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Blue Finance and its role in a sustainable ocean economy

Economist Ocean Summit - Day 1 Summary

Chair’s Introduction

During the opening remarks of the recent Economist Ocean Summit in Lisbon, moderator Martin Koehring from Economist Impact provided an overview of the ocean finance landscape.

Ocean health is at the crux of three interconnected planetary crises:

  1. Climate change

  2. Biodiversity loss

  3. Ocean pollution

Building a sustainable ocean economy plays a key part in addressing this and Blue Finance has become an important lever to tackle these three environmental crises.

From an economic perspective, the size of the ocean economy is reportedly US$2.5 trillion. Combined, it would represent the world’s 8th largest economy.

A living and regenerated ocean economy is worth more than an extraction economy. However this is complicated due to the search for ‘bankable' projects that are attractive to investors.

Sustainable ocean economy investment topics include the following where Blue Finance is vital in making them a reality:

  1. Renewable Energy: Predicted to grow by a rate of 40x by 2050. Offshore wind is currently 0.1% global energy production but has the potential to provide 4x the current level of global energy needs.

  2. Aquaculture: An enormous opportunity to sustainably increase food produced from the ocean and meet global protein needs.

  3. Shipping Decarbonisation: Responding to pressure from regulation and customers to decarbonise shipping value chains. For example lending banks will only finance shipping companies that adhere to global shipping environmental targets under the Poseidon Principles.

  4. Blue Carbon Credits: Despite recent backlash, there is potential for high-quality projects, for example sea grass and mangroves that act as carbon sinks and centres for biodiversity.

As well as finance, governance and policy are essential enablers for innovation, but we can’t wait for regulatory frameworks to unlock the sustainable ocean economy.

Finance is necessary to provide the spark for innovation. Venture capital and philanthropic funding is available as Blue Finance, however the private sector is also a potential and largely untapped source of ocean funding.

Panel 1 - Closing the Finance Gap to Meet SDG14 targets

Addressing the sources of finance in working towards the 2030 Sustainability Development Goals, with reference to Development Goal 14 related to the Oceans.

Lisa Kurbiel - United Nations Joint SDG Fund

  • There is a trillion dollar financing gap for meeting the Sustainable Development Goals.

  • In particular there is a ”missing middle” funding gap for investing in early stage projects.

  • The question is how to attract sincere asset managers and encourage early stage investments.

  • Proposed solutions include blending public and private finance where the UN acts as a broker and convener, coordinating projects to provide reassurance and guarantees to investors.

Karen Sack - Ocean Risk And Resilience Action Alliance

ORRAA acts as alliance of cross-sector organisations including government, projects, private sector, finance and insurance.

  • A global financing ecosystem needs to be developed

  • The missing-middle funding gap is a barrier to innovation

  • It is important to think about the differences between Northern and Southern Hemisphere economies. It is more difficult in the global South to build around sustainable blue economy for both governments and entrepreneurs

  • Overall, there has to be investable projects with opportunities to scale

Keith Lawrence - Pew Charitable Trust

Pew has a diverse portfolio of projects and provides resources to fund work.

  • It is important to take in to account the value of natural capital when considering return on investment

  • Most deals done so far have had government or philanthropic funding, but no private finance, we need to find new sources of funding

Karine Measson - European Investment Bank

EIB is a public Bank owned by the 27 EU member states that finances a proportion of projects and provides advisory services that serves as reassurance for other investors, for example supporting offshore wind farms over last 20 years.

  • There is a lack of ‘bankable’ projects from a private sector perspective

  • Radical collaboration is required to put different partners together and blend finance to de-risk investments so the private sector can come to the table

  • The funding gap is pronounced beyond where projects are eligible for philanthropy, in particular from $500k to $5m+

  • The regulatory landscape is a big issue for attracting funding as uncertainty and a lack of clarity leaves investors on the sidelines

How does policy impact funding?

  • It is important to work with governments to create regulatory frameworks that encourage sustainability, enterprise and entrepreneurship, for example working with Mindaroo Foundation/Ellen McArthur Foundation for plastic footprint reporting in the private sector

  • Investor pressure on companies can help, but the nexus of the private sector and regulators is key

What role do you see for those in non-financial sectors?

  • Consider how your own supply chain is adhering to 1.5 degree climate targets and Sustainability Development Goals?

  • How are your activities biodiversity positive?

  • Are you working in a responsible manner in your sector, for example in luxury or travel taking into account destination stewardship and community involvement?

  • Look at the investments of the business that you are working with

  • How can you shift to biodiversity and climate positive activities?

  • A value chain approach can involve any company, don’t wait for perfect data, just start

Why is SDG 14 so under invested?

  • The oceans are ‘out of sight, out of mind’

  • It comes back to the bankability problem, many projects struggle to meet funding criteria

  • Oceans are an environmental orphan left behind in terms of SDG funding

  • Look at partnerships, collaboration and learning from non-ocean but connected sectors such as forestry and atmosphere.

  • We need to learn from mistakes, move out of silos, move quickly and act together

  • To de-risk and make space for investment is both a challenge and an opportunity

  • We don’t have long, the Maldives Government considers we have 85 months to act if we want to stick to the 1.5 degree target

  • To solve complex issues, we need to join forces, this can’t be achieved alone with governments and finance, it needs everyone around the table to meet the challenges

How to close the funding gap?

