Thinking blue for greening the world

Ria Sinha and Kartikey Sharma

The oceans act as the largest carbon sink in the world, and our biggest line of defence against the repercussions of Climate Change. Despite being a natural carbon absorbent, programmes aimed at transforming the ocean economy and ecology, and meeting its financial needs have come up short.

The SDG 14 (life below water) includes 10 targets designed for the well‑being of the oceans, and the living resources therein. According to the Asia and the Pacific SDG Progress Report 2021, the performance of the goal has regressed in the Asia Pacific region. It has been assessed that estimates for investment needs for the propagation of SDGs in developing nations range from $3.3 to $4.5 trillion per year.

It has further been found that at current levels of investment in SDG-relevant sectors, the developing countries alone face an annual investment gap of $2.5 trillion. Additionally, given that many countries within the Asia-Pacific region don’t have adequate financing mechanisms, recent estimates suggest that achieving the SDGs by 2030 will require an annual additional investment of $1.5 trillion for developing countries in the Asia‑Pacific region.

Majority of the investments received so far for the augmentation of blue economy have been in the form of grants, and official development assistance (ODA), with evidence of limited private capital mobilisation in developing countries. Over the years, debt, equity, bond financing, and the overall inclusion of capital markets within the sustainable financing gambit have expanded the ability of the least developed countries to establish requisite adaptation and mitigation programmes, and fight off Climate Change-based environmental transitions.

An example of this is the Blue Bay Remediation project implemented in China for bay restoration as one of the strategies to build a strong marine nation by a process of integrated coastal-zone management. The composition of finance is mixed, with CSR funds and Chinese Ministry of Finance delegating RMB 5 million – 4.5 billion ($785,805 Thousand to $707 million) to local governments. Debt-for-nature swaps have been commonly used as a financing tool for funding blue economy projects.

While it is too early to gauge the market growth rate of these blue bonds, the instruments definitely aid in raising the necessary finance for blue economy projects, and provide an innovative sustainable investment choice to investors. Good governance set up and regulations are an important aspect for attracting investments, and improving overall market stability. They aid in building stakeholder confidence, investor relations, and alert potential investors about the overall strength and stoutness of the market, assuring that their financial stake will reap in great benefits in the long term. Additionally, national and international regulations can aid the government in collecting efficient data pointers which can further help it calculate the benefits of blue investments, and eliminate harmful subsidies.

So far, there has been sparse implementation of flexible mechanisms under the Kyoto Protocol for coastal blue carbon projects. However, the emerging markets under the Paris Agreement differ from the carbon markets under the Kyoto Protocol. With new nationally determined contribution pledges under the Paris agreement, developing countries under Article 6.2 of the agreement get the opportunity to voluntarily engage in a decentralised form of co-operation, thereby retaining greater flexibility and domestic control to engage in markets as well as voluntarily implement collaborative market mechanisms. This opens up new possibilities for blue carbon in which developing countries can offer carbon sink units that can be traded.

The considerable rise of green bonds in the Asia‑Pacific is not only indicative of increased consciousness on sustainability issues; it is an indicative of positive behavioural change of investors towards sustainable investing as well.

Australia, and Indonesia have successfully integrated the narrative of blue economy within their regulatory framework, creating an enabling environment in order to elevate investor confidence. In 2017, Indonesia become one of the few countries to have a regulated nationwide ‘Ocean Policy’ which seeks to add the narrative of Blue Economy within its national governance structure. Australia, under its ‘National Marine Science Plan 2015–2025’, has dedicated itself towards research and innovation for the augmentation of sectors within the blue economy.

Such regulatory procedures not only help deepen the governance procedures within the system, but also mitigate the risk-to-return investment trade-off fear. Some of the prominent stakeholders that can induce change in the existing state of blue finance include bilateral agencies, development financial institutions, institutional investors, companies, and similar financial intermediaries.

Ria Sinha is Fellow, and Kartikey Sharma is Research Associate at TERI. Views are personal and do not represent the stand of this publication.