The idea of Blue finance
There was great expectations, excitement and hope in 2018 that “Blue bonds” could save the World’s Oceans in funding a range of climate adaptations. This optimism was based on the Republic of Seychelles. They launched in October 2018 the first sovereign blue bond.
The idea is exciting: blue financing, especially blue bonds, could have an enormous potential for tackling environmental problems. Blue bonds could become an innovative ocean financing instrument, with funds raised being earmarked exclusively for projects classified as ocean-friendly.
The supporter of the idea had high expectations that green bonds’ success in using capital markets to tackle environmental problems could become a blueprint for saving the oceans. For a good two years now, there has been a financial instrument of this kind in Seychelles, and there is a first independent interim assessment – apparently quite sobering.
What is a Blue Bond?
“The blue bond is a debt instrument issued by governments, development banks or others to raise capital from impact investors to finance marine and ocean-based projects that have positive environmental, economic and climate benefits. The blue bond is inspired by the green bond concept, which people are more familiar with.” (Worldbank 2018)
Seychelles in October 2018
The Republic of Seychelles launched in October 2018 the world’s first sovereign blue bond — “a pioneering financial instrument designed to support sustainable marine and fisheries projects. The bond, which raised US$15 million from international investors, demonstrates the potential for countries to harness capital markets for financing the sustainable use of marine resources.” (Press Release, World Bank, October 29, 2018)
The grants (Blue Grants Fund ($3 million) and a Blue Investment Fund ($12 million), are being managed by the Seychelles Conservation and Climate Adaptation Trust, an independent public-private entity. Three investors – Calvert Impact Capital, Nuveen, and Prudential Financial – each put in USD 5 million. Their risk was mitigated by the bond being partially guaranteed by the World Bank and subsidized by the Global Environment Facility. The project complements an earlier innovation, described as the “first ever climate adaptation debt restructuring that also includes a strong marine conservation component”. The Nature Conservancy, an NGO, worked with the Seychelles and creditor governments to restructure its sovereign debt.
March 2016
Seychelles buys back $21.4m of its external public debt at a 6.5% discount with $20.2m funds provided to SeyCCAT by (a) philanthropic grants ($5.0m) and (b) a loan from NatureVest (15.2m loan at 3%). Seychelles now repays a $21.4m debt to SeyCCAT, with matching payments through to NatureVest for $15m loan. The Seychelles’ remaining debt servicing payments on $6.4m loan remain with SeyCCAT for the Blue Grants Fund (BGF) and the Blue Endowments Fund (BEF).
A Blueprint for Similar Countries?
The report SEYCHELLES’ BLUE FINANCE. A Blueprint for Similar Countries?” by Opes Oceani catalogues how the “Seychelles Blue Bond” was developed and untangles the financial transactions and commitments to ocean action that were made under this complex arrangement.
By October 29, 2018, three impact investors invested a combined US$15m in the Seychelles Blue Bond. One fifth of the proceeds, US$3m, is directed into the Blue Grants Fund (BGF), administered by SeyCCAT. This is the point of connection between the two aspects of the Seychelles’ blue financing; they both fund the activities of SeyCCAT, as the chart below demonstrates. The remaining bond proceeds of $12m established the Blue Investment Fund (BIF). The BIF was launched on December 23, 2019 by the Development Bank of Seychelles (DBS), which administers the fund.
Funding by SeyCCAT for five objectives
Marine Zoning: Support new and existing marine and coastal protected areas and sustainable use zones;
Fishing Sector: Empower the fisheries sector with robust science and knowhow to improve governance, sustainability, value and market options;
Marine Ecology: Promote the rehabilitation of marine and coastal habitats and ecosystems that have been degraded by local and global impacts;
Climate Change: Develop and implement risk reduction and social resilience plans to adapt to the effects of climate change; and
Blue Economy: Trial and nurture business models to secure the sustainable development of Seychelles’ blue economy.
Conclusions of the report
“Fish don’t have passports. Because colored lines on a map do not constrain the movement of migratory fish stocks, eective marine management requires a regional approach, not an individual-nation approach. This economically and environmentally- important regional cooperation among sovereign nations is thwarted by outsourcing sovereign marine governance and by establishing large MPAs.”
“So, are the Seychelles’ blue finance transactions a blueprint for similar countries? Sadly, our initial excitement at the concept of using the rigor of debt financing to ensure desirable environmental outcomes did not survive close examination of the actual transactions. These transactions fail in several ways to apply debt’s “strong governance” attributes to environmental challenges.”
“Countries in similar circumstances to the Seychelles would need to convince themselves that it is a fair trade to take on debt in exchange for (a) marine spatial planning; (b) funding to oer grants and loans to people with “blue ideas”; and (c) outsourcing sovereign resource management. A national decision such as this is especially stark when compared with established marine management approaches that generate external funding, have proven environmental outcomes, retain sovereignty, and enhance national wellbeing through improved national food security and resilient economic activity.”
