Ocean-friendly projects funded by 'blue bonds' present bankability challenge, Climate Business Forum hears

The volume of bonds issued to finance sustainable ocean-friendly economic activity has grown across the world, with landmark issuances in the Asia-Pacific region, but the bankability and credibility of marine preservation projects funded by these financial instruments have posed challenges to their adoption, according to speakers at the Climate Business Forum.

"Blue bonds" are issuances that emphasise "the importance of the sustainable use of maritime resources and of the promotion of related sustainable economic activities", according to the International Capital Market Association.

The issuance of these bonds increased by 15 per cent in volume from 2022 to 2023, with a majority coming from Asia-Pacific, including China and Japan, according to Chaoni Huang, head of sustainable capital markets for Asia-Pacific at BNP Paribas.

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"A key challenge is for the market to find bankable projects in this area, or make them bankable so that the private sector and private capital can crowd in with the multilateral development banks," Huang said during a blue finance panel at the forum on Wednesday.

Asia's first blue bond was issued by the Bank of China (BOC) in September 2020 to fund eligible projects that met the requirements of a "sustainable blue economy", defined by the bank as a "marine-based economy seeking to promote economic growth and preserve marine ecological environment, while ensuring the sustainable use of marine resources".

BOC issued a 3 billion yuan (US$412 million) blue bond with a tenor of two years through its Macau branch, and a US$500 million three-year note through its Paris branch.

In May 2022, Philippine's BDO Unibank also issued its first blue bond amounting to US$100 million, through an investment from the International Finance Corporation.

In January, Japanese maritime shipping company Mitsui O.S.K. Line issued 20 billion yen (US$133 million) in blue bonds. The proceeds will be used to fund marine renewable energy and sustainable transport projects, including offshore wind-power generation and ocean thermal energy conversion.

"All the pieces of the puzzle are there, the will is there and the capital is there - we just need to come up with the mechanism" for blue financing to happen, Jason Channell, managing director and head of sustainable finance at Citi Global Insights, said during the same panel.

"It is our job and the role of the governments and companies to create those projects and get that to happen," he added.

A lack of bankable projects as well as concerns around effectively measuring biodiversity posed barriers to financing solutions that benefit nature, Jonathan Luan, head of sustainability research for Asia and the Pacific at BloombergNEF, said during a separate session at the forum.

"It's very difficult to achieve or to demonstrate equivalency between biodiversity loss in one area and uplift somewhere else," Luan said. "Companies have found it difficult to integrate biodiversity into their strategy and planning and operations."

The "harsh reality" is that nature-based solutions and coastal climate adaptation resilience are underfunded, said BNP's Huang.

"We perhaps need to extend our time horizon [to look] at the broader economic interests in terms of the benefits these projects will bring, and therefore rethink our risk-pricing model to make these projects bankable," Huang said.

"It is a fix that we need to really do across banks, credit rating agencies as well as investors to make these projects as bankable as other projects but from a more long-term, economy-wide perspective."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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