BLUE BONDS: Blue Bond Instruments and their Importance in the Indian Context
By Ms. Khushie Shah
Water is the basic survival unit of our planet and humankind. About 71% of the Earth’s surface is ocean, and billions of people depend on the oceans for their livelihood, health, sanitation, agriculture, food, manufacturing, construction etc. Maritime transport remains an essential part of economies of numerous nations as 80% of global trade, by volume, is carried out via sea. Oceans being a significant wealth generator, estimated at an annual value of $1.5 trillion per year, have given rise to blue economies across the world. The term “Blue Bonds” as enablers of Blue Economy was first introduced by Gunter Pauli in 2010.
Blue economy has the potential to contribute in a larger extent to the national economy of India.
First, let us understand the term “Blue Economy”. Blue economy has the potential to contribute in a larger extent to the national economy of India. India, being a peninsular country, with its numerous rivers encompasses water bodies which have immense potential, as albeit with their own challenges. Blue economy comprises of the blue waters, man-made infrastructure in oceans, seas and rivers, and, onshore as well as offshore industries where water plays an important role. Industries such as renewable energy, aquaculture, seabed activities, marine biotechnology such as fisheries, tourism and maritime transport, all fall under the banner of blue economy. According to the research cited by Andrew Hudson, Head of the Water and Ocean Governance Program at the UN Development Program (UNDP), the global contribution of the blue economy is estimated to be about $3.6 trillion a year.
The burden on global water bodies can be felt through climate change impacts which are seriously altering the biodiversity of the oceans. These adverse effects on the oceans have generated interest in the mechanisms to counter them, such as issuance of blue bonds.
The concept of Blue Bonds is similar to that of Green Bonds. Their main aim is to financially support preservation and protection of the oceans, marine life, climate changes and further help in contributing to nation’s economy. Since this process requires a huge amount of capital, a special mechanism of Blue Bond is created for funding, which helps to reduce the cost of capital for investors. Blue bonds are the debt instruments which are issued by national government or the development banks. The money raised from these bonds is used to undertake activities which help to enhance marine resources.
Operating Blue Bonds
In India, organizations such as The Nature Conservancy Centre (TNC) – a global initiative working for protection and conservation of the lands and waters through regional branches or local affiliates – helps bring together the stakeholders such as World Bank, investors, the coastal nations and public donations to develop scientific sustainable solutions.
“Blue Bonds play a vital role to identify and tackle the sustainability challenge.”
Blue bonds can have a financial framework that can be easily administered. The world, being impacted by social, economic and geopolitical challenges, until now has not deemed sustainability of oceans as a critical challenge. In this case, blue bonds play a vital role to identify and tackle the sustainability challenge, as they are equipped with a better revenue model wherein, they rely for financial investment through government aides, which is less as compared to the revenue generated through the project itself.
Despite Having a Future Full of Possibilities in India, Blue Bonds Also Face a Few Challenges
The financial support taken for any blue economy project eventually has to be repaid along with an interest amount. So, the income generated from such kind of projects is through levying charges to the beneficiary. However, the sea being a very vast water body has some remote regions where pollution is rampant which makes it difficult to identify the beneficiaries and polluters.
Another major challenge is the accurate estimation of the investment needs of state governments and communities vis-à-vis the investment readiness of entrepreneurs, angel investors and businesses. They are also not systematically networked to further an integrated agenda for the development of the blue bonds.
According to Andrew Hudson, Head of the Water and Ocean Governance Program at the United Nations Development Program (UNDP), the money earned by levying fines and charges on the polluters, goes into trust fund. Then this money is used for conservation of protected marine areas and promotion pisciculture and other activities. In this way blue bonds start creating wealth that helps in maintaining the health of our oceans.
Blue Bonds: Scaling The Opportunity
The World-Wide Fund (WWF) estimate the value of the ocean assets at $24 trillion and an annual value addition of about $2.4 trillion. Investment in blue bonds enables financial savings for the government which can be further invested in the protection of natural resources, biodiversity and livelihoods. Further, the investors who provide the original seeds of funding for these projects realize the incredible leverage on their philanthropic investment.
