Blue bonds: an ocean of possibilities

Before discussing blue bonds, it is important to briefly understand the “blue economy” itself. The blue economy is a term in economics that 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 economic growth, improved livelihoods, job creation and preservation of the ocean ecosystem. The blue economy can encompass all economic activities related to oceans, seas and coasts and it can cover a wide range of interconnected sectors. The concept of blue economy is an emerging concept and it is emphasized that the use of these resources should be directly associated with their preservation through better management of these “blue resources”.

Blue investments funded by Blue Bonds should be used to promote the implementation and achievement of the Sustainable Development Goals in Bangladesh

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The current value of the global blue economy is $2.5 trillion per year. As mentioned above, although the blue economy encompasses a wide variety of ocean-related sectors and industries, fisheries and aquaculture alone generate direct or indirect employment for 10-12% of the global workforce, with more than 90% of jobs created in developing countries.

The blue economy and Bangladesh

Recently, experts have stated that despite the huge potential, the opportunity to advance the global economy through the development of the blue economy of Bangladesh is underutilized due to a lack of initiatives, measures and appropriate coordination. Bangladesh’s coastline of 710 kilometers stretching from the tip of St. Martin’s Island in the southeast to the western coast of Satkhira and a maritime area of ​​121,110 square kilometers has exceptionally varied ecosystems of ecological and fiscal importance. major and advantageous possibilities. Fishing, shipping and coastal tourism are the traditional uses of coastal and ocean resources. In addition, there are new sectors like offshore gas exploration, salt production and offshore renewable energy. Both old and new ocean use sectors have strong growth prospects. Along with other uses of the ocean, the government has taken initiatives for major industrial expansion in the coastal regions, including the construction of a coal-fired power station, a deep-water port and a terminal petroleum and liquefied natural gas. A distance of 660 kilometers of coastline is accessible in Bangladesh but its mechanized boats and industrial trawlers are only able to fish 70 kilometers away. Thus, there is still a significant amount of sea fishing frontier which Bangladesh has not yet taken sufficient advantage of.

What are blue bonds?

Innovative financial solutions will be needed to improve the resilience of oceans and coasts. Blue finance, especially blue bonds, has great potential to help overcome existing challenges. Blue bonds are an innovative ocean financing instrument in which the funds raised are exclusively earmarked for projects deemed to be 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 projects that have environmental, economic benefits and climate positive”. Like green bonds, blue bonds work the same way as any other debt instrument by providing capital to issuers who repay the debt with interest over time. As investors show growing interest in committing capital to solving environmental problems, blue bonds have become the latest financing instrument to help protect the world’s oceans and the economies that depend on their health.

Blue bonds caught the eye in 2018, after the World Bank facilitated a bond deal to offload a small portion of Seychelles’ debt in exchange for marine protection. It served the dual purpose of stabilizing the country’s credit rating and investing in its economy, which is closely tied to the ocean.

Why issue blue bonds?

The main reason for issuing blue bonds is to reduce the cost of capital for impact investors. This is done with the help of various international organizations. For example, the World Bank is known for providing a free credit guarantee to buyers of blue bonds. This means that if the issuer is unable to repay the funds it has borrowed, the World Bank can repay the loan, at least partially. Since the World Bank is an institution with vast amounts of funding, this guarantee significantly reduces the risk for investors. As a result, even the minor yield offered by blue bonds looks significant. Countries around the world are using credit guarantees and concessional loans with the aim of increasing returns for their investors. Since the oceans are not affected by a single industry, it is difficult to focus on the source of pollution. It is therefore important to spend blue bond revenues on a wide variety of environmentally friendly projects.

Bangladesh needs to attract more blue investments

The value of Bangladesh’s blue economy has been estimated at $6.2 billion, or around 3% of GDP. However, this amount may be underestimated due to a lack of more precise measurements and non-compliance with the methods prescribed in the System of National Accounts. Consequently, Global Investors and other reports identify this lack of accurate blue economy data as one of the key constraints to fundraising to move the sector forward. This type of lack of proper information and data is not conducive as the studies and reports that have been conducted on the blue economy of Bangladesh suggest huge potential and opportunities.

Studies indicate that fully utilizing the blue economy is an expensive undertaking and would therefore require huge investments in projects with time-limited completion and clear results. Moreover, taking advantage of nature’s assets warrants careful planning and management. At the heart of its philosophy and reason for going out, the blue economy is fundamentally linked to the ocean and the exploitation of its benefits must be approached carefully with the sincere objective of a sustainable management of the assets of the ocean.

Promoting the blue economy requires major investments and based on the experiences of several countries, long-term development finance is most desirable through fixed income securities or bonds. The world has seen an increase in green or sustainability bonds over the past decade and the blue bond is the newest member of the sustainability bond family. Blue investments funded by blue bonds should be used to promote the implementation and achievement of the Sustainable Development Goals in Bangladesh. These efforts must also contribute to good governance of oceans and coastal habitats, bring long-term value to marine and coastal ecosystems, reduce carbon emissions, and support people whose livelihoods depend on the oceans.

The author is an economic analyst. The opinions expressed here are personal.

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