The Blue Economy Opportunity
The Blue Economy offers huge potential for new and existing ocean sectors to develop in socially and environmentally positive ways, improving the livelihoods and wellbeing of coastal communities and ocean health and resilience. Ports need to digitise, decarbonise and adapt to sea level rise; shipping needs to transition to clean energy and reduced overall emissions; offshore renewables are expanding; fishing and aquaculture need to become smarter, sustainable and carbon efficient; marine protected areas need managing and enforcing; nature-based solutions such as grey-green coastal infrastructure need implementing and new sectors such as biotechnology and seaweed farming need more research. There is also a need to support capacity for national Blue Economy governance to sustain and improve the quality of ecosystem services, through evidence-led marine spatial planning, ocean accounts, and enforcement capacity. These are all opportunities for the finance sector to support Blue Economy acceleration. However the financing gap by all accounts is huge.
Estimates of the Blue Economy financing gap vary from $750bn required globally by 2030 from the European Commission to $5.5trn for the Asia Pacific region alone, from the Asian Development Bank (ADB). As the World Economic Forum makes devastatingly clear, “Due to SDG14’s interdependence with other SDGs and its central role in the fight against climate change, deficits in SDG14 funding jeopardise the realisation of the entire 2030 Agenda.” Difficulty in tracking flows of private finance into the Blue Economy and linking finance to sustainable and equitable outcomes further complicates the task of tracking progress on achieving UN SDG14 Life Below Water.
Philanthropy and Official Development Assistance together have invested $13bn over the past 10 years in sustainable development of the ocean economy, while just 2% of the $31bn of blended finance mobilised between 2018-2020 was directed towards SDG14. As Deloitte identifies, there is an opportunity for businesses to step up to the plate, as one of the least-represented sectors in the SDG14 agenda. To do so, the risks to investors arising from governance, policy and enforcement shortcomings and a lack of readily available data and fiscal incentives in the ocean space will need to be overcome. The Multilateral Development Banks are uniquely well placed to help mitigate these risks and enable funding to flow at scale and speed.
Multilateral Development Banks Blue Economy strategies are evolving
Several of the main Multilateral Development Banks (MDBs) are increasingly engaged in various Blue Economy initiatives, notably the World Bank’s PROBLUE programme, with $7.4bn invested in projects in 2021, ADB’s $5bn Action Plan for Healthy Oceans and Sustainable Blue Economies and the European Investment Bank’s (EIB) Clean and Sustainable Ocean Programme. To date their financing activities have largely been responsive to member country needs and sectorally focused, particularly around fisheries, waste and climate change.
The World Bank’s overall oceans portfolio was worth over $7.4 billion in active projects as of June 2021. It’s PROBLUE programme is organized around four pillars: improved fisheries governance and sustainable aquaculture; marine litter and pollution management; the blueing of oceanic sectors; and integrated seascape management. The latter pillar reflects the Bank’s recent shift from a sectoral approach focused mainly on fisheries to supporting the Blue Economy evidence base, capacity and governance for more integrated seascape management. Supporting governance is part of the Bank’s strategy to address four key entry points it identifies for effecting comprehensive change: investments in governance, technology, markets, and finance.
Central to this is the Bank’s Blue Economy Development Framework (BEDF) toolkit which is being piloted in ten countries around the world. This supports data gathering and blue natural capital accounting; recommendations for policy and fiscal reforms and identification of appropriately incentivised investment opportunities.
“BEDF is a set of analytical tools and technical assistance to help countries define a roadmap to a diversified and sustainable maritime economy, while building resilience to climate change.”
A recent example is the World Bank’s $350m loan to Morocco. The loan will support national coordination, including an inter-ministerial commission and regional coordination mechanisms and operational collaboration across sectors and regions, to improve budget planning and working towards shared objectives. It will also support professional Blue Economy management training along with sectoral activities including sustainable tourism and aquaculture; the protection and management of ecosystem services and improving climate resilience in particular areas.
