Blue Bonds: A Brief History of the Emerging Market

Recently, major seafood company Maruha Nichiro announced its plans to sell Japan’s first blue bond this month to fund sustainable fisheries. Last month, the Asian Development Bank expanded its green bond framework to include blue bonds for ocean health investments, setting a new replicable market standard for blue financing. As green bonds continue to firm their grip in the sustainable debt market, the blue bonds space is seeing some notable transactions too.

Blue bonds are a subset of green bonds. Green bonds, also known as climate bonds, are debt securities designated to finance environmentally friendly projects.

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.”

The money invested in blue bonds further enables financial savings for the government to invest in protecting marine resources, biodiversity, and livelihoods. Along with this, the investors who provide the original seeds of funding for these projects can realize incredible leverage on their philanthropic investment.

While green bonds have been around since 2008, blue bonds are relatively new. 

In 2018, the Republic of Seychelles launched the world’s first sovereign blue bond. The World Bank assisted the investors (Calvert Impact Capital, Nuveen, and U.S. Headquartered Prudential Financial, Inc.), realizing that “It is a powerful signal that investors are increasingly interested in supporting the sustainable management and development of our oceans for generations to come.”

In January 2019, NIB traded its first Nordic-Baltic Blue Bond. This five-year SEK 2 billion bonds was launched, under the NIB Environmental Bond Framework, to focus on water resource management and protection investments. Followed by this was the launch of a new SEK 1.5 billion Nordic-Baltic Blue bond in 2020.

The World Bank launched a Sustainable Development Bond in 2019 to draw attention to the challenge of plastic waste pollution in the ocean; as a part of an initiative to engage with investors to highlight the vital role of fresh and saltwater resources. This callable step-up fixed rate bond, targeted at institutional and individual investors, raised US$10,000,000.

The same year, The Nature Conservancy (TNC) launched Blue Bonds for Ocean Conservation project. The aim was to support the island and coastal nations to refinance their national debt and create long-term sustainable financing for marine protection, sustainable economic development, and climate change.

In 2020, the Bank of China issued the fourth blue bond - the first blue bond from the private sector, the first from a commercial bank, and the first from Asia. This dual currency bond raised an equivalent of $942 million for protecting the oceans.

Last month, the Asian Development Bank (ADB) expanded its green bond framework to include blue bonds for ocean health investments, setting a new replicable market standard for blue financing. “Expanding ADB’s Green Bond Framework to incorporate Blue Bonds is a new milestone for sustainable ocean finance. Launching our first blue bonds under the new framework also helps to meet the rising demand of our investors who are eager to support projects involving the ocean’s health and sustainable blue economies,” said ADB Treasurer Pierre Van Peteghem.

Major Tokyo-based seafood company Maruha Nichiro is planning to sell Japan’s first blue bond this month to fund sustainable fisheries. According to a filing, the firm tapped Mizuho Securities and Mitsubishi UFJ Morgan Stanley Securities to manage the ¥5 billion ($35 million) offering of five-year notes. The money raised will go towards salmon farming and other projects.

The International Finance Corporation plans to publish a guidance document this fall, with other global organizations, that will help define eligibility criteria and key performance targets for fundraising in the blue economy. At present, the issuance falls under the green bond principles.

Projects eligible for blue bond financing include those contributing to ocean health through ecosystem and natural resource management, pollution control, sustainable coastal and marine development, and ocean finance.

The blue economy is valued at US$2.5 trillion annually, according to a report by the World Wildlife Fund. This report also values the ocean assets at $24 trillion. Compared with the GDPs of nations, the ocean economy emerges as the seventh largest economy in the world.

However, the Sustainable Development Goals Report 2022 says ocean acidification and rising sea temperatures continue threatening marine ecosystems. The world lost about 14% of its coral reefs between 2009 and 2018. More than 17 million metric tons of plastic entered the ocean in 2021, threatening marine life. The report says that combatting the decline in ocean health will require intensified protection efforts and sustainable solutions.

Only a few issuers have sold blue bonds globally, totaling about $2 billion of the $1.5 trillion green debt. Amid a far-reaching market selloff, the slump this year in blue bonds has been less than green debt more broadly. Even though investors and analysts are increasingly scrutinizing the use of funds raised from such debt to ensure against misrepresenting their sustainable bona fides, the little blue bonds market is emerging.