A group of UN finance organisations have launched voluntary principles to guide market participants for bond instruments in an effort to increase biodiversity and climate-focused investment in marine projects.
The voluntary guidance released on Wednesday aims to support bond market actors to launch high-integrity, credible blue bonds.
The guidance was produced by the International Finance Corporation (IFC) in partnership with UNEP’s Finance Initiative, Asian Development Bank (ABD), ICMA and the United Nations Global Compact.
“Green bonds that focus on blue projects, also known as ‘blue bonds’, have great potential to expand the pool of capital market finance dedicated to the blue economy,” said Nicholas Pfaff, deputy CEO and head of sustainable finance at the International Capital Market Association (ICMA), in a statement.
Blue bonds enable finance for environmental projects to flow directly to marine and ocean-based initiatives, they’re a subset of green bonds which can be for a broad range of environmental impacts.
The principles released on Wednesday outline how blue bonds can have a broad range of marine-focused environmental impacts including climate change mitigation, biodiversity conservation, and pollution prevention.
Eight project types are eligible for blue bonds under the principles, two of which have biodiversity conservation as their primary impact category, including ecosystem conservation, coastal and marine tourism, and sustainable marine transport.
Blue bonds can also support on-land activities but the projects must be within 100 km of the coast, according to the principles.
For all biodiversity financing instruments, understanding the relevant metrics to assess nature-related impact is of critical concern. While the blue bond principles stop short of issuing a list of metrics for assessing different projects-types, they do provide some indicative area-based metrics, such as areas under conservation management, and procedural metrics, such as tourism operators with environmental credentials.
Habitat condition and species metrics are not referenced, but the removal of invasive species is referenced as a possible project indicator. The economic threat from invasive species was recently quantified in a landmark global report and conservatives estimated their cost at $423 bln.
In 2022, the global issuance volume of sustainable bonds (including all green bonds and blue bonds) was $862 bln, dropping from a record high of $1 trillion in 2021, according to the authors.
Bonds labelled “green” reached a cumulative volume of $2.2 trillion since 2006. Blue bonds are a smaller subset of green bonds with just $5 bln issued between 2018 and 2022, the group said.
The IFC had previously announced earlier this year that its green bonds framework would be expanded to include oceans and water protection to boost project finance.
Green bonds were also listed alongside biodiversity credits and payment for ecosystem services in the Kunming-Montreal Global Biodiversity Framework, as financial instruments that can help mobilise $200 bln per year for biodiversity by 2030.
Meanwhile, financial regulators are becoming increasingly aware of the risks posed by biodiversity-related financial products, as disclosure frameworks shed light on how financial institutions are exposed to nature loss.
By Tom Woolnough – tom@carbon-pulse.com
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