Nicole Egan - Nov 04 2021
Financing the Blue Economy through Impact Investing

As report after report highlights the shortcomings of global efforts towards sustainability and climate goals, the time has come to focus on solutions that support environmental wins whilst offering incentives to those unmotivated by either altruism or the climate crisis.

One such solution is impact investing, and more specifically, impact investment in the blue economy.

As more organisations and governments accept the link between financial markets and social change, the need increases for approaches and investment vehicles that allow investors to act on social, environmental, or developmental challenges, while earning returns that are at least proportional to traditional investment opportunities.

So Why the Blue Economy?

We live on a blue planet. Seventy-one percent of the earth’s surface is water and our Ocean contains 99 percent of the ecological and habitable space available on the planet. Given this vast water coverage, perhaps it’s no surprise that our climate function relies heavily on the Ocean. The Ocean has absorbed one third of all carbon dioxide released into the atmosphere by humans; unfortunately, they have also absorbed 90 percent of the planet’s warming.

While many are familiar with the green economy, the term “blue economy” is less pervasive. However, as more than 600 million people live in coastal areas around the world, further development of the world’s Ocean can provide an opportunity for prosperity through fisheries, aquaculture, maritime transport, tourism, and more – a space known as the blue economy.

Without the right frameworks, development demands can lead to the depletion of Oceanic fisheries, deterioration of water quality, death of coral reefs, and beach erosion. But it doesn’t have to be this way.

Financing the blue economy through impact investing provides systemic opportunities to encourage sustainable use of Ocean resources for economic growth, improved livelihoods, and jobs while preserving and improving the health of Ocean ecosystems.

Impact Investing’s Role

Recent reports have found a USD 2.5 trillion annual funding gap against the UN’s Sustainable Development Goals, which, compounded by the expected impact from COVID-19, may set back those goals by more than 30 years, making collaborative models and systemic approaches that connect governments, businesses, and accredited investors what’s needed now to move the needle forward.

Impact investment vehicles can provide funding for developments that support sustainability broadly, and climate targets more specifically. Leveraging impact investments for funding blue economic activity offers the best chance at ensuring that collaborative systemic models are utilised that benefit local communities while still ensuring Ocean health.

“We can travel and trade over a dead Ocean, but we cannot live, breathe or have functional societies or economies without a healthy one.”

With more than 3 billion people globally relying on the biodiversity of the world’s Ocean and seas for their livelihood, global focus on protection of these important natural resources is critical. In terms of economic impact, the World Wildlife Fund estimates that the world’s Ocean, if treated as a country, would have the seventh largest economy in the world. No matter the quantification, whether individuals or dollars, it’s clear that Ocean health, today and for future generations, is vital for the health of our environment and to accelerate economic growth, create jobs, and fight poverty globally.

“We can travel and trade over a dead Ocean, but we cannot live, breathe or have functional societies or economies without a healthy one,” notes Karen Sack, Co-Chair and Executive Director at the Ocean Risk and Resilience Action Alliance. “If we don’t focus on replenishing and regenerating the Ocean now, we will be unable to sustain the social and economic resilience or livelihoods of the 3 billion people dependent on a healthy Ocean.”

Opportunities for Real Impact

While we aim for net zero, a recent IPCC report (Intergovernmental Panel on Climate Change) indicates that carbon dioxide is pushing us towards a future where temperatures will be at least 1.5 degrees Celsius above pre-industrial levels by 2040.

The planet’s Ocean and waterways play a crucial role in regulating climate and weather, and are vital to the global economy, with more than 90 percent of trade using sea routes and as an employment source for millions of people. Understanding this, we can approach our thinking about the blue economy through the lens of the risk we face by not building sustainability – and more importantly, climate improvement – into the models being leveraged to expand the blue economy.

The UN has recognised the importance of the growing blue economy in its 17 Sustainable Development Goals (SGDs), which aim to transform the world. Goal 14 specifically considers life below water, aiming to “conserve and sustainably use the Ocean, seas and marine resources". And despite its recognition, SDG 14 is the least funded of the 17 SDGs.

Today, Palladium's capital advisory team are working through the design phase, engaged by Ocean Risk and Resilience Action Alliance, to structure an Ocean-related investment vehicle. As they consider the marketplace for the blue economy, the pipeline, where money is flowing, where there are gaps and a need, associate Grace Lucas notes the importance of building an ecosystem, “The market as-is is disjointed and fragmented – in which commercial and catalytic capital infrequently work effectively together.”

“To address this, and to ensure sustainable development for the Ocean before it’s too late, we need to take a systemic approach that brings together multiple pieces of the ecosystem to catalyse investment,” Lucas adds.

When we think about investing at its most basic, the principles are simple: minimise risk and maximise return. But at a time when climate change is a global emergency, one threatening the very sustainability of our earth, isn’t the most pressing investment risk investing in a way that doesn’t prioritise sustainability? Perhaps more simply put, the risk of omission is one for which we shouldn’t have any tolerance.

Learn about Palladium’s #BackBlue Ocean Finance Commitment and contact for more information.