The blue economy: an ocean of opportunity
As momentum builds towards creating a more sustainable blue economy, investors have the opportunity to help turn the tide, says GIB Asset Management’s Katherine Garrett-Cox
Our ocean is critical for human existence - it provides at least 50% of oxygen on Earth, has absorbed 30% of anthropogenic carbon emissions, and is vital for maintaining our life-supporting climate.
But lack of understanding and mismanagement has led to severe negative impacts that put at risk the long-term sustainability of our oceans and the livelihoods that depend on them. A recent report suggests that the costs of climate change impacts on the ocean alone could be an additional $322bn a year by 2050. Another estimated that global GDP growth is expected to decrease by 10% if we continue on the same climate trajectory.
As ocean stakeholders begin to build momentum around transitioning to a more sustainable blue economy, investors have the opportunity to help turn the tide. Challenges create the opportunity for companies to excel and, with an estimated value of $2.5trn in 2015, the scale of the ocean opportunity is sizable - both in supporting sectors in transition, and the activities driving innovation. We believe that it is the companies solving the world’s biggest challenges that will outperform.
Some of the world’s largest companies have a direct stake in the viability of the ocean as a resource. The aggregate total debt outstanding of the ‘Ocean 100’ – the largest companies operating in the ocean industry – amounts to circa $1.8trn. In aggregate, 42% of these companies show improving ESG scores, suggesting a significant opportunity for refinancing through sustainability-linked debt, which can offer lower financing costs to borrowers that improve their sustainability scores over time. This has the potential to create a virtuous cycle of improvements.
Energy providers are particularly critical. Like land-based solutions, ocean-based energy is a sector in transition. Around a third of value added from the ocean economy derives from offshore oil and gas, and these companies make up 13 of the top 15 ‘Ocean 100’ companies. In order to meet the trajectory of the Paris Agreement, a significant shift in investment towards marine renewables is needed. Offshore wind has already grown, particularly in northern Europe. Although less commercially attractive, given they are at an earlier stage, opportunities are growing in newer areas such as tidal energy, floating solar, wave energy and ocean thermal conversion.
Another key transition sector is shipping. It is estimated that 70% of global trade, by value, is reliant on oceans. Shipping is responsible for 2.5% of global carbon emissions on an annual basis, and this is projected to increase significantly. The pioneering work of the Poseidon Principles and its 27 signatory banks, representing around $185bn of finance, will help to raise transparency over the alignment of shipping portfolios to Net Zero.
Innovations to date have focused on decarbonisation, greater use of digital and remote sensing, and increased focus on ship recycling. For example, NEOLINE, a French transport company, has established a project to use wind propulsion in a roll-on/roll-off shipping line. Praised by the World Economic Forum, Cubex Global uses blockchain to increase container ship efficiency and reduce carbon emissions. Resilient and green port infrastructure is a related investment opportunity, evidenced by the World Ports Sustainability Programme.
Deep blue opportunities
Innovative solutions are breaking through across multiple blue sectors – plastics innovation and food being two major examples.
The International Union for the Conservation of Nature estimates that 8 million tons of plastic end up in our oceans every year, and that plastics make up 80% of all ocean debris. Plastics innovation recognises the need to reduce the volume of plastics going into the oceans – including by circular solutions – and minimising its impact once there, such as through enhancing biodegradability. Tomra is a good example of circular innovation to reduce plastic waste – its reverse vending machines encourage the return of used plastic bottles. Research into suitable bio-plastics, such as those by Corbion and Danimer Scientific, hints at a future where any waste plastics will degrade rapidly rather than pollute our oceans for centuries.
The ocean is a critical food source, but innovation is needed to achieve healthy, nature-positive, resilient ‘blue food’ systems.
One good example for investors is in the area of aquaculture. There has been a large increase in aquaculture, but production typically relies on captured natural fish for fishmeal production. Innovation has offered more sustainable alternatives – such as DSM’s marine-based algae, and Darling Ingredient’s use of black soldier fly larvae.
Related solutions aim to use sea food waste/bi-products as fish feed ingredients – particularly important given that, according to the Food & Agriculture Organization, one in three fish caught around the world never even makes it to the plate. The key for investors is whether those making the efficiencies can also capture their economic benefits, working against the perverse incentives from some subsidies to overfish.
There has been growing interest in nature-based ocean solutions, but the market remains nascent.
The oceans are highly efficient carbon sinks and absorb 50 times more carbon dioxide than the atmosphere. The potential for blue carbon-capture initiatives is significant, building on the success of the Mikoko Pamoja project, for example. However, challenges remain around lack of data, affordable verification, and the wider need – captured by the Taskforce on Scaling Voluntary Carbon Markets – to enhance carbon offset markets.
A recent study proposes how a “mangrove insurance policy” could be structured – harnessing the economic benefit from the inherent storm protection provided. Swiss Re's recent insurance policy to protect and restore coral reefs off Mexico’s Yucatan Peninsula is another good example.
The Taskforce on Nature-related Financial Disclosure will no doubt be helpful in driving nature-related thinking, but, with a 2023 target date for its framework, we cannot afford to tread water in the meantime.
Unlocking blue finance
Progress requires a firm foundation of common guidance, standards and best practice. The Ocean Finance Handbook and Sustainable Blue Finance Principles are a good start to this process. The inclusion of sustainable use of water and marine resources as one of the six policy objectives of the EU’s green taxonomy is also helpful.
While these, and the many more, initiatives are helpful, the plethora can be confusing. Complexity is being layered on an already challenging and nuanced situation, not least given the economic and environmental vulnerability of many coastal communities.
The finance sector is still getting organised to support sustainable ocean financing in a systematic way. Over half of respondents to a recent survey of financial institutions had not yet applied sustainable blue ocean thinking in their own organisations, and nearly another quarter were working to apply it.
As supporters of the recent Ocean Super Year Declaration to fast-track ocean health in 2021, we believe that the nature and complexity of the challenges facing ocean health require collaborative partnerships and strong multi-stakeholder engagement.
There is no simple solution to making our ocean sustainable and securing its economic future, but there is a promising glimpse of the sort of investments that can be made, and the leadership role that the private sector can play.
Katherine Garrett-Cox is the CEO of GIB Asset Management, part of Gulf International Bank. She has previously held roles as the CEO of Alliance Trust and CIO of Morley Fund Management (now Aviva Investors) and Aberdeen Asset Management.