22 December 2020
In this op-ed originally published for The Economist Group’s World Ocean Initiative, Eric Usher, Head of UNEP FI, calls for a transformational shift in private finance to regenerate ocean health.
A healthy ocean is one of the critical success factors in the global economy. Prior to covid-19, the value of the blue economy was an estimated US$2.5trn annually, equivalent to the GDP of the world’s seventh-largest economy. For the majority of banks, insurers and investors the seas are uncharted territory, but the tide is turning. The financial system is waking up to the risks of a business-as-usual approach and the opportunities to back a healthy ocean. Increased awareness and industry guidance will be crucial factors in driving the power of the financial community to replenish and rebuild the world’s largest ecosystem.
The financial system has a direct impact and dependency on the ocean. As financiers of marine industries, including shipping, seafood, coastal tourism, port infrastructure and offshore renewable energy, many banks’, insurers’ and investors’ balance sheets depend on the health and continued abundance of marine resources.
Even financial institutions located thousands of miles from the coastline may have significant ties to the ocean through clients whose supply chains either source material from the ocean or damage the marine environment. Industries as varied as pharmaceuticals, cosmetics and energy rely on marine biotechnology to source new genetic material for research and development. Other land-based industries with close ties to the ocean include agriculture, with run-off being a major factor in the degradation of coastal waters, and the production and use of plastics, of which an estimated average of 8m metric tonnes end up in the ocean each year.
Sense of urgency
The triple threat of pollution, biodiversity breakdown and climate change is bringing a renewed sense of urgency and focus to the seas. Emerging highly destructive industries such as deep-sea mining are calling into question humanity’s impact on this critical ecosystem, and ocean health is climbing ever higher on the international agenda. Next year’s UN Ocean Conference and the Convention on Biological Diversity’s Post-2020 Global Biodiversity Framework will strongly influence future policies and strategies around UN Sustainable Development Goal 14 on “life below water”. The ocean is also an integral part of meeting the Paris Agreement, with estimates that ocean-based climate action could deliver up to 21% of the annual greenhouse gas emission cuts needed by 2050.
Governments and policymakers cannot tackle this issue alone. With the ocean economy projected to double in size by 2030 and growing opportunities for building a sustainable ocean economy, the financial community has a critical role to play in pivoting the global economic system towards rebuilding ocean prosperity, restoring biodiversity and regenerating ocean health.
Momentum for sustainable “blue finance” is already building among banks, insurers and investors, with early adopters launching a range of new financial solutions this year. These build on the vast experience available in green finance and include landmark commercial blue bonds, and new public-private partnerships such as the Global Fund for Coral Reefs, which seeks to raise and invest US$500m in coral-reef conservation over the next decade. Institutions are already beginning to harness the power of natural capital, exploring nature-positive solutions such as ocean-based funds, ETFs and blue carbon credits, based on mangroves and seagrass, to complement their existing portfolios.
However, a few pioneer players alone will not create the needed impact. A survey of financial institutions conducted earlier this year showed that despite 92% of respondents being familiar with the concept of a sustainable blue economy, 59% of these had not applied the concept within their institutions. The scale of the problem requires the entire financial system to move in concert to “turn the super-tanker” of the ocean economy. We see three enabling pathways to allow private finance to make immediate progress in transforming the ocean landscape.
Three enabling pathways
First, there is an urgent need for increased ocean literacy amongst finance professionals. Excellent resources are increasingly becoming available, including Friends of Ocean Action’s Ocean Finance Handbook and the High Level Panel for a Sustainable Ocean Economy’s Blue Paper on Ocean Finance. Both were released in 2020 and contain key insights into emerging opportunities and guiding private finance towards ocean resilience and recovery.
Another crucial step will be for financial institutions to assess their current investment, lending and underwriting activities for impacts or dependencies on the ocean, whether via land-based or marine-linked industries. The UN Decade of Ocean Science for Sustainable Development, launching in 2021, will bring much-needed improvements in marine science and data collection, providing an opportunity for financial institutions to further identify, quantify and manage their ocean-related financial risks and opportunities.
A third crucial enabler of the transition to sustainability will be the wider adoption and implementation of industry-wide standards and guidelines, including the Sustainable Blue Economy Finance Principles. Launched in 2018, these science-based principles allow financial players to work with clients to take an ocean-systems approach to their corporate strategies, seek positive impacts in their transactions and increase financial flows towards ocean-positive businesses and solutions. Further guidance is under development for early 2021, bringing practical advice for financiers on which activities of the blue economy to seek out, where to challenge clients on questions of sustainability and which harmful areas and activities to avoid completely.
As the world looks to build back better from the covid-19 pandemic, private finance holds some of the keys to making the transformative and urgent changes required to put the blue economy on a path to sustainable economic growth. Increased ocean literacy, review of current activities, and the adoption and implementation of industry guidelines mark important first steps for the finance sector to mainstream this critical issue, and to lead the way in building back bluer.
Eric Usher heads the UN Environment Programme Finance Initiative (UNEP FI), a global partnership bringing together the UN with more than 350 banks, insurers and asset managers working to develop the sustainable finance agenda. UNEP FI has established some of the most important sustainability-oriented frameworks within the finance industry, including the Principles for Responsible Investment, the Principles for Sustainable Insurance, and the Principles for Responsible Banking. UNEP FI hosts the Sustainable Blue Economy Finance Initiative, convening a global financial community focused on the ocean and sustainable use of marine resources and supporting the implementation of the Sustainable Blue Economy Finance Principles.
Eric Usher will speak about blue-finance opportunities at the 8th Annual World Ocean Summit Virtual Week in March 2021. Find out more and register for free here.