After nearly two decades in the making, the newly agreed UN High Seas Treaty marks a major step forward for ocean preservation, aiming to mitigate the impact of climate change on marine biodiversity and ocean ecosystems.
The new UN High Seas Treaty, which was signed on March 5 provides a legal framework for the conservation and sustainable use of marine biodiversity in areas beyond national jurisdiction, which make up around two-thirds of the earth's oceans and sea beds, and are currently mostly unregulated.
As a result, marine protected areas can be established to promote sustainable use and management of marine resources, which can reduce overfishing, resource depletion and habitat destruction on ocean ecosystems. By doing so, the treaty can help to promote ecosystem resilience to the impacts of climate change, such as ocean acidification and warming. Notably, the treaty also requires environmental impact assessments for activities like deep-sea mining and promotes international cooperation on ocean governance, which is crucial for mitigating the impacts of climate change on marine ecosystems.
Blue bonds remain a nascent market
So, while this is clearly good news for our oceans and the natural environment, what does it mean for investors? To date, the ability for fixed income investors to invest directly in the blue economy has been fairly limited. So called blue bonds, whose proceeds are applied to marine health, are still a nascent market but one that we support the further growth of.
We believe directing more capital towards the blue economy is a smart and sustainable way to promote economic growth, environmental conservation and social well-being. For example, sustainable ocean-based industries can help to stimulate economic growth and promote prosperity in coastal communities, while sustainable fisheries and aquaculture practices can help to ensure a reliable and sustainable source of seafood production. Investing in the conservation - and sustainable use - of marine resources can help to preserve marine biodiversity, prevent habitat destruction and reduce the impacts of climate change.
However, there are a few things investors need to bear in mind when investing in the blue economy. Firstly, we need to consider that currently there is a lack of reliable data on the state of oceans, an issuer's impact and the wider impact of human activities on ocean health. This can make it more difficult to assess the issues and performance of issuers.
Additionally, there are currently more limited investment opportunities given the topic of ocean health is relatively new and underdeveloped compared to the broader topic of climate change and even biodiversity. A third and final point is regulation given the blue economy is a complex topic and it can encompass differing rules and regulations across countries and regions.
The growing influence of fixed income investors
We believe that the greatest future opportunities for investing in ocean health, or the blue economy, are through fixed income markets. It is often thought that equity markets play the foremost role in urging issuers to become more sustainable, and bond markets are more marginal actors. However, we believe fixed income investors have a vital role to play and in some ways are better positioned than equity markets to exert pressure and promote positive change.
The size of the bond market, frequency of bond issuance, breadth of issuer type and possibility of targeted capital deployment via sustainable debt instruments are all unique advantages bond investors have in addressing ocean health. For example, issuers can issue green or blue bonds to fund projects related to sustainable fisheries, renewable energy production from the ocean, coastal restoration or marine conservation efforts. Alternatively, an issuer can incorporate sustainability targets related to ocean health into their strategy by, for example, reducing plastic waste in supply chains or improving the efficiency of fishing practices.
Funding the transition
Looking ahead, it will require various stakeholders to develop the investment frameworks of the blue economy. Supranational organisations, such as the United Nations, can provide guidance and set standards for sustainable ocean-based industries.
Development banks, such as the World Bank and European Investment Bank, can provide financing and technical assistance for blue economy projects. National governments can also play a role in developing policies and regulations that support sustainable ocean-based industries.
However, significant private capital is needed to preserve the ocean because governments alone cannot fund the necessary transition to a sustainable blue economy. Private capital is needed to finance products or vehicles that can support the development and deployment of sustainable ocean-based industries and technologies, supporting the conservation and sustainable use of marine resources and promoting the resilience of coastal communities.
This post is funded by Fidelity International
Important information
This content is for investment professionals only and should not be relied upon by private investors.
The value of investments can go down as well as up and clients may not get back the amount invested. Investors should note that the views expressed may no longer be current and may have already been acted upon. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Due to the greater possibility of default, an investment in a corporate bond is generally less secure than an investment in government bonds. A focus on securities of companies which maintain strong environmental, social and governance ("ESG") credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security's ESG credentials can change over time. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0323/381452/SSO/NA
