Can blue finance save the oceans?

Blue bonds, ecosystem insurance and other novel financial devices may fund conservation projects that have until now been off-limits
<p><span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;La Digue Island in The Seychelles, where blue bonds are being used in an effort to protect coastal ecosystems. (Image: Robert Armitage)&quot;}">La Digue Island in The Seychelles, where blue bonds are being used in an effort to protect coastal ecosystems.</span> (Image: Robert Armitage)</p>

La Digue Island in The Seychelles, where blue bonds are being used in an effort to protect coastal ecosystems. (Image: Robert Armitage)

Conservation could be on the verge of a blue revolution. This year there is growing talk about using entrepreneurial finance to capture atmospheric carbon in revived marine and coastal ecosystems such as coral reefs, mangroves, salt marshes and sea grasses. Conservationists call it “blue carbon”.

There is increasing scientific conviction that blue carbon is one of the cheapest options for carbon capture. And that capturing carbon in coastal ecosystems brings with it a host of other ecological, economic and social benefits, from improved fisheries and richer tourism experiences to protection against rising tides and lethal tropical cyclones.

No wonder Chile, the host of this year’s conference of parties (COP) for the UN climate negotiations in Santiago, says it wants the event to be remembered as the “blue COP”.

The ‘debt for nature’ swap

Blue finance is new territory for conservationists, says Emily Landis, coastal wetland strategy lead at The Nature Conservancy (TNC), a US-based NGO that has taken a lead in finding private funds for marine conservation. The science of counting tonnes of carbon in coastal ecosystems, and methodologies for making sure it stays put, are now both reaching maturity, she says, giving banks and investors the confidence to stake money on the virtues of blue carbon in return for tradable carbon credits or other benefits.

TNC’s showcase project is the Seychelles Sovereign Blue Bond, the world’s first blue bond, which was launched last October. The nation comprises 115 islands, many of them coral fringed, spread across an area of the Indian Ocean three times the size of California. Its economy depends almost entirely on tourism and fisheries. And its government is in debt.

So TNC offered a “debt for marine nature” swap. With help from investors, the World Bank and its Global Environment Facility, TNC bought up US$22 million of Seychelles debt owed to Britain, France, Italy and Belgium. It then excused some of the debt, while lowering interest rates and lengthening the payback period on the rest. The money “saved” goes into a trust fund that pays for conserving marine protected areas and promoting fisheries and other parts of the nation’s blue economy. The World Bank called it “a model for other small island developing states and coastal countries”.

TNC sees itself as a packager of dozens of future deals on the same lines, bringing financiers and governments together, but also bringing their own ecological expertise. “The deals incentivise governments to create marine protected areas. But we also design plans for the countries’ ocean areas, and do work engaging with stakeholders such as local fishers,” says Robert Weary, deputy managing director for blue bonds at TNC.

Proving environmental benefits in the fluid waters of an ocean is harder than on terra firma.

He stresses that to ensure the integrity of the project, host governments will always be in a minority on the public-private trust fund boards that manage the cash.

Investors get a secure return on their capital, often insured by the US government through its Overseas Private Investment Corporation. They can also bask in an environmental payback, which may bring self-congratulatory smiles round the boardroom and is also undeniably good PR.

“It’s a triple bottom line,” says Weary. “They get their money back, we get conservation on the ground and the host government gets to restructure its debt.”

Under the UN Climate Convention, blue carbon projects can also attract tradable carbon credits. Very few countries mentioned blue carbon directly in their submissions to the Paris Agreement in 2015. But TNC nonetheless has big plans for cornering what it sees as a growing market. “We want to have 20 deals in place in 20 countries within five years,” says Weary. They could protect at least a third of marine sources in 4 million square kilometres of ocean. “To do that we need to raise US$3 billion.”

It has a big initial focus in the Caribbean, with nine indebted island nations in line to swap that debt for marine conservation – and hopefully improve their tourism as well as their biodiversity. Grenada, St Lucia and Barbados head the queue. In Africa, the mangroves of Kenya and Tanzania may also soon benefit from attention.

