Capital Markets Disruption: The Impact of Blue Bonds
In the quest for sustainable financing solutions, a new player has emerged in the financial market: blue bonds. These innovative financial instruments are designed to fund projects that offer economic, social, and environmental benefits within the marine industry.
The blue bond market has been growing steadily since the first issuance in 2018, with an increasing number of issuances signalling its poised growth. Projects financed by blue bonds range from investments in coastal ecotourism, sustainable energy, and maritime transport, to sustainable marine fisheries management, clean water and waste water management, and port infrastructure that prevents marine pollution.
To issue a blue bond following global standards and UN recommendations, a company or entity should follow a specific process. First, the use of proceeds and sustainability objectives must be clearly defined, specifying that the bond proceeds will finance sustainable ocean-related projects aligned with the blue economy.
Next, a formal framework outlining the bond’s environmental credentials, governance, and impact metrics should be developed, aligning with internationally recognized standards such as the Green Bond Principles (GBP) 2021 by the International Capital Market Association (ICMA), the Green Loan Principles (GLP) 2023, and the IFC Guidelines for Blue Finance.
An independent assessment from a recognized sustainability rating or assurance provider is also crucial to verify the framework’s adherence to standards and the environmental integrity of the projects financed.
Robust governance and risk management must be integrated within the entity’s operational and financial practices associated with the blue bond issuance. This includes oversight on the eligible projects and monitoring environmental and financial risks.
The bond issuance should be structured according to best practices, considering innovative issuance models to enhance transparency and operational efficiency. Regular impact reporting on the use of proceeds and environmental impact metrics is also essential to provide ongoing transparency to investors and stakeholders.
Lastly, compliance with applicable securities laws, tax rules, and bond issuance regulations in the relevant jurisdictions, as well as adherence to frameworks like the Ocean Investment Protocol and UN Blue Economy Guidance, is crucial to ensure the issuance aligns with coordinated global efforts for sustainable ocean investment and scaling private capital participation.
Blue bonds are expected to become an effective way for issuers and investors to contribute to solving climate change, as the blue economy is expected to double in size to U.S.$3 trillion by 2030, creating 40 million jobs. Debt-for-nature swaps, where debt is refinanced and restructured with the savings being set aside for marine conservation efforts, have been successfully employed by several countries, including Seychelles, Indonesia, Colombia, Gabon, Belize, and Barbados, and facilitated by The Nature Conservancy.
Sources for this information include T. Rowe Price, ICMA, UN Global Compact, World Economic Forum, and International Finance Corporation. The blue economy is currently the least funded of the UN's SDGs, and blue bonds are increasingly seen as a way of addressing this.
Investors can participate in funding projects that offer environmental, social, and economic benefits within the marine industry by investing in blue bonds. To ensure the environmental integrity of these investments, issuers of blue bonds are required to follow strict guidelines, including specifying the use of proceeds for sustainable ocean-related projects, developing a framework outlining the bond’s environmental credentials, governance, and impact metrics, and obtaining an independent assessment from a recognized sustainability rating or assurance provider.
