Chinese financial institutions increasingly want to issue blue bonds to support a sustainable ocean economy, but a standards system needs to be built first.
For several years now, China has been building a green financial system to finance the construction of "ecological civilization" and industrial restructuring. The country is now one of the world's largest green bond markets. Blue bonds, designed to support the sustainable development of ocean economies, are also building on that success. However, there are fundamental differences that need to be taken into account.
Green bonds and blue bonds
Over the past 12 months, Chinese institutions have gained exposure to the green finance scene. Last September, the Paris and Macau branches of the Central Bank of China issued 9 million US dollars (500 billion yuan) of 3,2-year blue bonds and 3 million dollars, respectively. US (442,5 billion yuan) two-year blue bond. Proceeds will fund current and future ocean-related projects in China, the UK and France, such as wastewater treatment plants, which treat wastewater before being discharged into the ocean and offshore wind energy. In November, Qingdao Water Group also issued 3 million yuan ($11 million) of blue bond debt. Chinese institutions have now issued more blue bonds than institutions from any other market.
Green bonds are issued by governments or companies to raise capital for an environmentally friendly project. These bonds are then traded on financial markets. Blue bonds operate in a similar way and are issued to finance ocean-related projects.
China is seeing strong growth in offshore wind energy, marine tourism, shipbuilding, ocean chemicals and biomedicine – sectors that will require financing and form the basis for the bond market. lam slip. Notably, Chinese regulators are also involved, with the China Banking and Insurance Regulatory Commission evaluating blue bonds as an “innovative policy tool.” However, the success of blue bonds in promoting sustainable development of the ocean economy requires clarifying and improving the standards applied.
Blue bonds have always been closely linked to green bonds and are sometimes considered one of their subsets. The rapid development of the green bond market and growing recognition by investors have created a good foundation for the emergence of new types of bonds. The blue bonds of Qingdao Water Group and Bank of China were issued in accordance with standards for green bonds.
However, the blue bonds prepared by the Bank of Qingdao, with support from the International Finance Corporation (IFC), are somewhat different. The issuer will work with the list of blue bond projects proposed by IFC to filter and decide on investment recipients instead of simply searching for ocean-related projects in the list of projects. Green bond project has been approved. The main criteria will be the level of sustainability of economic activity and the level of impact of the project on the ocean environment. While those bonds have yet to be issued, their preparation has become a highlight for innovation in China's sustainable finance sector this year.
Should ocean-specific bonds have their own set of standards? To answer this question, it is necessary to consider how the impacts of marine economic activities from the marine economy and the onshore economy differ over time and space. The 2030 Ocean Economy Report published by the OECD in 2016 analyzed this difference.
The natural processes of the ocean, ecosystems, and marine flora and fauna do not "respect" national boundaries. Marine animals and pollutants move around in ocean currents or transport. Planning and managing space under the sea is therefore much more complicated than on land. Nutrients or pollutants that flow into the ocean may be carried away by currents and only return decades later. This means that there is a significant delay between a human action and the result of that action.
For example, a leak during offshore oil production will affect a larger area as the oil flows away, even if the leak is dealt with quickly. Therefore, many stakeholders need to be consulted and coordinated. A 2011 oil leak in the Bohai Sea affected local fishing and tourism, but compensation took years to come due to difficulties in determining cause and effect.
In addition, the structure of economic rights at sea is different and this makes regulating economic activities more difficult. There are currently no laws protecting most marine resources and environments, for example during deep-sea mining.
The external impacts of the blue economy – the consequences of marine-related industrial and commercial activities – need to be managed differently. Regarding land, sector-specific legal and administrative systems have evolved over the years, as have mechanisms and tools to address environmental impacts. But these systems are too primitive for the green economy – where the consequences are larger and cover a wider area. The domestic framework currently lacks detailed requirements for many external factors that need to be considered abroad, and is therefore inconsistent with the rights and responsibilities of a green economy. There should be a separate list of green economy projects to better manage those external activities.
The vast ecological value of the ocean
Other factors must also be considered when investing sustainably in the blue economy, of which the primary thing to pay attention to is the value of the ecological services provided by the ocean.
The ocean regulates carbon dioxide levels in air and water, provides oxygen, powers the water cycle, and circulates heat. It also protects coastal and marine biodiversity. While some of these services primarily benefit the ocean itself, most are important to the environment and the economy onshore. Still, assessing these economic contributions remains a complex task, with no well-established methodology or consensus. Some of those values, such as marine biodiversity and carbon storage, are covered by existing systems to manage environmental externalities.
The importance of master planning and industrial clusters for the ocean should also be reflected. Sustainable ocean development requires more integrated planning. The state of coastal economies, the value of ecological services and the impact of development activities on the ocean environment all need to be taken into account, as well as the interactions between them.
An important role of integrated planning will be to support industrial clusters and the benefits they generate. All activities at sea are interconnected and synergies between ocean industries are vital, for example offshore renewable energy production combining offshore oil and gas or aquaculture and tourism. The healthy and robust development of an ocean region often relies on industrial clusters. Globally, in ocean industrial clusters, actors are often not well integrated in the pursuit of sustainability. The mission of green finance is to promote the rapid formation of industrial clusters in the context of master planning. So, when listing projects suitable for green finance, integrated planning is even more important than for equivalent land-based projects.
In summary, there are important differences between domestic and foreign economies when it comes to managing external factors. Globally, blue bonds are just getting started. There is an urgent need to provide relevant standards and tools.
Lessons from the Seychelles
The best example of a blue bond is the country of Seychelles.
Backed by a $15,2 million loan and a $5 million grant, Seychelles issued a set of sovereign blue bonds in 2018. The Seychelles Climate Adaptation and Conservation Commission was tasked with managing These funds are used to restructure national debt. Some of the proceeds will be used for commercial investments over 20 years (expected to reach a maximum of 86 million USD). Individuals and entities will be invested in ocean conservation and climate adaptation, including expanding stocks and improving fishing management, focusing on natural resource conservation rather than commercial development. commercial. It is important that both types of investments are managed by one unit, in a single planning area.
Seychelles depends almost entirely on tourism and fishing, so the ecological value provided by conservation projects directly feeds the regional economy. Meanwhile, management carried out by a unit should ensure a balance between conservation and commercial investment. This case shows that integrated planning for ocean spaces is a prerequisite for reflecting the value of ecological services in the economy and for promoting industrial clusters. It will be crucial for the future success of blue bonds and green finance.
The green economy is showing strong growth in value added, investment and jobs created. But at the same time, the oceans are becoming more acidic and warmer. Sea levels are rising, currents are changing and the ocean environment is under constant stress. This is a consequence of greater use of the oceans. If we cannot ensure sustainable development of the oceans, we will repeat mistakes made on land, which could have more serious consequences.
In the 2030 Ocean Economy Report, the OECD also warns of overfishing, pollution of oceans and marine wildlife, and habitat loss due to increased human use of the ocean, lack of understanding and data. data on human impacts and lack of integrated management. Therefore, in addition to a system of sustainable green finance standards, we also need to consider environmental, social and ocean governance risks for all sectors. Onshore industries causing plastic pollution of the ocean are a case in point.
Standards for blue bonds and the establishment of a green financial system, taking into account the nature of the external factors of the green economy, are therefore not only necessary but increasingly urgent.
According to the Center for Nature and People