World Oceans Day: What is the blue economy?

World Oceans Day has been hosted annually since 1992 and is an international event spearheaded by the UN. It was first put forward by Canada at the Earth Summit in Rio de Janeiro, Brazil, with the intention of giving ocean and coastal communities a greater say in the development of international environmental agreements and ensuring that such agreements recognised the role of thriving oceans in creating a sustainable future.

Fast-forward 30 years and the fact that healthy oceans are needed for social and environmental sustainability has only become clearer, due to improved science. The oceans have absorbed more than 90% of the extra heat generated by man-made activity since 1970 and sequestered about a quarter of human-caused emissions in the same timeframe. Around half of the global population depend on oceans for their livelihoods, according to the OECD.

Scientists have also been tracking how ocean health is being jeopardised by a myriad of human-caused issues. A landmark 2019 scientific report on ‘The Ocean and Cryosphere in a Changing Climate’ concluded that no parts of the world will be spared from the adverse impacts of rapid sea-level rise. The report also set out forecasts for more frequent, wide-reaching and intense marine heatwaves; increased ocean acidification; and an increase in ‘superstorms’ at sea. Add all of this to plastic pollution and species decline and the result is an ocean left less able to support life and sequester carbon, which could soon pass irreversible tipping points.

At the UN level, World Oceans Day 2022 will be marked by a dialogue between nations held in Bonn, Germany. As noted by UN Climate Change’s High-Level Champion Nigel Topping, the dialogue will take notes from recent IPCC reports on the need for adaptation as well as mitigation, ensuring that the ocean can cope with levels of warming already locked in and that communities depending on oceans can thrive.

Topping has also noted that non-state actors – especially local governments, local authorities and businesses – are present in Bonn at levels never seen before. A key facet of the dialogue on oceans will be on enabling solutions to threats facing marine ecosystems to be implemented at scale.

At this inflexion point, then, the ground is fertile for the expansion of investment in oceans – not simply in ocean-based industries which degrade marine environments, but in projects that aid restoration. This could create a thriving blue economy – but what, exactly, does that mean?

Defining the blue economy

The blue economy is a concept that seeks to assign value to – and thereby enable greater investment –  in marine resources, with a focus on ensuring long-term sustainability. It has been growing in popularity since 2016, when several academic papers attempting definitions were published.

2017 saw the World Bank defining the blue economy as “the sustainable use of ocean resources for economic growth, improved livelihoods and jobs, while preserving the health of ecosystems”.

The World Bank’s definition is one of several officially noted by the UN in its regular processes documents. Unlike the definition provided by the European Commission, sustainability takes centre stage. The EC’s definition encompasses “all economic activities related to oceans, seas and coasts” – including activities proven to have significant negative environmental impacts.

The definition posed by the EC for the ‘blue economy’ is, for many, better suited to the more general term ‘ocean economy’. In 2016, the OECD stated that the value of the ocean economy was $1.5trn, and poised to grow to $3trn by 2030.  It is forecasting growth in sectors with known negative impacts, including intensive fishing and offshore oil and gas; emerging controversial sectors such as ocean mining; and emerging industries which boast of their own sustainability, such as offshore renewables, nature-based solutions, ecotourism and carbon capture and storage (CCS).

As debates over definitions continue, the science makes it clear that action on the ground needs to be scaled.  Most actors are adopting definitions and approaches which do not sideline environmental sustainability and seeking to scale emerging and nascent sectors. The UN’s Sustainable Blue Economy Finance Principles launched in 2018 and are already shaping approaches across the private and public sectors.

Public sector interest

The UN’s 2021 ‘State of Finance for Nature’ report states that “tracking capital flows into nature is very challenging” but estimates that the current global annual investment into nature is $133bn. Public funds represent 86% of this total.

The report mainly covers land-based investment but does cover coastal protection and restoration. The report notes that data availability for investment in ocean finance is far worse at present than for land-based nature finance.

Nonetheless, it is clear that public finance will have a major role to play in growing the blue economy, as it is in growing the market for land-based nature-based solutions.

As the World Economic Forum notes, public financing is often allocated to projects which do not easily generate revenue but which do bring wider national benefits, such as the creation and maintenance of marine protected areas. It is also the cornerstone of implementing regulation and legislation; providing international development finance and supporting multi-stakeholder collaborations such as the Blue Carbon Initiative.

