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Life Below Water: Making a Splash with Impact Investing

Complex environmental issues are increasingly generating headlines and becoming a focus of social, political and financial concern. The sight of turtles, dolphins and whales entangled in plastic in the BBC’s extraordinary natural history series Blue Planet, has created an upsurge in global awareness of marine pollution that has since been dubbed the "Blue Planet Effect".

The threat to the world’s maritime states, coastal regions and oceans arises from pollution, overfishing, loss of biodiversity and climate change, which drives catastrophic acidification, deoxygenation and warming, and is both existential and immediate. Home to 80 per cent of all life on the planet, oceans are a major source of our oxygen and also absorb heat and carbon dioxide, thus regulating the weather and the climate. 40 per cent of the world’s population not only depends on the oceans for their food, energy, trade and tourism but they generate around US$2.5 trillion each year. Put simply, without healthy oceans there would be no life on Earth as we know it and the investment community is increasingly recognising this.

Novel solutions emerging

Given its relative novelty, innovation played a large role in the formation of sovereign debt conversion that enabled the delivery of the world’s first debt refinancing deal for ocean conservation, which has since inspired a variety of so-called blue bond initiatives.

The transaction was finalised in 2016 between the Seychelles government and The Nature Conservancy, which also provided specialised support with planning, science and facilitation along with the United Nations Development Programme, the Global Environment Facility Programme Coordination Unit and the Seychelles government. The deal provided fiscal safety while securing a US$21.6 million loan that has been used to finance coral reef and fisheries management as well as the protection of rare species and ecosystems.

“We are starting to see a surge of innovation in this space, but financial markets need a common language and an agreed set of standards in order to scale and this does not yet exist for the blue economy,” says Marisa Drew, Credit Suisse’s Chief Sustainability Officer and Global Head of Sustainability Strategy, Advisory and Finance at the global bank. Drew, who has been devising financial instruments for more 30 years continues “Unified green bond principles have guided the debt market for green issuances and have provided a framework that investors could rely on that helped green bonds become a trillion-dollar marketplace.  We are now working with a number of organisations to create a set of blue bond principles and we think this is a critical component to help the blue finance market to also reach scale.”

The Seychelles debt conversion was developed by The Nature Conservancy’s own impact investment unit, NatureVest, established in 2014 with the aim of bridging the gap in funding for biodiversity and ecosystem conservation by creating and executing deals that also delivered returns for private investors.

“We’re really solving instances of market failure by acting as the financier for the environment and structuring transactions that the market doesn’t see,” says NatureVest’s Managing Director, Charlotte Kaiser. “That requires a lot of work, support, investor education and public support in the form of credit enhancement or other blended structures.” 

Much of the work that Kaiser leads at NatureVest involves managing cash flows into environmental projects and developing business models to support investment capital while conquering what she describes as an “innate aversion” to novelty among private investors.

“We’re structuring deals to provide risk adjusted return, but there’s a novelty component that adds some price risk,” admits Kaiser. “What I really want is for investors to lean into this because it’s working, and we need everybody to play their part.”

New Funds

In September 2020, Credit Suisse hoped to achieve a similar sea change in attitudes when it launched its new Ocean Engagement Fund in partnership with Rockefeller Asset Management and The Ocean Foundation, a community-based nonprofit organisation dedicated to protecting and conserving ocean environments. 

The first impact investment fund dedicated to ocean health, designed to engage with companies to make them better stewards of the ocean while encouraging investment in three areas; pollution prevention, carbon transition and ocean conservation. Within a month it had succeeded in raising US$212 million.

A substantial liquid and tradable investment aimed at major institutional investors, the Ocean Engagement Fund builds on Credit Suisse’s previous ocean-focused venture, the Blue Economy Note, which was launched in conjunction with the World Bank in 2019. 

Strong Returns

Such heavy lifting by Credit Suisse in a sector that is still in its infancy is a reaction, in part, to a dearth of investment opportunities for large-scale investors but is also a recognition of the potential for huge future returns.

“I was personally shocked to find that oceans are the second least invested of the UN Sustainable Development goals from a private capital point of view,” explains Drew, “When we did our research, we found that most people thought of the oceans as very much the purview of governments or as a space for philanthropists. The sector needed to effectively make the investment case by re-framing the narrative to demonstrate that investment in the oceans can generate a very strong return.”

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