corporation, the International Capital Markets Association, United Nations Global Compact and United Nations Environment Program Finance Initiative. After concerns were raised about a new blue bond standard from the Security and Exchange Board of India, indicating wider financial markets acceptance of UNEP FI’s Sustainable Blue Economy Finance Principles and associated exclusion lists, this new blue bond guide will provide much-needed standardisation across issuers and clarification for the investment community on which ocean-themed activities are considered sustainable.
The World Bank’s Blue Economy Development Framework toolkit, which supports data gathering; blue natural capital accounting; recommendations for policy and fiscal reforms and identification of appropriately incentivised investment opportunities, is being piloted in ten countries around the world.
Given the enormous funding gap for SDG14 however, there remain many more opportunities for the Multilateral Development Banks to innovate, collaborate and escalate their activities to stimulate the blue economy worldwide. We explore some of the options below.
Opportunities for supporting regional development and ocean governance
Approaches to ocean governance often take a regional approach, such as those of the Regional Seas Conventions and Action Plans and Regional Fisheries Management Organisations. Furthermore many Blue Economy sectors such as offshore renewables, sustainable tourism, fisheries management, maritime monitoring and enforcement, ports and shipbuilding benefit from a regionally-planned approach and require substantial infrastructure planning and investment.
In Africa, this is being tackled via its Regional Economic Communities. For example the 21 member states of the Common Market for Eastern and Southern Africa Secretariat recently approved a draft regional Blue Economy strategy, as did the seven member countries of the Inter-Governmental Authority on Development, recognising the need for cooperation, regional integration and “strengthening support to its member countries to effectively translate policies into concrete actions.”
Transboundary cooperation has long been recognised as essential for meaningfully addressing the scourge of maritime crime, including illegal, unreported and unregulated (IUU) fishing and trafficking in people and drugs. For instance the Indian Ocean Commission and FISH-i Africa bring together eight countries of the Western Indian Ocean to share intelligence to successfully combat IUU fishing and drug trafficking whilst the Fisheries Committee for the West Central Gulf of Guinea’s West Africa Task Force brings together six countries. Noting that IUU fishing “drains African countries of revenue, reduces fish stocks, lowers local catches and harms the marine environment”, the Executive Secretary of the Ministerial Conference on Fisheries Cooperation among African States Bordering the Atlantic Ocean Secretariat has also called for regional efforts to tackle IUU fishing practices. Investing in protection of the global commons via regional monitoring, control and enforcement enables countries to effectively address maritime crimes and monitor and control legal, licensed and regulated Blue Economy activities cost-effectively, by pooling surveillance and enforcement resources.
The MDBs are particularly well placed to support strategic regional or continental opportunities to invest in the sustainable use of marine and maritime resources for trade and socio-economic development. Regional investment hubs could aggregate projects for investment whilst facilitating the sharing of legal, policy and financial expertise among countries with shared development objectives, watersheds and large marine ecosystems. These investment hubs could also engage with and reinforce the work of the Regional Seas Conventions and Regional Fisheries Management Organisations to help ensure shared marine resources are sustainably managed, by supporting regional policy coherence and follow-through of policy commitments at the national level. As large scale marine protected areas in the High Seas start to come on stream, such as South America’s Eastern Tropical Pacific Marine Corridor, regional investment mechanisms are also needed to fund the management of High Seas MPAs and gauge their effectiveness over time.
Opportunities for supporting national Blue Economy coordination and capacity
At a national government level, enabling activities such as the creation of a blue economy plan; coordinated governance mechanisms; evidence-led marine spatial planning; compilation of ocean accounts; policy creation; and management and enforcement of legal, licensed and regulated activities are a core and sizeable element of realising the Blue Economy. These are also critical for creating a conducive investment environment and economies of scale can be realised by adopting a systematic and step-wise approach with intelligent integration of activities to optimise use of marine, human and financial resources.
These enabling activities are less likely to be funded by philanthropy or the private sector, so funds from MDBs or national development banks will be key to support these, to de-risk private sector concerns regarding ocean governance, policy coherency, transparency, data availability and enforcement, thereby unlocking private sector funds for thematic areas.
There is scope for a more proactive role from the MDBs in socialising the concepts of the Blue Economy in countries that have yet to frame a holistic strategy for their ocean space. Blue Economy education, skills development and knowledge transfer also need investment and by supporting the development of this human infrastructure which is integral to realising the Blue Economy, along with effective coordination and governance, MDBs will enable countries to make their own informed judgement of areas to prioritise for investment over time, rather than responding to externally imposed agendas with a sectoral focus.
A fine example of this is the professional skills development programme devised for public sector officials in Barbados to help them “think blue”, supported by the UK Foreign Commonwealth Development Office, Global Affairs Canada, the Caribbean Development Bank and Inter-American Development Bank. The programme introduces Marine Spatial Planning theory and practice; communicating the health and wellbeing benefits of Blue Economy approaches; Natural Capital and Blue Economy financing and aims to support Blue Economy coordination skills within the Ministry of Environment.
The World Bank already leads a Wealth Accounting and the Valuation of Ecosystem Services (WAVES) partnership to advance natural capital accounting internationally and thus is well placed to support investment in capacity and skills for elaborating internationally consistent ocean accounts, working in partnership with the Global Ocean Accounts Partnership.