European Investment Bank
Building on its strengths as the largest lender to the water sector globally, the EIB is consolidating and increasing its ocean funding portfolio under its Clean and Sustainable Ocean programme. Part of this is the recently upscaled $4bn Clean Ocean initiative, with new support from Agence Française de Développement, KfW acting on behalf of the German Federal Government, Italy’s Cassa Depositi e Prestiti, Spain’s Instituto de Crédito Oficial, and the European Bank for Reconstruction and Development. The programme supports projects around the globe which improve management of solid waste, wastewater and storm water to reduce the amount of plastics, micro-plastics and other litter entering the ocean. The Bank’s latest loan was announced at the UN Ocean Conference in June, a $150m investment in climate resilience and clean oceans in the Caribbean. Inter alia funds will support new and upgraded wastewater treatment plants and better solid waste management.
Under the Bank’s Blue Sustainable Ocean Strategy it also supports sustainable coastal development and seafood production, green shipping and marine biotechnology.
Asian Development Bank
The Asian Development Bank has been highly active in the Blue Economy since the launch of its $5bn Healthy Oceans Action Plan in 2019. More than $2.2bn has been deployed to date across projects addressing plastic pollution, coastal resilience, ecological restoration and other Blue Economy sectors. ADB has also issued blue bonds to the tune of at least $300m and aims to catalyse further blue bond issuances through a new incubator supporting sovereign and corporate borrowers to devise blue bonds and most recently through the co-development of a global blue bond guide in collaboration with the International Finance Corporation, the International Capital Markets Association, United Nations Global Compact and United Nations Environment Program Finance Initiative.“The five organisations are currently seeking further input from the financial markets, ocean industry and global institutions with the goal of producing the final edition in Autumn 2022”.
Recognising that a significant portion of the Blue Economy financing gap can be met by SMEs, in June ADB put forward a blueprint for a new blended finance platform to help fill the estimated $2 trillion SME blue economy financing gap in the Asia Pacific region. This was inspired by Europe’s successful BlueInvest platform and would aim to identify and aggregate bankable SME projects for matched public-private funding, supporting smaller scale enterprises and livelihoods across the Asia Pacific region.
African Development Bank
The African Development Bank’s (AfDB) Blue Economy strategy is one of seven flagship projects under its Feed Africa pillar, a “high five” priority for the continent. The goals for the Blue Economy programme are to support value from fisheries; integrated watershed management and marine spatial planning and regional governance and coordination. Perhaps inclusion of the Blue Economy under the Feed Africa pillar is not surprising given that “fish is the most important animal protein intake in Africa and can be as high as 75% in countries like Senegal. About 275 million people depend on fish for food security, with intake of 10.5 kg per capita, currently half the global average.”
However AfDB’s activities go beyond fisheries. The Bank has granted funds to the Seychelles Government to support capacity building for micro, small and medium enterprises in its Blue Economy sector. More recently it commissioned a background paper and convened a series of webinars on the suitability and potential for offshore renewable energy sources across coastal Africa, to inform policy, planning, and investment. The review included wave power, tidal stream power, ocean current power, ocean thermal energy conversion, offshore wind, and marine floating solar. Earlier this year AfDB also commissioned a report which reviews how African ports are integrating the Blue Economy – viewed through the lenses of agency, architecture, inclusiveness, adaptiveness, and coherence – into their governance arrangements. The report notes that “opportunities are rife for integration of the Blue Economy into the already evolving environmental sustainability transition of ports, but a catalyst is needed to accelerate this transformation”.