Ecosystem insurance

Not all projects will focus only on blue carbon. Another version of blue finance, says Landis, is “ecosystem insurance”, in which beach hoteliers or others dependent on healthy coastal ecosystems pay to protect the coral reefs and mangroves that provide coastal protection against storms. TNC has established a trust fund to protect reefs and beaches on the tourist coast of Mexico’s Yucatan peninsula, against hurricanes for instance. A tourist tax is channelled into the fund to pay for both routine reef maintenance, such as removing debris and replanting species, and bigger repairs after hurricanes.

More complex hybrid financial deals allow investors to combine carbon capture with meeting corporate social responsibility, such as by contributing to the UN sustainable development goals, which cover everything from biodiversity to food security and gender equality to the resilience of coasts.

And while most blue finance projects have been in the tropics, they could spread elsewhere. In January, the Norwegian asset management company Storebrand unveiled a Baltic Blue Bond to finance ecological recovery in the Baltic, Europe’s most polluted sea. It promises to clean up sewage and industrial waste either by installing new treatment plants or protecting the marine ecosystems that also cleanse the waters.

An ocean of risk?

Some ecologists see the ambitions for expanding blue conservation finance as far-fetched. Proving environmental benefits in the fluid waters of an ocean is harder than on terra firma.

Take blue carbon. You must be able to demonstrate that projects such as restoring mangroves will store carbon for at least 100 years, the same as for a forest on land. But those mangroves face many essentially uncontrollable threats, from tides that wash away seedlings or bring in pollution, to tropical storms, and the constant rise in sea levels that can drown any coastal ecosystem.

A workshop in Australia two years ago concluded that such risks meant “blue carbon projects … are likely to have a low return on investment and may not be cost-effective.” Landis says: “You have to be really careful with the choice of your sites, because of sea-level rise.”

Many past projects to plant mangroves have not been successful, says Wetlands International, an NGO that once promoted planting but now instead favours creating the right coastal conditions for natural reseeding and growth. Either the wrong species were planted, or they were planted in places where the seedlings washed away. Aftercare was often poor when communities were paid for planting but not for looking after the results.

In a global survey, Shing Yip Lee of the Chinese University of Hong Kong, with colleagues, reported in April that such projects “generally did not result in significant long-term mangrove area increase or tree survivorship”. And there could be downsides even when projects were successful. The same study found that the widespread planting of cordgrass, an exotic salt marsh grass, along the Chinese coastline, had choked tidal mudflats and reduced foraging areas for migrating wildfowl on their crucial East Asia flyway.

Blue aquaculture

TNC has another initiative up its finance sleeve that may be more surprising than restoring coastal ecosystems. It wants a hand in the fast-growing global business of marine aquaculture.

Aquaculture is notoriously the destroyer of large areas of tropical mangroves for prawn ponds. But TNC’s thinking is simple. With a still-rising population – and little sign of big declines in food waste – the world needs ever more food. And aquaculture is going to be a big part of that. “Oceans cover 70% of the planet, but provide only 2% of its food,” says Robert Jones, who leads aquaculture strategy for TNC.

Aquaculture is set to change that. “Over the next decade we estimate between US$150 and US$300 billion will be invested in building aquaculture infrastructure,” says Jones. Much of it will displace coastal ecosystems.

It has to be made less destructive of the environment, he says. “More sustainable aquaculture systems struggle for finance, so we want to build interest in them,” by using blue finance vehicles to showcase best practice and find ways for people to invest in it. TNC published a report in May looking at “responsible alternatives to overfished wild species.”

Jones sees three opportunities. One is called “recirculating aquaculture”, which means growing fish on land in tanks of recycled treated waste from sewage works. A second is moving coastal fish farms further offshore, as has started happening in China’s Bohai Sea, where their impacts on coastal ecosystems and water quality will be less. A third is switching to cultivation of seaweed and shellfish that can restore coastal environments rather than destroying them.

Such technology could have particular benefits for the troubled coastal ecosystems of China, home to 60% of the world’s aquaculture, he says.

In a world where aquaculture is of fast-growing importance along many coastlines, making it more sustainable could be the biggest benefit of all to be gained from blue finance.