Deep Dive on Blue Bonds

What are blue bonds?

In recent years, blue bonds have become one of the emerging sustainable debt instruments in the bond market. These bonds focus on addressing pressing issues facing oceans. Governments, development banks or other entities issue blue bonds to raise capital, specifically for marine, water waste management and ocean-related projects. Like other finance bonds, they, upon maturity, offer a fixed interest rate and excess returns generated after investing the money. The primary difference is that the proceeds from blue bonds are devoted to. This article deep dives on the importance of blue bonds, their structure, advantages and pioneering examples.

Emerging sustainability debt category

Blue bonds were first issued by the Seychelles government in 2018. Since then, the growth in blue bonds has been sluggish. Only 26 bonds have been launched between 2018 and 2022, with a combined value of $5 billion. Blue bonds form only 0.5% of the total sustainable debt market, reflecting a gap in the funds required for the welfare of water bodies. Among the United Nations’ 17 sustainable development goals, goal 14 – life beyond water – is the least funded. This can be attributed to the lack of awareness on the importance of oceans. Water bodies are inhibited by various species, and water pollution is one of the major threats to the health of the planet. Water bodies are under severe threat from overfishing, pollution, climate change and habitat destruction. Blue bonds offer a way to mobilize financial resources to address these challenges and promote sustainable ocean management. Hence, there is a dire need to raise awareness on ocean welfare and blue bonds’ role in this context.?

Deployment of proceeds from blue bonds?

The proceeds from blue bonds are used for the following purposes:

• Pollution control: For reducing marine pollution, cleaning rivers and managing waste
• Sustainable fishing: Ensuring sustainable fishing practices and preventing overfishing
• Conservation of marine biodiversity: Preserving the marine ecosystem and establishing marine protected areas
• Waste management: Funding sustainable projects and cleaning water bodies, which are constantly polluted by plastics and other types of wastes, which also release harmful gases
• Water ecotourism: Protecting water bodies during water tourism, spills and leakages from ships and protecting the communities living in coastal areas
• Community development: Developing coastal areas and taking initiatives to improve the lives of people living in coastal regions.?

Regulations around blue bonds

It is imperative that blue bonds align with the standards of green bonds and guidelines specific to blue bonds. The Asian Development Bank (ADB), United Nations Environment Programme Finance Initiative (UNEP FI), International Capital Market Association (ICMA), United Nations Global Compact and International Finance Corporation (IFC) have developed a global practitioner’s guide for blue bonds.

Challenges

While blue bonds offer significant potential, there are several challenges and considerations to keep in mind:

• Risk management: Investors need to assess the risks associated with ocean projects, including environmental, social and governance risks.
• Monitoring and reporting: Ensuring transparency and accountability in the use of blue bond proceeds is essential. Robust monitoring and reporting mechanisms are needed to track the impact of funded projects.
• Market development: The blue bond market is at a nascent stage, and there is a need for greater awareness and understanding among investors and issuers.
• Collaboration: Successful blue bond initiatives often require collaboration among governments, NGOs, the private sector and local communities.
• Blue washing: Blue bond issuers should ensure that the proceeds are invested in projects that genuinely help blue projects and do not project a false image of sustainability.

Examples

• The Seychelles Blue Bond: Seychelles launched the first sovereign blue bond in the world in 2018, raising $15 million to support sustainable marine and fishery projects. The bond was guaranteed by the Global Environment Facility and the World Bank.
• The Nordic Investment Bank Blue Bond: The Nordic Investment Bank issued blue bonds worth €200 million in 2019 to finance projects to improve the health of the Baltic Sea.
• The Asian Development Bank (ADB) Blue Bond: In 2021, the ADB issued $100 million of blue bonds to support ocean health projects in Asia Pacific.

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Way ahead

Blue bonds are gaining in popularity on increasing awareness among people on the preservation of water bodies. They represent a powerful tool for financing the sustainable management of oceans. By channeling investments into marine conservation and sustainable use projects, blue bonds can address some of the most critical environmental challenges of our time. As the market for blue bonds continues to grow, it is essential to ensure that these financial instruments are used effectively and transparently to achieve their intended impact. With the right support and collaboration, blue bonds can contribute materially to the health and resilience of oceans for future generations.