by David Freedman
Blue and green finance are both critical components of eco-development, but they focus on different aspects of the natural environment which is unfortunately creating a vacuum effect in the ocean investment space.
While green finance primarily targets projects that reduce carbon emissions and promote sustainable land use, blue finance is centered on the sustainable use and conservation of ocean resources.
Despite these distinctions, the differences between blue and green finance should not overshadow the bigger picture: both are essential for maintaining the health of our planet. Rather than focusing on these divisions, it is far more important to recognize that we all share one Earth, where terrestrial and marine ecosystems are interconnected and depend on each other.
UNEP’s 2020 report Financing Circularity: Demystifying Finance for the Circular Economyoutlines how the financial sector can scale up financing to accelerate the shift to circular business models in order to keep resources at their highest value long-term and to reduce waste. The report explores strategies and actions that financial institutions can take to manage related risks and opportunities while enhancing resilience and generating a broader environmental, social, and economic approach.
However, ocean investments are still severely lacking in financing based on the amount of treasure it keeps hidden beneath the surface.. So why isn’t there more capital flowing towards the ocean for those who are involved in the field?
This is due to several reasons:
1. Perceived Risks and Uncertainty
- Lack of Understanding: Many investors lack a comprehensive understanding of marine ecosystems, their economic value, and the specific opportunities for return on investment. This can make them hesitant to invest.
- Regulatory and Policy Uncertainty: Inconsistent regulations, policies, and enforcement across different countries can increase perceived risks. Investors worry about changes in regulations that could affect the profitability or feasibility of ocean-related projects.
- Environmental Risks: The ocean environment is inherently unpredictable, with risks such as storms, rising sea levels, and changing climate conditions, which can affect the outcomes of ocean-based projects.
2. Limited Track Record
- Few Proven Success Stories: Blue finance is a relatively new and emerging sector, so there are fewer established models and success stories compared to other sectors like technology or renewable energy. This limited track record can easily deter investment opportunities.
- Few Established Market Leaders: Unlike other sectors where established companies can serve as benchmarks, a blue economy lacks well-known leaders that investors can look to for guidance, making it harder to build confidence in new ventures.
3. Lack of Awareness and Expertise
- Low Awareness Among Investors: Many investors are not fully aware of the opportunities and benefits associated with ocean investments, such as sustainable fisheries, aquaculture, or marine biotechnology. This lack of awareness translates into less interest and fewer investments.
- Specialized Knowledge Required: Ocean investments often require a deep understanding of marine science and conservation, which many investors may not possess, leading them to shy away from such opportunities.
- Absence of Educational Programs: There is a scarcity of educational and training programs that focus specifically on blue finance, which limits the number of professionals with the expertise to guide and execute these investments effectively.
4. Difficulty in Measuring Returns
- Non-Traditional Metrics: The benefits of ocean investments are often measured in terms of ecosystem services, biodiversity conservation, and long-term environmental sustainability, which do not always translate directly into immediate financial returns. The need for ongoing monitoring to demonstrate the positive environmental impact of ocean investments can increase costs and make measuring success more complex and resource-intensive. The challenge of quantifying these benefits in monetary terms makes it harder to attract traditional investors while focused on short-term gains.
- Intangible Benefits: Many of the benefits of ocean investments, such as improved water quality or increased biodiversity, are intangible and difficult to translate, at the moment, into quantifiable economic returns, which can make it challenging to create compelling investment cases.
5. Limited Access to Capital
- Funding Gaps: Many ocean-based projects, especially those focused on conservation or sustainability, may not meet the criteria for traditional financing options. They often rely on grants, philanthropic contributions, or government funding, which may not be sufficient to scale up due to the high barrier to entry cost of the field.
- Lack of Blue-Specific Financial Instruments: There are fewer financial instruments tailored specifically for ocean investments compared to other sectors, making it harder for investors to find suitable waterways and canals for their capital.
- Small Market Size: The nascent state of the blue economy means that markets for many ocean-based products and services are still initially relatively small, making it less attractive for large-scale investors who prefer bigger markets with higher liquidity. At the moment, this cuts off larger organizations from making broad-scale moves by diluting the market.
6. Competing Priorities
- Focus on Other Sustainable Development Goals (SDGs): While there is increasing attention on sustainability, many investors prioritize areas like clean energy, poverty reduction, or healthcare, which are perceived as having more immediate or tangible benefits compared to ocean investments.
- Focus on Climate Change Mitigation: Many investors prioritize projects directly related to reducing greenhouse gas emissions, such as solar and wind energy, over ocean conservation, despite the ocean’s critical role in climate regulation.
- Humanitarian and Social Issues: Investments that address immediate humanitarian concerns, such as poverty alleviation, education, and healthcare, often receive priority over environmental initiatives, including those in marine conservation.
7. High Initial Investment Costs
- Infrastructure and Technology: Many ocean-related projects, such as offshore wind farms, MPAs, or sustainable aquaculture, require significant upfront capital investment, which can be a barrier for many investors.
- Complex Project Logistics: Ocean projects often involve complex logistical challenges, such as remote locations, specialized equipment, and marine construction, which can drive up costs and increase investment risks.
8. Short-Term vs. Long-Term Focus
- Long Payback Periods: Ocean investments often have longer timelines for seeing returns due to the nature of ecological restoration and the development of marine ecosystems. This long-term perspective may not align with the short-term focus of many investors looking for quicker returns.
- Short-Term Political Cycles: Political support and funding for ocean investments can be influenced by election cycles, which often focus on short-term achievements rather than long-term environmental goals, creating uncertainty for investors.
In conclusion, the lack of funding for ocean investments stems from a combination of factors, including perceived risks, limited track records, and the challenges of quantifying returns. The specialized knowledge required, high initial costs, and competing priorities further contribute to this investment gap.
To bridge this gap, greater efforts are needed to raise awareness, continually develop tailored financial instruments, and create educational programs that can equip investors with the necessary expertise to be involved in this rich market sector.
Moreover, fostering partnerships between the public and private sectors, alongside innovative financing mechanisms like blue bonds and blended finance, can help attract more capital into this crucial sector.
By addressing these challenges, it is possible we can use the vast potential of the ocean to promote long-lasting economic growth while preserving and protecting our vital ecosystems.
Sources:
1. Financing Circularity: Demystifying Finance for the Circular Economy
3. OECD. (2016). The Ocean Economy in 2030
5. UNEP Finance Initiative. (2020). Turning the Tide: How to Finance a Sustainable Ocean Recovery