Blue bonds are a huge opportunity as they truly fit into the current scenario related to our country’s sustainability journey in terms of climate change, loss of coral reefs, extinction of aquatic animals and so on. At present we are in an era where ocean conservation goals and interventions of various governments will soon have a great impact on world’s blue economy sectors and biodiversity of oceans. As the coastal areas are growing small day-by-day, the opportunity window will remain irreversible until ocean degradation starts. The Maritime Research Center (MRC), Pune is working with various universities, Academic and Advisory bodies, the coastal communities and stakeholders of the Indian Ocean Region to create awareness and research repositories, improve marine area management and create new marine protected areas, and collaborate for blue bond related initiatives.
Blue Bonds: Transformative Game Changer for India's Blue Economy
“Blue Bond issuance can also stimulate interest among public and private investors.”
The need for funding sustainable maritime activities is growing year on year. The scale of the problem relating to climate change challenges has grown enormously. Therefore, small scale funding needs to give way to capital market deals. In the 21st century, an innovative financial debt instrument like blue bonds diversifies and expands the investor base, thereby relentlessly enhancing the access to capital, availability of investors and the amount of capital that can be invested in conserving our oceans. Blue bond issuance can also stimulate interest among public and private investors, because they present an opportunity to not only achieve strong financial returns, but to also contribute to environmental and social impact on sustainable development of blue economies.
Some key benefits of issuing blue bonds in Indian context are as follows:
- Strengthening, restoring and protecting India’s water resources and water ecosystem: For instance, projects like the National Mission for Clean Ganga and Mission SAGARMALA could be supported through blue bonds.
- Increasing productivity of fisheries and agriculture.
- Fulfilling global Sustainable Development Goals (SDG) defined by the United Nations.
- Empowering communities dependent on the marine ecosystems.
- Modernising port infrastructure, wastewater and solid waste management in an ocean friendly manner to avoid pollutant dumping along the coastline.
Just like all thematic bonds (e.g., Green Bonds, Climate Bonds, Sustainability Bonds), India, at the strategic level needs to define blue economy sectors and projects that require immediate and large-scale funding. Typically, a robust Blue Bond Framework to support blue bond issuance, with a Second Party Opinion duly incorporated, consistent with the “Sustainable Blue Economy Finance Principles” of the United Nation’s Environment Programme Finance Initiative will ensure that a wider set of investors have utmost confidence and transparency in the project selection. In the Indian context, the rise of Blue Economy and Blue Bonds can complement each other.
Some Examples of Successful Blue Bonds
SEYCHELLES SOVEREIGN BLUE BOND
The first blue bond programme in the world was the “Seychelles Sovereign Blue Bond”. The objective of this bond is to save coral on the 115 islands of Seychelles. This issue was enabled by the investors such as World bank and its Global Environmental Facility.
BLUE BOND FOR BAY OF BENGAL
Kalinga International Foundation gave birth to Blue Bonds for Bay of Bengal. The vision of this blue bond is to maintain peace and prosperity in the eastern, north-eastern states of India and the Indo-Pacific region. The foundation brings together, for the first time, the eastern and north-eastern region of India with their proximate neighbouring countries as they have strong ties of history, culture, language and traditions from early times.
As we have seen, Blue Bonds can be an immense value addition to the emerging underwater domain (UD), particularly for the blue economy of India. All the stakeholders of UD, Government of India and Financial Sector should come together collaboratively to make it happen. Maritime Research Center (MRC) can play the role of a supporting knowledge partner for the same. There are plenty of nationally significant projects within the underwater domain that can be catered to by blue bonds.
About The Author
Ms. Khushie Shah
Ms. Khushie is an aspiring chartered accountant with a key interest in macro economic development of India. She interned for the Maritime Research Center from July to December 2021.