Inter-American Development Bank
Following the launch of a Blue Tech challenge programme in 2018, the Inter-American Development Bank (IDB) has more recently issued loans and guarantees to catalyse additional investments to support marine conservation and the Blue Economy in the Bahamas and Barbados. In Bahamas funding has supported legislative reform, governance and financing of marine protected areas, reducing ocean pollution and promoting digitisation in the Blue Economy. The $100m guarantee for Barbados approved by IDB this month should reduce borrowing costs for the Government as it seeks to raise funds for conservation activities, including the creation of a conservation trust fund, the Barbados Environmental Sustainability Fund, supporting Barbados' ambitions to protect 30% of its EEZ by 2030.
Opportunities to do more
In terms of how the MDBs are supporting the Blue Economy, efforts to date have been rooted in sectoral approaches, especially around fisheries, marine pollution and wastewater management. Framing projects around the Blue Economy as a holistic approach to well coordinated ocean-based activities is starting to happen, particularly at the World Bank with its focus on the enabling conditions of institutional capacity, coordination and data gathering. Important work has gone in to define and harmonise Blue Economy finance principles by UNEP FI and its institutional partners and ADB has been notable in its focus on issuing and socialising blue bonds to increase uptake of these internationally. Yet despite the key transformational role that development finance could play in funding key infrastructure programmes, the blue transition of traditional sectors and in catalysing private sector investment at scale, the amounts leveraged by the MDBs are currently very limited. For example there is scope for significantly more funding of offshore renewable energy, blue biotechnologies, sustainable tourism, grey-green coastal infrastructure, ports, shipping and shipbuilding. How can the MDBs build on these promising foundations to help scale financing of the Blue Economy across a wider scope of sectors and a broader investor spectrum?
We propose that multiple opportunities exist at various scales and intervention points. MDBs are particularly well placed to support the wider strategic regional or continental blue economy opportunity to plan for the sustainable use of marine resources for trade and economic development. Particular sectors such as offshore renewables, sustainable tourism, fisheries and maritime enforcement, ports and shipbuilding benefit from a regionally-planned approach and require substantial infrastructure planning and investment. Regional investment hubs could aggregate and accelerate access to finance.
At a national 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 for centralised costs. These activities are less likely to be funded by philanthropy or the private sector and funds from MDBs or national development banks will be key to support these, de-risking the ocean governance and policy dimensions and unlocking private sector funds for thematic areas.
For countries where Blue Economy enabling activities and plans are already underway, scope exists for MDBs to facilitate project pipeline development and create or catalyse blue bonds to crowd in private sector finance. IDB’s guarantee for the Bahamas exemplifies this approach and helped catalyse the successful placement of a recent $385m bond which was oversubscribed. Blended approaches where MDBs reduce risk for private sector investment through guarantees or first loss capital are particularly relevant for higher risk sectors such as fisheries, marine conservation and restoration and ecosystem services. The Global Fund for Coral Reefs blended finance vehicle attracted its first private sector investor in June and offers an example for MDBs that could be replicated for different marine ecosystems or Blue Economy sectors.
In terms of their banking practices, MDBs have opportunities to both discourage financing of unsustainable activities and achieve greater impact by increasing financing of sustainable activities. On the first point, endorsing UNEP FI’s Sustainable Blue Economy Finance Principles and associated best practice guides and exclusion lists and promoting these to national development banks and financial institutions can help stem the tide of funds flowing into activities that are incompatible with a Blue Economy approach.
The level of resources available to MDBs varies greatly, for example AfDB had total assets of $51bn in 2020 compared with EIB’s $678bn and ADB’s $272bn. With new calls from the UN Secretary General and the G20 for MDBs to take more risk and adjust their capital adequacy policies to meet escalating needs arising from an increase in short-term crises and longer-term investment requirements, the time is ripe for MDBs to collaborate, innovate, replicate and escalate.
In a forthcoming article we will take a deeper dive into these opportunities for MDBs to scale Blue Economy finance. Political will with a clear and convincing vision and plan for the Blue Economy and a conducive investment environment are essential precursors to create a supply of bankable programmes for financing. Our next article takes a look at political will, governance and enabling activities at the national level.