  • Define better what the notion of a bankable project is

  • Build frameworks around projects, make them scalable, deliver at speed, bring players together, we need engagement across sectors to work on the missing middle

  • We have got great ideas and projects

  • There are large investors out there

  • We need to bring in traditional finance and we need policy in place to incentivise a sustainable blue economy.

Panel 2 - Unlocking the ocean’s potential through natural capital

Marisa Drew - Standard Chartered

Francisco Saraiva Gomes - Ocean 14 Capital

  • We need to rethink how we value the things that we are destroying, if we protect them the return on investment is many multiples.

  • Look at the destruction caused by climate events, the current system does not price this destruction in

  • Why now? It is urgent, we are running out of our stores of natural capital. For example, there are over 500 ocean dead zones the size of the UK

  • We have an existential countdown so need to redefine what capital is.

  • The problem of externality is a 'living economy' return on investment that is not yet proven, versus the existing 'extractive economy' that does not account for the hidden environmental costs of business on public goods

  • We need more money in the oceans, the largest ocean private equity funds are “only” €200m

  • We need to go faster, need more capital, need reasons for investors to invest

  • There is 1.1TN invested in crypto, but only 865BN in carbon credits market capitalisation that has a material benefit for society

  • Monetisation is complex, systems have to be transparent to measure trust. External outcomes should be tied to the business owner, unveiling real risks tied to dollars and balance sheet thus removing the fallacy of externality.

  • Markets need reassurance and a common set of operating principles for capital to scale.

  • Need to show impact and show the payback is there, then investment will follow

  • Correlating environmental gains with economic gains is a market and business opportunity.

  • If natural capital can be monetised, then oceans are the largest opportunity

Panel 3 - Scaling private-sector blue finance

  • What is the role of ocean industries and the private sector to increase the impact in the blue economy?

  • How do we get private sector excited about the blue economy as the private is vital in bridging the funding gap?

  • How to get large investors involved?

  • How to measure impact?

Michael Adams Ocean Assets Group

  • Major industries use the ocean such as shipping, ports, energy and food, there is lot of positive forward thinking corporate activity

  • SME drive 90% of the economy

  • There are already sustainable blue economy finance principles written for ports and shipping

  • We need to engage with existing players in major industries, shipping represents 80% of global trade

  • We need to encourage a bigger view of blue economy

Chris Gorell Barnes - Ocean 14 Capital

Represents one of the largest ocean impact funds, his advice to get private sector excited:

  • It’s not a climate crisis, it is a planetary crisis. If we don’t have a healthy thriving marine ecosystem we have zero chance of ensuring survival for humanity.

  • Food security plays a pivotal role in driving overall security

  • The problem is not a lack of opportunities to invest, but that they are not big enough opportunities for large financial institutions such as pension funds, the real issue is with fund sizes.

  • Focus on blue economy as the most important investment thesis of our time

  • Keep communicating oceans are important as they play a clear role in protecting humanity

  • Ocean literacy is key and oceans are an exciting investment opportunity

Markus Muller - Deutsche Bank

Focusing on the blue economy, what stands out?

  • It is important to understand the ‘meta’, if we don’t understand what is wrong, we can’t fix

  • We need to understand that we are embedded in nature and need a system change to a nature complaint economic model

  • Don’t get caught up in small projects and hinder finance flowing in a good direction, small and scattered projects are dangerous

  • Start-ups and innovation are a different topic, we also need to change the existing system. Disruptive start-up models must run in parallel to existing businesses.

  • If we can’t deliver prosperity we will disrupt ourselves.

  • If you use a measure as a goal rather than a tool you will fail, Blue Finance is not a goal, it is a tool.

  • Private markets represent 95% of investment potential, 5% is institutional

  • We must make the positive opportunity and negative risks transparent.

  • We should not deal with ocean as we did for Amazon. We need to be more precise about what we mean, shifting away from wording of the past

Suzanne Johnson - UN Global Compact

  • We are undervaluing and underestimating the size of the sustainable ocean economy.

  • So much needs to be done in the private sector marrying science based targets as a roadmap

  • What is expensive now will become less so

  • Everyone has a role to play, with science based targets connected with sustainability

  • move away from GDP as the only measure of economic growth.

  • Nature is local, economy is local, so we need to “act local”

  • We need Key Performance Indicators linked to finance, showing the materiality of the ocean.

  • 95/98% of economic growth is mid-cap companies. This is a worry, as big companies have the capacity to do reporting, small and medium enterprises do not.

Panel 4 - Why should investors pay attention to nature?

Isabelle Combarel - Sven Capital Partners

  • More dialogue is needed between finance and companies to understand what are the barriers to scaling finance to ESG leaders

  • We need to improve carbon literacy and be clear on nature related risks and impact

  • Reputation risk is not currently a primary motivator for finance, 95% of the market is agnostic to environmental impact so we need regulators to ‘bake in’ change and incentives as “money will move to where the incentives are.”

  • We can’t wait, we have to go now and learn at the same time, the key is to align impact and financial performance and shift away from waiting for data and disclosure

  • We need to bring science into finance, the funding models of yesterday are over

  • The world is complex, so we need to work with all the skills that we have available

  • Environmental social risks are increasing

  • Provide guidance for investors to actively seek out impact and help support companies through the transition to environmental best practice

Lucy Holmes - World Wildlife Fund

  • Bring science into investment decision making

  • Translate the level of complexity simplified into a language understandable by the finance sector

  • We need nature compliant business models

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