Capital Markets Shake-up: The Debut of Blue Bonds Creating Waves
Blue bonds are a innovative financial instrument designed to fund marine and ocean-based projects that promote sustainability and protect our planet's waterways. These bonds, often considered a sub-type of green or ESG (Environmental, Social, and Governance) bonds, are gaining traction as a solution to address the underfunding of SDG 14 (Life Below Water) and contribute to SDG 6 (Clean Water and Sanitation).
The Process of Issuing a Blue Bond
Issuing a blue bond follows a structured process similar to other thematic bonds, with a focus on ocean and marine-related projects. Here's a step-by-step guide:
- Define the Use of Proceeds: Clearly identify the eligible projects that the blue bond proceeds will finance. These projects are typically related to marine and aquatic ecosystems preservation, sustainable fisheries, water treatment, and ocean-based climate resilience initiatives.
- Develop a Blue Bond Framework: Establish the eligibility criteria for projects, management of proceeds, impact reporting, and verification processes. This usually aligns with recognized environmental and social standards or frameworks.
- Engage External Review/Second Party Opinion: To ensure credibility, a third-party reviewer assesses the framework and confirms the environmental benefits, eligibility criteria, and alignment with blue bond principles.
- Structure the Bond: Decide on the bond’s terms such as maturity, coupon rate, issuance size, and documentation in accordance with capital market requirements.
- Regulatory Approvals and Listing: Obtain necessary approvals from regulatory bodies and consider whether to list the bond on a stock exchange to enhance transparency and access.
- Launch and Market the Bond: Promoters market the bond to investors who are interested in sustainable and impact investments, often highlighting the bond’s contribution to oceanic and water-related environmental goals.
- Manage and Report on Proceeds: Implement a system for tracking the use of proceeds, invest only in eligible projects, and provide regular impact and financial reporting to investors.
Suitable Projects for Financing with Blue Bond Proceeds
Blue bonds can finance a wide range of projects related to the blue environment. Examples include marine conservation and restoration, sustainable fisheries, water supply and treatment infrastructure, pollution control, climate resilience of coastal areas, research and development, equity investments, and more.
The Future of Blue Bonds
The blue bond market is expected to grow significantly, with the blue economy projected to double in size to U.S.$3 trillion by 2030. As more countries and entities issue blue bonds, we can expect to see a positive impact on our oceans and waterways, helping to achieve the five tipping points set out in the Ocean Stewardship 2030 report: sustainable and fully traceable seafood, decarbonised shipping, harnessing ocean energy, mapping the ocean, and ending waste entering the ocean.
In conclusion, blue bonds offer a unique opportunity to invest in projects that provide economic, social, and environmental benefits to all stakeholders. By aligning with global standards, developing a framework with clear targets and sustainability performance metrics, and setting key performance indicators that are measurable and auditable, issuers can create a robust and credible blue bond that contributes to a healthier, more sustainable ocean.
Investors can consider blue bonds as an opportunity for investing in projects that focus on marine and ocean conservation, sustainable fisheries, water treatment, and ocean-based climate resilience initiatives. As the blue bond market expands, this form of investing could become a significant contributor to the growth of the blue economy and the achievement of ocean stewardship goals.
