Why should investors care about ocean health?

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


Ocean health

“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[1] 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[2] and its importance continues to grow. The global ‘Blue Economy’ is expected to expand at twice the rate of the mainstream economy until 2030[3], 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[4], 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[5]. From previous research we know that many investors already actively invest with this in mind[6]. 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[7].

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).

[1] Hwoegh-Guldberg O., Beal D. and Chaudhry T. Reviving the Ocean Economy: the case for action. Gland, Geneva: WWF International 2015

[2] Exploring the potential of the Blue Economy. UNDESA, 2017

[3] The Ocean Economy in 2030. OECD, 2016

[4] Fritsch, D. Investors and the Blue Economy – Ocean risk or opportunity? Responsible Investor & Credit Suisse, 2019

[5] The ocean as a solution to climate change: Five opportunities for action. High Level Panel for a Sustainable Ocean Economy, 2019

[6] Fritsch, D. ESG – Do you or don’t you? Responsible Investor & UBS Asset Management, 2019

[7] The Sunken Billions Revisited: Progress and Challenges in Global Marine Fisheries. World Bank, 2017

How Blended Finance Can Plug The SDG Financing Gap

By Jean-Philippe de Schrevel, Founder and Managing Partner of Bamboo Capital Partners


This blog is part of the upcoming OECD Private Finance for Sustainable Development Conference that will take place on 29 January 2020


Greenlight planet - Shopkeeper

We now have just 10 years to achieve the Sustainable Development Goals (SDGs). To date, the SDGs have been underfinanced. The annual financing gap to achieve the SDGs by 2030 currently sits at USD 2.5 trillion. The current approach is not working. Historically, financial institutions have focused on financing one or two SDGs in isolation, and this funding is often directed towards relatively low-risk investments. Collectively, we need to reconsider how we can realistically finance the SDGs by 2030, and this is where blended finance impact investment vehicles have an opportunity to shine.

Continue reading

Shifting public and private finance towards the Sustainable Development Goals 

By Paul Horrocks, Priscilla Boiardi and Valentina Bellesi, OECD Development Co-operation Directorate 


This blog is part of the upcoming OECD Private Finance for Sustainable Development Conference that will take place on 29 January 2020


dev-cooperation-puzzle-handBack in 2015, the international community committed to a shared global vision towards sustainable development – the 2030 Agenda – including 17 Sustainable Development Goals (SDGs).

The Goals identify the areas in which resources are most needed. But with the realisation that meeting the Goals by 2030 would require filling an annual financing gap of 2.5 trillion dollars, the Addis Ababa Action Agenda (AAAA) called upon a broader mobilisation of resources, including private ones.

Five years on, progress remains slow and uneven.

Three critical questions emerge from this context: How can we drive more resources towards the Goals? How can we make sure they are going where they are needed most?

And are they being used in the most effective way?

In order to guide the answers to those questions, we propose a three-step approach: Mobilisation, Alignment and Impact. Continue reading

Overcoming the Challenges of the Transition and Exit from Aid

BannerWeb1122_DiT_EN_with logo DEV.jpg

By Annalisa Prizzon, Senior Research Fellow, Overseas Development Institute 


This blog is part of an ongoing series evaluating various facets
of 
Development in Transition


 

ODI transition finance
Flat stairs, Sao Paulo by Jared Yeh / Flickr CC-BY-NC-ND

Since 2000, the number of low-income countries (LICs) has more than halved — from 63 to 31 — and have now joined the ranks of middle-income countries (MICs). Typically, these economies have strengthened their macroeconomic management, played a stronger and more visible role in global policy, diversified their sources of finance and received less external development assistance (or ceased to benefit materially from it).

As developing countries become richer and address their own development challenges, donors usually reconsider their programming and interventions. And so, transition and exit from bilateral development co-operation programmes should rightfully be celebrated as an indicator of success in economic and social development.

