Emerging Role of Blue Finance in the Asia Pacific Region

On 19th October, KAS-RECAP together with The Energy Resources Institute (TERI), hosted an online workshop titled “Emerging Role of Blue Finance in the Asia Pacific Region”. The focus of the workshop was to deliberate on the mobilization of the market for generating blue finance opportunities and the kind of reforms that are needed for the augmentation especially in the post COVID world. The Asia Pacific region being an amalgamation of several island countries, faces a challenge of balancing competing interests and realizing economic potential while avoiding irreversible environmental changes. Even addressing ocean governance in the Asia Pacific region is complex and it will take planning and learning to make sure that all the blue economy sectors are in place. Overall, the region has received very less traction over the years especially when it comes to blue economy and its supporting financial initiatives.

The panel discussion built on blue finance as a narrative for integrating ocean opportunities into this emerging world of sustainable finance. All the speakers agreed on the relevance of blue finance in the Asia Pacific region because it is connected to the needs for a healthy ocean and a large number of people are dependent on oceans and seas. Sustainable Development Goals (SDG) 14 (Life Under Water), that revolves around blue and ocean economy, attracts the least amount of interest from both the private as well as the public financing. So, the main focus areas that emerged from the discussions were: the lack of availability of enough financing; the less proactive role of governments; the need and role of multilateral banks; the role of the private sector.

Hence, it is a key that the oceans and seas are kept healthy and in order to address climate and societal issues there is a need for the development of innovative ocean finance solutions and funding structures. Through discussions, blue finance principles emerged as a global tool that will be a guide for banks, investors and insurers as they helpfully reflect both the key aspects of sustainable finance and blue specificities. Public Private Partnerships (PPP) will induce investments in the space of blue economy and they are already supporting traditional sectors like fisheries, aquaculture and transportation but they are yet to pick up in the sectors like energy, water or waste management. Diametrically opposite, conservation sectors are completely publicly financed and their revenue models are different from all the other sectors of blue economy. The revenue models for the traditional sectors are very strong, established, sustainable but for non-traditional sectors they are at a nascent stage. Blue finance itself is not expected to provide returns higher than the market, so it poses a challenge for attracting capital. A regulatory push that mandates investment in green or blue finance is clearly required.

The blue bonds market is also flourishing both globally and, in the Asia-Pacific region. Blue bonds give a touch to the green and sustainability bonds and they largely follow the international capital market. So, in the future developments of the blue bond market, it can be seen that the market can reach the size of green bonds in the next ten years. However, what is required is the diversification of issuers that include sovereigns, Multilateral Development Banks (MDBs), financial institutions and corporates. This diversification will lead to strong creditworthiness, blended elements, stronger governance and management capacities for proceeds allocation and ESG risk frameworks.

The role of private sector financing in the overall blue economy and in particular blue finance emerged as another focal point during discussions. To mandate a push that focuses on green or blue finance, sufficient demand is required that has to be balanced with capital flows from sources to the requirements. Once an inflection point is reached in the sector wherein there will be sufficient projects across the world with sufficient information for the industry, the challenges in financing will move from the supply side to the demand side.

However, the development of blue finance in the region would require broader stakeholder engagement, appropriate environmental economics and the real understanding of conservation science in the context of climate emergency in and around the oceans. There is need to have a good roadmap but a milestone driven progress monitoring leading to a phase wise development of blue finance. Thus, a broad understanding of blue finance in the Asia Pacific region emerged from the session and one of the most important topics that needs to be addressed is the SDG14, followed by financing and capacity building.

Link to the related publication can be found here.