How finance is catching the blue wave - KPMG Global (2024)

On 8 June 2021, we are celebrating the United Nations' (UN) World Oceans Day. It is a day to pause and remind ourselves of the major role our ocean has in our everyday life and reflect on the impacts of our human actions on the ocean. In addition to being crucial for regulating the climate and weather by absorbing much of the anthropogenic global carbon dioxide as our biggest natural carbon sink, our ocean provides habitats for important species and critical marine ecosystems that are indispensable for biodiversity. Our ocean is also vital to the world’s economy. It is a source of food, energy, raw materials and jobs for millions of people. Analysis by the Organization for Economic Co-operation and Development (OECD) projected that the global ocean economy could double in size to US$3 trillion¹ of global gross value in 2030.

Yet, our ocean is still largely treated as a public good, not as a valuable oceanic natural asset that could cease to be in supply if not properly managed. To date, existing markets do not value the flow of the many services (often called ecosystem services) the ocean provides. We have a distinct opportunity to transform our capital markets and the core operations and supply chains of the real economy in a way which recognizes and internalizes these externalities in investment and business decisions.

Science is telling us that the ocean’s health is under stress and depleting at an alarming rate².Sadly, ocean temperatures are warming and sea levels are rising. Ocean acidification and shifting ocean currents are leading to biodiversity and habitat loss. Unprecedented coral reef bleaching and changes in migration patterns of icon species, such as whales and salmon, as well as a higher frequency of severe ocean weather events, are all too common symptoms of the fading resilience of our ocean. Often, this is further aggravated by land-based pollution, in particular agricultural run-off, chemicals, and (micro) plastics, as well as by overfishing and depleted fish stocks in many parts of the world³.

A healthy economy depends on a healthy ocean. The manner of economic growth increasingly matters. Over 68 percent of global GDP⁴ is already covered by a net zero target. Some of the world’s largest companies are setting the bar even higher with restorative strategies, pledging to become ‘carbon negative’ and ‘resource positive’.

Sustainable finance offers an approach to reframe what we value when we invest. Safeguarding our ocean’s health often requires significant adaptation of business practices across global supply chains. This comes with significant costs. Just as the public recognition of our ocean as a unique natural asset is growing, so do the calls for global capital markets to redirect private funding towards ocean positive outcomes. It is also a powerful lever to both public and private investors to contribute nature-based solutions toward the global decarbonization agenda.

Whilst the market is still nascent, there is reason to be optimistic. Over the past few years, there has been a wave of ‘ocean-friendly’ financing solutions. Whilst the ticket sizes are often still small, the variety of emerging ‘blue finance’ models have been growing steadily. Similarly, the emergence of environmental market-based incentive mechanisms for conservation management activities of our oceans, coastal and marine ecosystems have the potential to create an entirely new playing field and are now needed more than ever to sustain and safeguard our oceans natural ability as a blue carbon sink.

The sustainable valorization and management of oceanic natural asset will require an even greater degree of collaboration than the green agenda across states, and between the private and public sectors. This goes beyond traditional maritime industries, to real-economy terrestrial sectors that are reliant, or impacting on our oceans through their value chains – but perhaps don’t realize it yet.

Bringing these new market-based platforms to life at the level of scale required will require strong intermediaries with convening power across sectors, deal/transaction structuring know how and the independence to verify impact integrity and instill investor confidence. Digital technologies such as artificial intelligence, big data, blockchain and geo-spatial mapping of biological ecosystems will be a key enabler to scale the next wave of ‘blue’ financing instruments and demonstrate measurable, positive environmental outcomes to ESG investors.

The United Nations’ Sustainable Blue Economy Finance Principles⁵ are already underpinning and shaping banks, insurers and investors’ ability to better align their investment, underwriting and lending activities to mainstream sustainability of ocean-based sectors and promote the implementation of the UN Sustainable Development Goal (SDG) 14, Life Below Water. Similarly, over 20 financial institutions (representing 50 percent of the global ship finance portfolio) have signed up to the Poseidon Principles to integrate climate considerations into lending decisions to promote international shipping decarbonization.

Institutional asset owners like Norway’s sovereign wealth fund have also offered specific guidance towards investee companies which sets out their expectations on ocean sustainability. The fund wants the boards of companies that depend, use or affect the oceans to work on reducing the pollution their businesses creates⁶. With the establishment of global initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD)⁷, we expect that corporations will receive significantly more scrutiny around their nature-related risk performance from financial investors, lenders and insurance underwriters.