Challenges facing financing for development

However, as countries graduate from soft windows of multilateral development banks or as bilateral donors cut their country programmes — or they shift to loans if that is an option — the financing mix changes. Reliance on tax revenues and commercial finance when aid starts falling inevitably expands, and so does the costs to service debt obligations. Tax revenues do not necessarily increase to fill the gap. Continue reading

The Green Eureka Moment: Investing and Inventing to Stop Climate Change

By Raluca Anisie, Carbon Impact Analyst and Paul Hailey, Head of Impact, responsAbility Investments AG

bakery-ecuador
A family bakery in Ecuador that used a green loan from a GCPF investee to buy a more energy-efficient oven. Photo: José Jacomo

In the 3rd century B.C., Archimedes declared: “Give me a place to stand and with a lever I will move the world.” This phrase speaks to the potential of the right tools at the right time, but as anyone who has tried to build flatpack furniture will confirm, not having the right tools can derail any project, however grand.

In 2019, our quest to find and use the right tools to move the world is more urgent than ever. As UNEP stated at COP24, we are the last generation that can stop climate change. This challenge requires a mobilisation of investment on an unprecedented scale, yet enormous gaps remain, especially in the developing world. Filling these gaps will require ground-breaking investment approaches like blended finance, a method that uses public money to improve the risk profile of investments to catalyse private funding. However, tools such as blended products will also need to credibly demonstrate impact to attract and retain public and private investors. Continue reading

Three trade challenges for LDCs to converge and eradicate poverty

By Anabel González, Nonresident Senior fellow at the Peterson Institute for International Economics; Former Costa Rica Minister of Trade, World Bank Senior Director for Trade & Competitiveness, and World Trade Organization Director for Agriculture


This blog is part of a special series marking the 3 July 2019 launch in Geneva of the joint OECD/WTO publication Aid for Trade at a Glance 


AFT coverBangladesh is preparing to graduate from the category of least developed countries (LDCs). Robust multi-year economic growth of more than 6-7% has helped this South Asian nation make remarkable progress in reducing extreme poverty from 44.2% in 1991 to 13.9% in 2017. In parallel, life expectancy, literacy rates and per capita food production have increased significantly. Rapid growth enabled Bangladesh to reach the lower middle-income country status in 2015; it now aspires to become an upper middle-income country by its 50th anniversary in 2021. Trade has been at the heart of this success story (see Figure 1). Exports of textiles and garments are driving integration into the global economy, with new products becoming part of the country’s export basket. Will Bangladesh be able to continue to rely on trade for increased growth? Will conditions remain for other LDCs to follow?

Continue reading

A perspective from the financial sector on sustainable business

LJD

By Professor Angela Sansonetti, Golden for Impact Foundation


This blog is part of a special series exploring subjects at the core of the Human-Centred Business Model (HCBM). The HCMB seeks to develop an innovative – human-centred – business model
based on a common, holistic and integrated set of economic, social, environmental and ethical rights-based principles. Read more about the HCBM here, and check out an event about it here
The HCBM project originated in 2015 within the World Bank’s Global Forum on Law, Justice and Development and is now based at the OECD’s Development Centre.

For too long, the financial system worked on its own set of principles focused on attracting clients and maximising short-term profits. These principles, growth within a capitalist and closed economy, are no longer suitable in a circular and sharing economy focused on customer needs as well as on environmental, social and governance rules. Today, several forces are pushing towards a new framework oriented to sustainable development, social innovation and human-centred approaches based on these rules.

In this transition environment, the financial system, plays a key role in driving economic growth towards values of sustainability based on promoting, amongst other factors, greater environmental responsibility, climate resilience, low-carbon, human rights, gender equality, social inclusion and sustainable economic growth. The financial system results from a long-term evolution related to global economic growth and founded on macro-economic choices as well as defined legal, technological and government rules. However, nothing is irreversible. So, in this changing context, sustainable finance plays a key role to support the shift from traditional economies based on high-impact and high-carbon industries to clean-energy and low-carbon sustainable industries.

Continue reading