3 December 2020
Oceans cover 71% of the world’s surface, giving Earth the befitting title of the ‘Blue Planet’. The ocean is a planetary superpower that sustains the lives of billions of people and countless marine wildlife. For instance, approximately 3 billion individuals globally are dependent on protein from the ocean for food security. The ocean also produces 50% of the oxygen we breathe daily, plays a critical role in capturing CO2 from the atmosphere, regulates global climate, and drives economic growth by providing natural resources that sustain fishing, tourism, trade, energy, healthcare and aquaculture industries worldwide. This pivotal role in the global economy establishes the ocean as a vitally important asset to underwriting, lending and investment activities, in businesses which either depend on or impact the ocean and its services. The economic activities of ocean-based industries as well as the assets, goods and services of marine ecosystems, the ‘Blue Economy’, has been estimated to generate over USD$2.5 trillion a year.
However, the ocean’s ability to bolster the economy and produce its many life sustaining functions have been critically compromised by climate change, overfishing, ocean acidification and warming, coastal development, pollution and habitat destruction. Declining ocean health has mobilised efforts to rebuild and replenish this irreplaceable resource and the ecosystems that keep it functioning, including coral reefs, kelp forests, mangroves, the open ocean and sandy shores. These delicate ecosystems are the lifeblood of the ocean and are the source of the ocean’s resources and services, which highlights the need to protect ecosystems for their intrinsic value as well as their economic value to society.
Marine conservation goals have proliferated in international discourse, as seen in the ‘30 x 30 target’; a commitment by an expanding number of nations to conserve 30% of the world’s oceans by 2030. Typical conservation actors working to protect these delicate ecosystems include States, State agencies, international organizations, local communities and NGOs. However, healthy and functioning ecosystems are not only pertinent to environmentalists or conservationists but also to the financial sector. The goods, services and economic opportunities derived from the Blue Economy in sectors such as shipping, aquaculture, offshore renewable energy and coastal tourism, instantly establish the financial sector as a major stakeholder in the ocean and its ecosystems. Given this connection to the ocean, what role can the financial sector play in the protection and restoration of the ocean’s delicate ecosystems?
Inspiring examples of the role of the financial sector in conservation are seen in efforts to protect coral reefs worldwide. Corals reefs occupy a mere 0.1% of the area of the ocean but they support 25% of all marine species. These stunning ecosystems are among the most biologically diverse places on the planet and are an economic powerhouse in the Blue Economy. Coral reef tourism is worth at least USD$35 billion globally each year. Furthermore, healthy coral reefs can provide ecosystem services for local communities and economies, including food provision, erosion regulation, biogeochemical cycling and coastal protection from storms and floods. These services make coral reefs of particular importance to the financial sector. As coastal regions undergo tremendous population growth, urbanisation, and economic development, services provided by coral reefs will become increasingly valuable over time.
Conversely, the damages to coastal cities from extreme storms and floods induced by climate change and loss of coastal protection from ecosystems such as coral reefs and mangroves will become increasingly costly over time. By some estimates, the total cost to coastal urban areas could reach up to USD 1 trillion per year by 2050, with an accompanying increased potential for insurance defaults and claims. With the IPCC projecting a 70–90% loss of coral reefs globally given global warming of 1.5°C or less, the financial sector has, now more than ever, a pressing incentive to leverage their ability to protect these critical ecosystems and sustain the Blue Economy.
The Global Fund for Coral Reefs (GFCR) aims to support this goal of protecting coral reefs by bringing together a wide range of stakeholders. Initiated by the Prince Albert II of Monaco Foundation and the Paul G. Allen Family Foundation, the GFCR also brings together various UN agencies inducing UNDP and UNEP, private philanthropy, Member States, BNP Paribas, Althelia Funds (Mirova) and other financial institutions. The GFCR is a blended finance vehicle that seeks to raise and invest USD $500 million in coral reef conservation over the next 10 years. The purpose of the GFCR is to provide technical assistance, capacity development, monitoring and evaluation, emergency grants, investment capital, financial guarantees and concessional loans to businesses and projects that aim to:
- Protect priority coral reef sites and climate change-affected ‘refugia’
- Transform the livelihoods of coral reef-dependent communities
- Restore coral reefs through new technologies and adaptive approaches
- Recover coral reef-dependent communities in the face of major shocks (such as natural disasters, health crises, economic shocks)
By integrating the financial sector, the GFCR is working to prevent the extinction of coral reefs by reducing the coral reef financing gap and supporting sustainable interventions, while also benefiting reef-dependent communities.
