by Dennis Fritsch, PhD, Researcher, Responsible Investor
This blog is part of the upcoming OECD Private Finance for Sustainable Development Conference that will take place on 29 January 2020
“The World’s Oceans Are in Trouble. And So Are Humans, Warns U.N. Report” – a blaring headline in Time Magazine just after the IPCC published their landmark report Oceans and the Cryosphere in September 2019. It highlights what scientists and NGOs have been shouting from the rooftops for years: human activity has put the global ocean in a dire state and by doing so is endangering planetary life as we know it. But how has it come this far? In addition to producing over half of the oxygen we breathe, being the largest carbon sink on the planet and a haven for biodiversity, a healthy ocean is a source of economic livelihoods for billions of people. The value of global ocean assets is estimated at over USD 24 trillion making it the 7th largest economy in the world in GDP terms. Due to its integral role in the global financial and environmental ecosystems, the ocean is high on the international policy agenda and its importance continues to grow. The global ‘Blue Economy’ is expected to expand at twice the rate of the mainstream economy until 2030, and already contributes USD 2.5 trillion a year in economic output.
However, the Blue Economy relies on healthy ocean ecosystems for the abundance of resources that generate these incomes, and its future looks bleak. For decades, harmful approaches have ranged from industrial fishing, depleting fish populations and destroying habitats, to using the ocean as a dumping ground for chemical and plastic waste. These approaches coupled with the damaging effects of climate change, have put the long-term survival of the ocean, and therefore its investment potential, at risk. Yet, we need significantly more sustainable ‘blue’ investment to move from current destructive approaches to ocean assets, to a climate-secure and prosperous Blue Economy.
Now the billion-dollar question: where is this capital going to come from? Governments and public finance institutions are slowly waking up to the urgency of the situation and have been pledging ever-greater sums towards the development of a sustainable Blue Economy. An example is the recent commitment from the EU to allocate almost EUR 540 million to tackle key ocean challenges. While it sends an important signal, this is mere peanuts compared to what is needed to achieve the UN’s Sustainable Development Goals (SDGs).
Of course, public money cannot be expected to foot the whole bill for the sustainable future of the global ocean. However, are the right conditions in place for capital markets to provide the funds to secure the sustainable use and development of ocean resources? And if not, what needs to change? According to our market-first research project “Investors and the Blue Economy”, the majority of investors are not aware of their investments’ impacts on the marine environment and of how a degrading ocean may subsequently affect their portfolios’ performance and value. There is also little discussion on shareholder engagement with companies that have negative impacts on the ocean, and on the potential for engagement as a tool to reduce these. The risks for portfolios and the wider society of a degrading ocean environment, that investors help finance even if unknowingly, are very real.
While at a first glance this suggests a gloomy outlook on the industry, our study also shows that interest in ocean health-related investments is high with three in four respondents considering the sustainable Blue Economy as ‘investible’. This has already translated into action for some: 45% of surveyed asset managers said that their clients are actively asking for sustainable Blue Economy investments (which however, many do not offer). Although it certainly does not mean that all investors are thinking about the ocean in an investment context, it suggests that some are beginning to realise that there are real business opportunities in a growing and prosperous sustainable Blue Economy.
But where can these investment opportunities be found within a sustainable Blue Economy? The answer is two-fold. On the one hand, for some ocean risks, investors are well placed to intervene and engage with leverage and capital, to bring about real impactful change. For example, a recent study found that ocean-based mitigation options could reduce global greenhouse gas emissions by nearly 11 billion tons of CO2 equivalent per year in 2050, compared to the ‘business-as-usual’ scenario. From previous research we know that many investors already actively invest with this in mind. On the other hand, transitioning towards a sustainable Blue Economy presents a tremendous economic and sustainable investment opportunity. The innovative firms working on decarbonising shipping, preventing plastic pollution, or making aquaculture more sustainable, will need financing, and it is up to investors to grab these opportunities early on. A case in point comes from a World Bank report, estimating that if fisheries were managed sustainably, the global industry could earn an extra USD 51 billion to USD 83 billion every year.
So what is holding back progress? A lack of investment-grade projects and a low level of expertise on the topic are two frequently mentioned barriers. The newly established Sustainable Blue Economy Finance Principles, hosted by UNEP FI, aim to remedy this by helping investors assess their current portfolios, alongside improving their knowledge on this emerging topic. To make such investments more attractive for the broader capital markets, there is also an urgent need to strengthen enabling conditions and develop innovative finance approaches to reduce risk and catalyse projects at scale. Blended finance, public-private partnerships and impact investing, can play – and are already playing – an important role in this evolution. An example is the newly created Ocean Risk and Resilience Action Alliance, which focuses on addressing the risks caused by ocean degradation and the need to invest in coastal natural capital. 91% of respondents to our survey support the urgency for investor action and see the importance of the sustainable Blue Economy increasing going forward. A third of them even see it as one of the most important topics for investors by 2030.
2020 will be a year of ocean action with the second UN Oceans Conference hosted by the governments of Portugal and Kenya, and Palau hosting the Our Ocean Conference. Further, the first set of targets for SDG 14 – Life Below Water – is due this year, alongside a UN push to call for a “Decade of Ocean Science for Sustainable Development” until 2030. Will 2020 also be the year when investors finally recognize the crucial role they can – and some say must – play in the transformation of ocean-linked sectors and industries towards a more sustainable future? How to align and scale up private finance and investments for a sustainable ocean? This will be the focus of two dedicated sessions at the OECD Private Finance for Sustainable Development Conference that I will attend in Paris on 28-30 January 2020. For a first assessment of the perceived investment risks and challenges in this fast-moving field, alongside an overview of some investible opportunities already providing solutions to ocean challenges, download our full report (in partnership with Credit Suisse, and supported by UNEP FI, WWF and the European Commission).
 Hwoegh-Guldberg O., Beal D. and Chaudhry T. Reviving the Ocean Economy: the case for action. Gland, Geneva: WWF International 2015
 Exploring the potential of the Blue Economy. UNDESA, 2017
 The Ocean Economy in 2030. OECD, 2016
 Fritsch, D. Investors and the Blue Economy – Ocean risk or opportunity? Responsible Investor & Credit Suisse, 2019
 The ocean as a solution to climate change: Five opportunities for action. High Level Panel for a Sustainable Ocean Economy, 2019
 Fritsch, D. ESG – Do you or don’t you? Responsible Investor & UBS Asset Management, 2019
 The Sunken Billions Revisited: Progress and Challenges in Global Marine Fisheries. World Bank, 2017