Blue bonds are a new type of financial tool designed to raise money specifically for ocean health projects. Like regular bonds, they are debt instruments that pay interest to investors.
However, the key difference is that the funds raised must be used for activities that protect and restore marine ecosystems. These projects include sustainable fishing, coral reef restoration, cleaner shipping, and eco-friendly tourism.
The first blue bond was issued by Seychelles in 2018 to expand marine protected areas. Since then, the market has grown slowly. In 2023, blue bonds worth $2.5 billion were issued, a 10.6% increase from the previous year, but this is still less than 0.5% of the green bond market, which funds a broader range of environmental projects.
Governments have been cautious in issuing blue bonds. Besides Seychelles, only Indonesia has issued a sovereign blue bond, raising $150 million for coastal restoration and other projects.
Multilateral institutions like the World Bank and the Inter-American Development Bank have issued about $2 billion in blue bonds to finance ocean-friendly initiatives.
Private companies are the most active issuers, having raised around $9 billion so far. Banks in Asia, such as Bank of China and BDO Unibank, have issued bonds to support their clients’ sustainable ocean projects. Non-financial companies connected to the sea also participate.
For example, Danish offshore wind company Ørsted raised €100 million for marine ecosystem protection, and Dubai’s DP World raised $100 million to reduce port and shipping pollution.
Blue bonds are not the only way to finance ocean projects. Debt-for-nature swaps are another tool, where a country’s debt is refinanced on better terms, and the savings are used for conservation.
Countries like El Salvador and Indonesia have used this approach to fund river and coral reef conservation. Sustainability-linked bonds, which tie interest rates to environmental targets, have also been used, though less frequently; for example, Thai Union issued a $151 million bond linked to sustainable fishing practices.
The blue bond market is still small but growing. Investors include pension funds, insurers, development finance institutions, and philanthropic foundations.
Some funds dedicated to blue bonds are in the capital-raising phase, such as the one by T Rowe Price and the International Finance Corporation. Fidelity International launched a Blue Transition Fund investing in blue bonds and related debt, attracting interest from European insurers.
Experts believe the market could grow significantly with better standards and data. The International Capital Market Association published a framework for blue bonds in 2023, which should help. If the market grows like green bonds, annual issuance could reach $14 billion by 2030. However, this would still cover less than 10% of the funding needed to meet the UN’s goal of protecting oceans.
In summary, blue bonds offer a promising way to finance ocean conservation and sustainable use. With growing interest and improved frameworks, they could play a key role in addressing ocean health challenges worldwide.
Read more:
