ESG investors slow to make waves in the $2.5tn ocean economy | Reuters Events

Hellen Wadman

While investor interest in ‘blue finance’ for the conservation and sustainable use of oceans is growing, challenges including the opacity of ownership of companies in the seafood sector means it is still a drop in the ocean, writes Mike Scott The ocean economy is estimated to be worth $2.5tn a […]

While investor interest in ‘blue finance’ for the conservation and sustainable use of oceans is growing, challenges including the opacity of ownership of companies in the seafood sector means it is still a drop in the ocean, writes Mike Scott

The ocean economy is estimated to be worth $2.5tn a year, meaning that if it were a country it would be the world’s seventh-largest by GDP. At the same time, the oceans cover 70% of the Earth’s surface, play host to a huge amount of biodiversity, provide us with food, energy, recreation and transport, as well as playing a vital role in regulating the water and carbon cycles.

Yet for such a dominant feature of the natural world and the global economy, it is curiously under-funded and much of the existing investment comes from philanthropic or impact investors.

Of the 17 UN Sustainable Development Goals, SDG14 on the conservation and sustainable use of the ocean and its resources attracts the joint lowest share of investment (3.5%), shared with SDG15 (Life on Land).

Decades of harmful approaches have put the long-term survival of the ocean, and its investment potential, at risk

“It is a hugely under-invested economic opportunity that is crucial to the way we have to address living on one planet,” says Simon Dent, director of blue investments at Mirova Natural Capital.

However, there is a growing understanding of the importance of the oceans to our future health and prosperity, and investor interest in the sector, which has been dubbed “blue finance”, is growing.

“The global ‘blue economy’ is expected to expand at twice the rate of the mainstream economy by 2030 and already contributes $2.5tn a year in economic output,” says Marisa Drew, CEO of impact advisory and finance at Credit Suisse.

Fish farm workers in, Kochi, India. Fisheries and aquaculture employ 10–12% globally. (Credit: Sivaram V/Reuters)

 

Fisheries and aquaculture alone provide direct or indirect employment to 10–12% of the world’s population, with more than 90% of those employed located in developing countries, she adds.

Over 3 billion people (40% of the world’s population) depend on the biodiversity and services offered by marine and coastal ecosystems, according to a report in June by the Italy-based One Ocean Foundation. These include food and fresh water supply, renewable energy, benefits for health and wellbeing, cultural value, tourism, trade and transport.

Yet Drew points out that over two-thirds of the ocean’s direct economic value relies on its good health. “Decades of harmful approaches, from industrial fishing depleting fish populations and destroying habitats, to the ocean being used as dumping grounds for chemical, plastic and human waste, coupled with the damaging effects of climate change, have put the long-term survival of the ocean, and therefore its investment potential, at risk.”

Blue finance means different things to different people. There are a lot of stakeholders in the ocean

One problem for investors is the vastness of the oceans, and of the issues involved, which range from rising sea levels to the livelihoods of coastal communities to the health of coral reefs. The key ocean economy sectors – tourism, fisheries, energy and shipping – are also very diffuse. In addition, some of the most pressing issues, such as tackling pollution and plastic waste, actually originate onshore and must be tackled at least partly on land.

“Blue finance means different things to different people. There are a lot of stakeholders in the ocean,” says Ted Janulis, founder of Investable Oceans, which connects investors to blue economy market opportunities. “One reason it is difficult to talk about the ocean economy is because it is so fragmented. There’s not a lot of companies with ‘Ocean’ in their name, for example.”

Many stakeholders with a key interest in, and impact on, the ocean are far from obvious, he points out. IKEA, for example, has a big impact on the oceans through the amount of packaging it uses, the transportation of its products and even its restaurants: through its in-store cafes it is one of the world’s largest restaurant chains and is very active in aquaculture.

Over-fishing and pollutants such as human waste have put oceans at risk. (Credit: Stockphoto-graf/Shutterstock)

 

Fisheries and aquaculture attract a lot of investment, but are the areas where practices are most unsustainable. The $12tn FAIRR Initiative, an investor network that raises awareness of the environmental, social and governance (ESG) risks and opportunities caused by intensive livestock production, warns that growth in the $232bn global fish-farming sector could be undermined by a failure to manage risks such as climate change, a dependence on wild fish stocks for feed, excessive use of antibiotics and poor governance.

