The latest climate science shows that the window of opportunity to avert climate catastrophe is rapidly closing. As well as accounting for climate-related financial risks, aligning portfolios with the Paris Agreement and supporting a meaningful carbon price, the financial sector should prioritise investments in nature-based solutions – particularly those that support a healthy and resilient ocean, because there is no 1.5°C future without a healthy ocean.
Far from being an abyss of unknown value, the overall asset value of the global ocean has been estimated at about $24trn, providing annual goods and services worth at least $2.5trn. With trillions of dollars of investment in ocean and coastal development expected over the next decade, financial institutions will have a growing stake in the ocean and growing exposure to ocean-related risks.
To fully integrate ocean-related risks into decision-making, investors need to better understand them. At the moment, the risks of business-as-usual are rarely, if ever, priced into the value of assets, even for asset-heavy industries like coastal infrastructure. While impacts on some maritime sectors are already evident – especially those most reliant on natural resources – understanding the implications of climate change and nature loss continues to be a significant challenge for investors.
‘Navigating Ocean Risk’ – new analysis from WWF and Metabolic developed in partnership with the Ocean Risk and Resilience Action Alliance – finds that under a business-as-usual scenario, 66% of listed companies face ocean-related risks and could lose up to $8.4trn in ocean investments over the next 15 years due to declining ocean health and the effects of climate change.
Yet the ocean also has enormous potential for regeneration, and immediate action under a sustainable development scenario would reduce losses to $3.3trn, saving more than $5.1trn – nearly double the current GDP of the UK.
Our analysis offers a new publicly-available tool and dataset that will enable asset owners, investors, insurers, governments, and financial regulators to quantify how financial risks arise cumulatively in the blue economy. They will be able to assess ocean risks in portfolios, identify potential stranded assets, and pivot to climate-resilient investment and business models.
For example, coastal real estate and infrastructure, which are emissions-heavy and often destructive of ecosystem services and fisheries productivity, are the sectors most vulnerable to the physical risks of climate change. Action to mitigate impacts by reducing emissions and preserving natural systems that protect against storm and flood damage could reduce value at risk for those sectors from $3.98trn to less than a trillion dollars.
Similarly, sensitive industries like fisheries and aquaculture would also benefit from mitigating pollution, biodiversity loss, disease transfer, and erosion of natural habitats, and reduce value at risk for those sectors from $2.85trn to $1.9trn, and from $31bn to $28bn respectively.
An ocean of opportunity
This isn’t just about reducing value at risk. The world is waking up to the ocean’s critical role in mitigation, adaptation, and resilience. Per unit area, owing to their ability to store large amounts of carbon in their root systems, seagrass meadows, mangrove forests and salt marshes can be more effective carbon stores than tropical forests. And although coastal wetlands equate to less than 3% of the area covered by terrestrial forests, they can sequester similar amounts of organic carbon annually. Additionally, estimates of the economic value of mangroves for flood risk reduction exceed $65bn a year, and if mangroves were lost or destroyed, 15 million more people would be flooded annually across the world.
By investing in the recovery and protection of our ocean’s ecosystems and biodiversity, and by better managing its precious resources, we can rebuild the resilience of the ocean, the communities that depend upon it, and our ability to respond to climate change. This requires integrating ocean and climate approaches and solutions, as highlighted in WWF’s Blueprint for a Living Planet: Four Principles for Integrated Ocean-Climate Strategies.
‘Blue carbon’ and the vital sequestration services coastal habitats provide are rarely featured in global efforts to mitigate carbon emissions, but there is growing recognition that building with nature can generate triple bottom line benefits for people, climate and nature.
The multiple benefits that these kinds of nature-based solutions deliver can help leverage a growing pool of public and private funding linked to sustainable blue economy approaches, such as the Action Plan for Healthy Oceans launched by the Asian Development Bank in 2019, or Pakistan’s Green Stimulus, which includes ocean and coastal nature-based solutions.
Additionally, financial institutions such as the Global Environment Facility and the Green Climate Fund can offer incentives like concessional loans and grants, but crucially, member countries must ask for them. Strengthening ocean-related measures in Nationally Determined Contributions therefore hold great promise for public, private, and blended finance.
There’s a lot riding on the outcomes from COP26. One key measure of success will be a bluer investment strategy that recognizes the importance of ocean-climate action.
Financial institutions, both public and private, should adopt the Sustainable Blue Economy Finance Principles and follow the UNEP Finance Initiative’s associated guidance to drive investment in a thriving and sustainable blue economy.
Governments meeting in Glasgow must incentivise this critical shift. Far from being a trade-off, pursuing ocean and climate solutions, and integrating climate and ocean finance strategies, opens up new possibilities for delivering the Paris Agreement.
A healthy ocean is vital for climate resilience and lasting prosperity.
Margaret Kuhlow ia Global Finance Practice Leader at WWF