Blue Bonds
Wenqian Zeng, London 01/03/19
LSE SE Business and Finance Guild, London School of Economics
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As the public and investors become more aware of climate change and the environmental challenges the world is facing, green bonds, which emerged and grew since a decade ago are no longer sufficient. A new pioneering debt instrument has been designed to finance marine and ocean-based projects for a sustainable environmental and economic future called ‘Blue Bonds’.
On 29th October, the government of Seychelles, a small island nation of East Africa, has issued the world’s first Blue Bond in an effort to finance the island’s sustainable fisheries and the protection of biodiversity through raising US$15 million from investors. Seychelles - an archipelago consisting of 115 islands in the Indian Ocean with a population of 100,000 is known for its marine biodiversity, from rich underwater reefs to rare animals. The economy is heavily dependent on the ocean for tourism and fisheries, however, the recent exploitation of fishing, oil and gas as the economy booms has raised several concerns for residents. The fishing sector, being the second largest contributor to the country’s annual GDP (after tourism), employing 17% of the population and making up 95% of total value of domestic products will need to be monitored and governed carefully for long-term economic growth. Hence, the nation’s government has issued this bond in hopes to support the existing Blue Economy Investment Strategy which includes US$12 million on Blue Investment Fund and US$3 million on Blue Grants Fund to aid the transition to sustainable fishing in order to maintain the high-income country status it obtained in 2015. It was also in 2015 when Seychelles decided to trade US$22 million of its US$460 million debt with The Nature Conservancy – a US charitable organisation – for designating 1/3 of its marine as under protection. Seychelles’ first official reaction towards mitigating its vulnerability to climate change and exploitation will complement the new blue bond issued. The proceeds from the bond will ultimately benefit the population especially those that are directly affected by the conditions of the ocean through increased food security and ocean biodiversity protection. Vincent Meriton, Vice President of the Republic of Seychelles declared: “The blue bond, which is part of an initiative that combines public and private investment to mobilise resources for empowering local communities and businesses, will greatly assist Seychelles in achieving a transition to sustainable fisheries and safeguarding our oceans while we sustainably develop our blue economy.” Supported by Prince of Wales and the World Bank, the impact investors include Calvert Impact Capital, Nuveen, and Prudential as well as the World Bank’s guaranteed US$5 million and Global Environment Facility’s US$5 million concessionary loan. The bond will pay 6.5% annual coupon to investors and has a maturity of 10 years. Blue bond is the first of its kind with the aim to influence investors on the international scale. If proven successful, it will demonstrate the immense impact institutional investors can make by supporting a sustainable cause through capital markets and “pave a way for others – much like the World’s Bank’s first green bond catalysed the green market 10 years ago”. This critical move not only strengthens Seychelles’ current environmental governance and transition but more importantly, it demonstrates that economic prosperity for communities can be facilitated through global leadership focus on sustainable investment strategies. |
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