“There are a lot of companies out there, but very few are listed,” says Teni Ekundare, FAIRR’s investor outreach manager for the UK and northern Europe. “Lots of investors want to invest in this area, but there are very few stocks to buy.” (See below)

Dr Darian McBain, global director for corporate affairs and sustainability at Thai Union, known for its John West and Chicken of the Sea brands, Darian says ocean finance is hugely complex: everything is connected, and there are a lot of different governance and regulatory regimes. “How investing in the ocean works and how returns occur is different to how it works on land,” she says. “It’s still a sector in the early stages of development so there is no clear path for investment and return. It is challenging to find projects to invest in.”

Nonetheless, as interest grows, the first dedicated ocean investment products have started to appear, along with the market infrastructure needed to help investors understand the issues.

Mangroves are incredibly important in terms of ‘blue carbon’ – they store a huge amount of carbon

The World Benchmarking alliance has released a Seafood Stewardship index to help investors put their money into companies working responsibly in that sector. It ranks Thai Union Group, known for its John West and Chicken of the Sea brands, and aquaculture feed suppliers Mowi and Charoen Pokphand Foods as top three performers among the 30 largest seafood companies.

While funds such as the Blue Ocean Impact Fund and Mirova Natural Capital’s Althelia Sustainable Ocean Fund are investing in areas such as coastal fisheries, sustainable aquaculture projects, the seafood supply chain and other coastal projects with the aim of improving food and climate security, livelihoods and ecological biodiversity, says Dent, the fund’s investment director.

“We have three investment pillars,” Dent says. ”We focus on seafood, looking at sustainable fisheries and aquaculture; circular economy in areas such as waste infrastructure to tackle ocean-bound plastic, and ways to reduce pollution from ships; and ocean conservation, which encompasses areas such as eco-tourism, coastal protection and mangrove restoration. Mangroves are incredibly important in terms of ‘blue carbon’ – they store a huge amount of carbon – and as a breeding ground for fish and other biodiversity, as well as coastal protection.” (See Can aquaculture feed the world?)

Following on from the success of green bonds, there is a nascent “blue bond” market focused on ocean projects. BNY Mellon worked with the government of the Seychelles to launch the world’s first sovereign blue bond, a $15m issue that will be used to develop sustainable fishing practices in a designated area of the country’s waters.

IKEA affects oceans through packaging and procurement as one of the world’s largest restaurant chains. (Credit: FotograFFF/Shutterstock)

 

The island nation issued an unusual follow up this year that saw it use some of its national debt to make 30% of its exclusive economic zone into marine protected areas, working with The Nature Conservancy on a mechanism known as a debt-for-nature swap.

US investment bank Morgan Stanley has chosen to focus on plastic waste as its contribution to ocean sustainability and has pledged to “prevent, reduce and remove 50m metric tons of plastic waste from entering rivers, oceans, landscapes and landfills by 2030”.

Since launching the commitment, the bank helped PepsiCo to launch its inaugural $1bn green bond, which includes a commitment to reduce 35% of virgin plastic content across its beverage portfolio by 2025, and underwrote the World Bank’s first blue bond, which directed proceeds toward marine projects that promote biodiversity and support economies reliant on healthy and sustainable fisheries, says Audrey Choi, chief sustainability officer at Morgan Stanley.

One area that could hold great potential for improving ocean sustainability is technology. While emerging areas such as renewable energy are technologically advanced, there is a lot of potential in areas such as fisheries/aquaculture, shipping and tourism.

We can borrow things from other sectors like internet of things, to create better monitoring of fishing boats

“There is a lot of spillover from tech and we can borrow things from other sectors like internet of things, to create better monitoring of fishing boats and cruise ships,” says Janulis of Investable Oceans. (See Can big data save the big blue sea?)

