Blue bonds: An ocean of possibilities
Before delving into the matter of blue bonds, it is important to briefly understand the "blue economy" itself. Blue economy is a term in economics which relates to the preservation and exploration of the marine environment. The World Bank states that the blue economy is the sustainable use of ocean resources for the economic growth, betterment of livelihoods, jobs creation and the preservation of the ocean's ecosystem. The blue economy may encompass all economic activities related to the oceans, seas and coasts and it may cover a broad range of interconnected sectors. The concept of a blue economy is an emerging one and it is stressed that the utilisation of such resources should be directly combined with also the preservation of it through better stewardship of those "blue resources".
Blue investments funded through blue bonds should be used to promote the implementation and achievement of sustainable development goals in Bangladesh
The current value of the global blue economy is $2.5 trillion per annum. As mentioned above, although the blue economy encompasses a wide variety of ocean-linked sectors and industries, fisheries and aquaculture alone generate direct or indirect employment for 10 per cent to 12 per cent of the global workforce with more than 90 per cent of the employment created in developing countries.
The blue economy and Bangladesh
Recently, experts have stated that despite the huge potential, the opportunity to move the overall economy forward through the development of Bangladesh's blue economy is underutilised due to a lack of proper initiatives, measurements, and coordination. Bangladesh's 710-kilometre coastline extending from the tip of Saint Martin's Island in the southeast to the west coast of Satkhira and 121,110-square kilometre sea area has exceptionally varying ecosystems having major ecological and fiscal significance and advantageous possibilities. Fisheries, shipping, and coastal tourism are the traditional uses of coastal and ocean resources. Furthermore, there are new sectors like offshore gas exploration, salt production and offshore renewable energy. The old and new sectors of ocean use have a high outlook of growth. Together with other ocean uses, the government has taken initiatives for major industrial expansion in the coastal regions including building a coal power plant, deep sea port, and liquefied petroleum and natural gas terminal. A distance of 660 kilometres from the coastline is available to Bangladesh but its mechanised boats and industrial trawlers are capable of fishing going out only 70 kilometres. Thus, there is still a significant amount of sea fishing frontier which Bangladesh is yet to take enough advantage of.
What are blue bonds?
Innovative financial solutions will be required to improve ocean and coastal resilience. Blue finance, in particular blue bonds, have great potential to help surmount existing challenges. Blue bonds are an innovative ocean financing instrument whereby funds raised are earmarked exclusively for projects deemed ocean friendly. The World Bank defines blue bonds "as a debt instrument issued by governments, development banks or others to raise capital from impact investors to finance marine and ocean-based projects that have positive environmental, economic and climate benefits." Like green bonds, blue bonds operate similar to any other debt instrument by providing capital to issuers who repay the debt with interest over time. As investors show growing interest in pledging capital to fix environmental challenges, blue bonds have emerged as the latest financing instrument to help protect the world's oceans and the economies that rely on their health.
Blue bonds gained attention in 2018, after the World Bank facilitated a bond agreement to offload a small portion of Seychelles' debt in exchange for marine protection. It served the dual purpose of stabilising the country's credit rating and investing in its economy, which is closely tied to the ocean.
Why issue blue bonds?
The primary reason for issuing blue bonds is to reduce the cost of capital for impact investors. This is done with the help of various international organisations. For example, the World Bank is known to provide a free credit guarantee to the purchasers of blue bonds. This means that if the issuer is unable to repay the funds that they have borrowed, the World Bank may repay the loan, at least partially. Since the World Bank is an institution with vast amounts of funding, this guarantee significantly decreases the risk for investors. As a result, even the minor return offered by blue bonds seems significant. Countries all over the world use credit guarantees and concessional loans with the goal of increasing the returns for their investors. Since the oceans are not affected by any single industry, it is tough to zero down on the source of pollution. This makes it important to spend the earnings of blue bonds on a wide variety of ecologically favourable projects.
Bangladesh needs to attract more blue investment
The value of the Bangladesh blue economy has been estimated to be $6.2 billion or around 3 per cent of the GDP. However, this amount may be understated due to a lack of more accurate measurements and for methods prescribed in the System of the National Account not being followed. Consequently, global investors and other reports identify this lack of accurate data of the blue economy as one of the key constraints for raising funds for moving the sector forward. This kind of lack of proper information and data is not favourable because studies and reports that have been conducted on the Bangladesh blue economy suggest enormous potential and opportunities.
Studies indicate that fully utilising the blue economy is a costly venture and thus would require huge investment in projects with time-bound completion and clear results. Furthermore, gaining benefits from nature gifted assets warrants careful planning and handling. At its core philosophy and reason for exiting, the blue economy is fundamentally linked to the ocean and mining its benefits must be approached cautiously with the sincere goal of sustainable handling of the ocean's assets.
The promotion of the blue economy needs major investments and based on the experiences of several countries, long-term development financing is most desirable through fixed income securities or bonds. The world has seen a surge in green or sustainable bonds in the last decade and the blue bond is the latest member of the sustainable bond family. Blue investments funded through blue bonds should be used at promoting the implementation and achievement of sustainable development goals in Bangladesh. Such endeavours must also contribute to good governance of the ocean and coastal habitats, deliver long-term value to marine and coastal ecosystems, and reduce carbon emissions as well as support the people whose livelihoods depend on the oceans.
The author is an economic analyst. Views expressed here are personal.