OpinionDec 21 2021

The market for open ocean investment is nascent, but the outlook for investors is promising

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The market for open ocean investment is nascent, but the outlook for investors is promising
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Best of all, it does these things for free. 

For centuries, global economies have relied on the ocean to expand and thrive. Despite this reliance, the true value the ocean provides has yet to be fully appreciated. Recent studies have valued the asset base of ocean at around $25tn (£18.9tn), substantially more than what is invested in its protection.  

Nature-based investment in marine ecosystems comprises just 1 per cent of the total global climate finance budget, with one of the UN’s Sustainable Development Goals – Life Below Water – remaining among the least funded. 

Where is capital being mobilised? 

A considerable amount of funding in nature-based solutions comes from the public sector, contributing around $115bn a year. Private sector funding amounts to only $18bn a year and is largely invested in sustainable supply chains and environmental offsets. 

Of the little investment being allocated to protect oceans, the majority is assigned to coastal ecosystems like saltmarshes, seagrasses, and mangroves, which make up the current definition of ‘blue carbon’. Open and deep ocean ecosystems remain relatively untouched by comparison.

The gap is largely because coastal and near-shore ecosystems are generally well understood and easy to research, making assigning an accurate value to their carbon absorption potential more straightforward.

While the potential certainly exists, creating investable products in deep and open ocean ecosystems remains a challenge. On the coast, however, the blue carbon market has continued to develop at pace, with non-governmental organisations, corporates and policymakers coming together to create and launch products on a national scale. 

The rise of Blue Bonds and blended finance 

In 2018 the World Bank issued the first world’s first sovereign ‘blue bond’ in the Seychelles. It raised $15m from international investors who will receive a 6.5 per cent annual interest rate. The bond is lauded as a perfect example of how governments, development banks and private corporations can come together to harness the power of capital markets to finance sustainable marine projects, while deriving value for investors. 

While blue bonds are paving the way to fresh investment in blue carbon, we cannot look to them alone to solve the ongoing crisis within the ocean. Like most blue carbon projects before them, blue bonds again target investment on coastal or near-shore environments, leaving the majority of marine ecosystems excluded. The key to closing this gap lies in research.

Right now, scientists simply do not have the data needed to create accurate, verifiable, and saleable products in carbon sinks like whales, ocean sediments, algae, and phytoplankton. Advancements in technologies like geospatial data (time-based data that is related to a specific location on the Earth’s surface), remote sensing (the ability to gather data remotely from technologies like satellites) and artificial intelligence are providing part of the answer, but more frontline investment is desperately needed worldwide to fund research and scientific expeditions to track, monitor and measure these environments. 

Diving to new depths 

We know more about the surface of the moon than we do about the deep and open ocean. Due to the lack of verifiable data and the challenges in collecting it, these ecosystems remain largely unknown and thus overlooked by businesses and policymakers, despite an increasing awareness of their importance in tackling climate change and sustaining economies.

That is not to say we do not know anything about the financial and environmental benefits of expanding ocean finance. The International Monetary Fund found in 2019 that the ocean’s smallest creatures, phytoplankton, not only produce around 50 per cent of our oxygen but also absorb around 40 per cent of all CO2 produced, equivalent to 37bn metric tonnes.

Similarly, the oceans largest creatures, whales, were recently assessed by the IMF to sequester (the process of capturing and storing atmospheric carbon dioxide) 33 tonnes of CO2, on average.  

Despite the benefits, the challenge lies in creating open ocean products investors can, and want to buy. While it is feasible to create a ‘whale carbon credit’ – some organisations are already beginning this process – this requires substantially more scientific evidence with which to accurately understand the dollar value of the carbon absorption they provide. Moreover, the standards, monitoring and verification already seen in terrestrial markets needs to be mirrored in the same way for oceans to be transparent and effective. 

One of the biggest hurdles to creating profitable investment products in the open ocean is jurisdiction. With no one country ‘owning’ large amounts of the ocean, governments will need to take a collaborative approach to assign value and work out how to derive collective benefits. 

The ocean could be one of the most profitable ecosystems on earth and the creation of widespread ocean finance could be a game changer for both the health of the planet, and economies worldwide.

However, if we are to realise the benefits of investing in marine ecosystems, we need to take action – policymakers must rebalance the books of climate finance and divide out sustainable investment in line with the ocean’s value. Businesses and financial institutions seeking to broaden their environmental, social and governance-themed investments should also explore blue and ocean carbon investments as part of either their impact investing portfolios or ESG strategies. 

The market for open ocean investment is nascent, but the outlook for investors is promising. Blue carbon products, like bonds and credits, are a good starting point and have proven that ocean investments can be created to benefit the environment while simultaneously generating modest returns.

While investable products for open ocean environments are in their infancy, technology is rapidly changing the way we can gather the evidence needed to create them, and there is no shortage of organisations working to bring these ecosystems in line with their coastal equivalents.

In the meantime, funding these pioneering endeavours remains a welcome option for investors willing to step ahead of the crowd. 

Mike Barber is sustainability and climate change partner at Deloitte