Another inspiring story of the integral role the financial sector can play in protecting coral reefs comes from an innovative conservation strategy devised by Swiss Re, The Nature Conservancy (TNC), and the Government of Mexico. In 2005, two hurricanes struck Mexico’s Yucatan peninsula in the states of Puerto Morelos and Quintana Roo causing USD $8 billion in damages and further economic impact by disrupting tourism in the area. However, hotels and beaches in Puerto Morelos suffered less damage than those in Quintana Roo because Puerto Morelos was protected by a healthy stretch of the Mesoamerican Reef. This disaster exemplified how coral reefs that have been damaged or lost are no longer able to protect coastal communities from storms nor sustain tourism.
Incentivised by this threat, the state government of Quintana Roo, hotel owners, TNC and the National Parks Commission established the Coastal Zone Management Trust in 2018. The Trust is the world’s first ever coral reef parametric insurance policy which collects and manages funds from an existing fee paid by beachfront property owners as well as other private and public sources, to ensure these vital ecosystems are repaired after extreme storms hit. If wind speeds reach an excess of 100 knots along a predefined 160 kilometer stretch of coast and coral reef in Mexico, an insurance payout will be made to allow damage assessments, debris removal, and initial repairs to be carried out on the coral reef in a timely manner. By speeding up capital disbursement after a natural disaster, this form of insurance helps reduce the impact extreme weather events can have on local and national economies while simultaneously supporting the recovery of coral reefs and their function as coastal barriers. This innovative method not only involves the financial sector in conservation efforts but also protects the region’s USD $10 billion tourism industry, conserves coral reefs as a valuable natural asset in the Blue Economy and creates a scalable new market for the insurance industry.
Coral reefs are only one of the ocean’s many ecosystems that are crucial to the Blue Economy, and by extension the financial sector. For example, dense tree coverage characteristic of mangroves gives them a variety of direct and indirect use values that are particularly important for the Blue Economy, including carbon sequestration, control of coastal erosion, natural purification of coastal water from pollution, and the provision of feeding, nursery and breeding grounds for fish, crustacean and wildlife that are important to local fisheries. For this reason, the economic value of mangroves is an estimated US $3,625 – US $26,735 per ha per year, however, like many of the ocean’s delicate ecosystems mangroves are steadily on the decline.
Anthropogenic forces continue to harm all ocean ecosystems at a troubling rate, thereby compromising ecosystems’ ability to provide their life-sustaining goods, services, and functions. In order to safeguard the ocean’s ability to bolster local and global economies, these delicate ecosystems must be conserved. The Global Fund for Coral Reefs and the Coastal Zone Management Trust represent replicable and scalable solutions by the financial sector to conserve a valuable natural asset, which can also be applied to other ocean ecosystems. Such innovative solutions boost the Blue Economy while simultaneously rebuilding ocean prosperity, restoring biodiversity and regenerating ocean health. This integration of the finance sector into conservation activities represents a new age and opportunity to couple the goals of economic development with environmental protection.
The Sustainable Blue Economy Finance Initiative can help guide banks, insurers and investors along this path towards the sustainable use and protection of the ocean’s natural resources, ecosystems and services. Underpinning this Initiative are the Sustainable Blue Economy Finance Principles, developed by the European Commission, WWF, the World Resources Institute and the European Investment Bank and hosted by UNEP FI. These principles provide an industry-standard framework to promote the implementation of SDG 14 (Life Below Water), mainstream sustainability of ocean-based sectors, and encourage the protection of the ocean. By bringing together financial institutions to work with scientists, corporates and civil society, facilitating peer-to-peer learning, and expanding blue finance resources and knowledge base, the Sustainable Blue Economy Finance Initiative is accelerating the transition towards the sustainable development of the Blue Economy.