In fisheries, a lot of work is going into making wild fishing and aquaculture more sustainable, as well as into creating artificial alternatives. Atlantic Sapphire is one of the few listed companies working on recirculating aquaculture systems (RAS), which offers a way to do land-based fish farming. This has many potential advantages, says FAIRR’s Ekundare, including being able to rear fish closer to centres of demand, reducing the incidence of sea lice and contaminating wild populations. Because the environment is more controlled, it should also be possible to reduce the use of antibiotics.

There are still many risks: Atlantic Sapphire lost more than 200,000 fish in a “mortality event” recently, pushing its harvest revenue back by four months. More fundamentally, there remains a problem with the taste. “You can solve all the sustainability problems you want, but if it doesn’t taste right, no one will buy it,” Ekundare adds.

“Ocean sustainability probably should always have been a huge concern for investors,” says Choi. “But we’re definitely seeing a steady increase – blue finance as a theme is very much rising up the agenda now, and I expect that to continue.”

Mike Scott is a former Financial Times journalist who is now a freelance writer specialising in business and sustainability. He has written for The Guardian, the Daily Telegraph, The Times, Forbes, Fortune and Bloomberg.


Planet Tracker’s mission to shine light on investment risk from unsustainable fishing

Rows of tuna fish at a seafood auction in Tokyo, Japan. (Credit: Michael von Aichberger/Shutterstock)

 

ONE REASON that investors have not paid enough attention to oceans is that ownership of fisheries supply chain operations can be hugely opaque, writes Angeli Mehta.

“They’re very complex ownership structures, sort of integrated webs of companies that control these operations. When you do start peeling back the onion on these sectors it’s pretty remarkable who’s actually underneath,” says Matt McLuckie, director of investor relations at Planet Tracker, a sister organisation to Carbon Tracker, which was set up to shine a light on how unsustainable practices in commodities like seafood undermine the stability of global investment portfolios.

The opacity of ownership structures was also highlighted by the World Benchmarking Alliance in its Seafood Stewardship index, which ranks 30 of the world’s biggest seafood companies on five indicators.

It said the “complexity and diversity of company business structures and activities across operations, subsidiaries and supply chains … increases environmental and social risks.”

Over-fishing poses serious financial risks, not just to Japanese wild-catch companies, but to those who finance them

McLuckie said one of the biggest “pinchpoints” for traceability is when fish are transferred onto trans-shipment vessels. “Fish are just deposited there, and you lose all sense of traceability, like diamonds going through Antwerp.”

Using data from Global Fishing Watch, “we’re trying to look at who actually owns those facilities and who’s insuring them, and how we can then actually use the shareholders and insurers to try and create much more transparency and traceability around the operations of these reefers [trans-shipment vessels],” explains McLuckie.

With Japan accounting for 23 of the top 100 stock exchange listed seafood companies by revenues, Planet Tracker investigated the ownership structure of the Japanese seafood industry and has made the information publicly available on a data dashboard.

Its Perfect Storm report points out that rising share prices don’t reflect the fact that wild-catch seafood production in Japan has been in serious decline since 1985, and investors are setting themselves up for a fall. “Over-fishing poses serious financial and reputational risks, not just to Japanese wild-catch companies, but to the investors and credit lenders who finance them,” the report says. “Currently they have limited ability to tell whether the companies they finance are sourcing wild-catch fish sustainably or not.”

On the other hand, “if Japanese fisheries were managed sustainably to achieve their maximum sustainable yield, the global industry could earn an estimated $51bn-$83bn billion extra every year.”
 

Main picture: credit: jag_cz/Shutterstock

 

This article is part of our in-depth Sustainable oceans briefing. See also:

Time is rapidly running out to save oceans

Using blockchain to bring transparency from sea to plate

Can sustainable aquaculture feed the world?

Big data employed to increase traceability in bid to to save the big blue sea

Fashion ‘slow to act on ocean plastic pollution from microfibres’

Soaring growth in offshore renewables puts wind in the sails of the energy transition

SDG14 
blue economy 
One Ocean Foundation 
over-fishing 
aquaculture 
FAIRR initiative 
Thai Union 
Mirova Natural Capital 
Seychelles 
TNC 
Morgan Stanley 
Investable Oceans 
Planet Tracker 
sustainable fishing 

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