Blue bonds are relatively new to the market but there is already a great deal of noise around it across continents. So, what are they, where are they growing in popularity and what does the future hold for them? We find out.
Green is no longer the only colour in the world of bonds. Inspired by the colour of our planet, blue bonds are financial instruments designed to support sustainable ocean-friendly projects that have positive environmental, economic and climate benefits.
Blue bonds, a subset of the green bonds, came into being to help preserve the health of our marine ecosystem, which is under threat due to the damaging impact of climate change and exploitation of marine natural resources.
The first sovereign blue bond was launched in 2018 by the Republic of Seychelles to help finance the island nation’s transition to sustainable fisheries and the protection of marine areas. The bond raised USD 15 million and set the stage for countries to tap into capital markets to finance the sustainable use of marine resources.
Further attention was peaked at the start of the following year, when the Nordic Investment Bank launched its NIB Nordic-Baltic Blue Bond worth nearly USD 237 million. The bond, which is linked to Baltic Sea projects over a five-year period, was listed on the Nasdaq Stockholm Exchange shortly after. Just months later, the World Bank got involved with a fixed-rate bond which raised over USD 10 million.
Blue bonds were truly thrust on to the global stage in November 2020 when the Bank of China launched the world’s first private sector blue bond. It raised over USD 942 million towards protecting the oceans.
What does the future hold for the bond? Evli’s experts weigh in.
Outi Helenius,
Head of Sustainability
“Blue bonds or blue investments in general could be an interesting sustainable impact theme in the future. The UN’s Sustainable Design Goals include ’clean water’ and ’life below water’, meaning this issue is front and centre.
They are a very small fraction of the overall bond market at the moment, meaning the investable bonds are very limited and small in size.”
Tomas Hildebrandt,
Senior Portfolio Manager
“In terms of environmental bonds, blue bonds are still very much a sub class. In my opinion, it is relevant for some high-level environmental portfolios and investors for now. They will surely grow and co-exist with green bonds as investors take more of a holistic approach to climate change and different issuers are exposed to differing natural elements.
The toughest question with green and blue bond is should an investor pay premium for these or get them at a discount? There will probably be increasing evolution to green and blue standards and in the future those will be a natural element in any bonds. The speed of this development is hard to say, probably within a decade. I’m sure Evli will absolutely keep track of blue bonds and consider them further down the line.”
Whatever the view on blue bonds, we can all agree that it has potential and that anything which contributes to cleaner oceans and the fight against our climate emergency can only be a good thing. It just remains to be seen how big the initiative can grow and whether it can replicate the success of its green cousin.