Opportunities for aggregating and mobilising across sectoral activities
Whilst traditional sectors of the Blue Economy such as port and maritime infrastructure, shipbuilding and offshore energy may be a good fit for MDB or private sector funding owing to the size of their investments needs, newer sectors of the Blue Economy such as marine ecosystem conservation and restoration, sustainable small-scale mariculture and fisheries value chains are smaller, riskier and less likely to receive attention from these funders. A recent report from ADB proposes that a significant contribution to closing the Blue Economy financing gap could come in the form of establishing a blended finance platform for SMEs. “SME BlueImpact Asia” would screen and aggregate businesses and structure investment opportunities of a suitable size for institutional investors. Such a platform could be supported by a sustainability-linked loan or credit guarantee by ADB, it is suggested. By playing to the relative strengths of both public and private sector funders, blended finance brings investment at scale whilst managing risks to acceptable levels.
Europe’s BlueInvest programme, which has helped incubate and bridge the finance gap for blue SMEs and start-ups in Europe over the past three years, and which provided inspiration for the SME BlueImpact Asia concept, goes from strength to strength. In March it was announced that BlueInvest would transition and scale up to become InvestEU Blue Economy, which brings together the European Maritime, Fisheries and Aquaculture Fund, the EIB Group and the InvestEU Fund. By providing additional public funding of EUR 500 million the aim is to leverage EUR 1.5 billion of new private sector finance into SMEs. Capacity building and advisory support for financial intermediaries and impact investors in the Blue Economy will also be provided. In September the first BlueInvest Africa event was hosted in Seychelles, offering opportunities for African start-ups and SMEs to network and pitch to prospective investors from Africa and Europe.
Overall however blended finance remains underused. Whilst the OECD reports steadily increasing amounts of private sector investment mobilised through official development finance interventions, the amounts raised are a drop in the ocean compared to what is needed. In their most recent annual report Convergence identify a lack of strategic coordination and unguided implementation of high level capital mobilisation plans as a key barrier to greater investment. SDG14 blended finance continues to lag behind other SDGs, despite its pivotal role and influence on almost all of the SDGs.
The Global Fund for Coral Reefs, the first ocean-focused blended finance vehicle, attracted its first private sector investor in June and offers lessons to MDBs and other development finance institutions on structuring blended funds: support pipeline development and business incubation; align grant-making and equity investment decision-making frameworks; and adopt a single robust, holistic suite of monitoring and evaluation metrics.
Opportunities for scaling and accelerating Blue Economy development
What else can the MDBs do to accelerate investment in the Blue Economy? Firstly they can introduce measures to cease financing unsustainable activities. At COP26 the MDBs pledged to mainstream nature into their operations and investments, to ensure the protection, restoration, and sustainable use of nature and its services to people. This was reinforced at the MDBs Finance in Common summit recently, which recommended that “Accountability on environmental and social matters should be enforced and compulsory for operational teams, together with the adoption of analytical tools to decide and monitor the impact of financings.” Without Blue Economy tools and metrics to assess dependencies, impacts and opportunities relating to the marine environment, its resources and ocean-dependent communities and stakeholders, public and private sector investors risks perpetuating unsustainable business practices.
A related opportunity is to socialise sustainable Blue Economy finance principles and standards, as the new norm. MDBs can endorse UNEP FI’s Sustainable Blue Economy Finance Principles and associated best practice guides and exclusion lists, promote these to national development banks and financial institutions and discourage any further financing of activities which fall outside of these parameters. There is also scope to build on these principles in greater detail at a sectoral level.
As the UN Secretary General remarked in July, MDBs should take more risk. This message was reinforced in a G20 independent review, which makes a number of recommendations for MDBs to reform their capital adequacy policies to meet the growing needs of development finance, noting that “the risks of these reforms are far outweighed by the dangers of not fully deploying the unique strengths of MDBs to help address the daunting development challenges that affect us all.” Using capital wisely to mobilise funds strategically and effectively, including through shifting existing loans to willing counterparties, should be embraced more widely and frequently by MDBs.
Proactive collaboration with each other, with national development banks and with governments internationally is also needed. As noted previously several of the MDBs and Development agencies have pioneered new Blue Economy tools, principles and standards. Replicating these successful approaches across geographies can translate early successes into larger-scale thematic programmes, allowing the Blue Economy to scale more quickly. Deploying long term resources via smaller national banks can help ensure funds are within reach for coastal communities and SMEs. And at the highest level of engagement, the major MDBs could work with the government members of the High Level Panel for a Sustainable Ocean Economy, as called for by Namibia’s Minister of Fisheries and Marine Resources, to coordinate international investment into ocean health, equity and wealth.
“We cannot continue drifting from crisis to crisis. This has to start with small producers who are the heart of the world’s food systems,” noted the President of the International Fund for Agricultural Development at the Finance in Common summit recently. Finding innovative ways to fund coastal communities, small scale fishers, SMEs and Blue Economy entrepreneurs on a far greater scale alongside national capacities and regional Blue Economy infrastructure will go a long way to closing the Blue Economy financing gap, building essential resilience along the way.
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