But governments are increasingly going beyond “non-return-seeking” public financing, raising additional capital through ‘blue’ or ‘green’ or ‘sustainability’ bonds to finance the delivery of increased environmental targets. Economies to have issued blue sovereign bonds include Seychelles (2018) and Belize (2021), the latter being the largest to date under The Nature Conservancy’s offering.

Governments may also gain returns by either co-investing in emerging solutions or markets along with the private sector, or by investing to lay the groundwork for the private sector to follow suit.

This month, the European Investment Bank (EIB) launched a dedicated initiative called ‘InvestEU Blue Economy’, backed with €500m of funding from the European Commission. The funding will be spent through to 2026 and will make  €1.5bn of risk financing available to SMEs and start-ups. As these firms sign financing deals, investor awareness grows – as does the investment landscape.

Private sector participation

The ‘State of Finance for Nature’ report emphasises that, without a “significant increase in private sector investment”, the financing gap for nature (terrestrial and marine) will not be closed. Overall investments will need to quadruple between 2020 and 2050 to do this.

KPMG has stated that, while the market for private ocean conservation and restoration financing is “still nascent”, there is “reason to be optimistic” due to a growing wave of financing solution launches in recent years. Launches have included AXA XL’s Ocean Risk Initiative (2017); Circulate Capital’s Ocean Fund (2018) and Credit Suisse’s Ocean Engagement Fund (2020).

As financing options become more available, the private sector is quickly taking note of the fact that every $1 invested in oceans can yield at least $5 in benefits.

KPMG is now forecasting that businesses outside of the financial space are likely to add blue economy targets to their strategies in years to come, as they strive to meet enhanced emissions, nature restoration and social sustainability targets. This could take ocean investment from optional ‘nice-to-have’ for businesses, often deployed by those operating in directly related sectors, to a key part of strategy delivery more broadly – while also unlocking finance at scale.

Collaboration across and beyond the private sector will be crucial in deploying this finance. At this year’s One Ocean Summit (pictured), a coalition of businesses, NGOs and government representatives launched a new initiative to create and grow a better “ecosystem” for ocean finance.

Image: Ocean & Climate Platform

Unlocking barriers, sustainably

As the blue economy shifts from a concept to reality, it has been noted repeatedly that global efforts will be needed to set out agreed guidance, ambitions and governance on ocean sustainability. And, beyond top-level definitions of best practice, guiding principles and international targets, there is much work to be done also.

The UN has noted that it is important for private and public organisations to understand that there are “many aspects of oceanic sustainability”, with projects in different locations and sectors likely to bring different benefits. In other words, there is no ‘one-size-fits-all’ approach to creating and maintaining projects; pollution prevention schemes differ from sustainable fisheries schemes, which differ from coastal flood management schemes, and so on.

Also noted is the fact that least developed countries and small island developing states will face “significant limitations” to financing the blue economy without external support. This is despite the fact that they will bear the brunt of human-caused ocean degradation, as they are most economically and socially dependent on oceans.

The right expertise, education, collaboration and policy frameworks are – therefore – crucial to scaling the blue economy in an equitable way.

As is the case with nature financing more generally, there are an array of other practical barriers to scaling blue finance. A 2021 paper from The University of British Columbia outlines several, including the proliferation of financial incentive structures that encourage the overexploitation of ocean resources while discouraging restoration. Governance structures are a challenge at present.

The Funding Atlantic Network for Blue Economy Technology Transfer (FANBEST) has also identified widespread challenges in baselining the environmental state of ocean habitats and then measuring the environmental benefits directly resulting from investment. When investors – private or public – cannot see the benefits of their contributions, they are less likely to contribute at scale. Legal recourse also becomes more challenging.

These challenges are not thought to be insurmountable. On measuring risks and rewards, for example, the forthcoming Taskforce on Nature-Related Financial Disclosures (TNFD) framework could be transformational. But, as has been said for climate and nature more generally, the window for action at scale is fast closing, meaning that unprecedented action is needed in the coming decades.

The University of British Columbia team’s overarching conclusion was that, at present, the main barriers to achieving a thriving blue economy are social and economic rather than environmental. The longer action is delayed, the greater the environmental barriers will be. This is part of why the UN has dubbed 2021 – 2030 the ‘Decade of Ocean Science and Ecosystem Restoration’.