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Risk mitigation to save the ocean: Blended Blue Finance

Luz Stecca

4 min read



Author: Luz Stecca

Bio: Luz is a second-year student in International and Development Studies, specializing in Sustainable Trade and Finance. She is passionate about impact investing and financing the SDGs and is currently doing her thesis on effective impact reporting mechanisms.




Sustainable Development Goal (SDG)14 is about the protection of life below water, and to conserve and sustainably use the oceans, seas, and marine resources for sustainable development (The Global Goals, 2023). Oceans account for 70% of our planet's services, yet significant damage has been done to these resources and ecosystems (Lafolley et al., 2019). Current pressing challenges for ocean protection include loss of biodiversity, plastic pollution, and ocean acidification due to climate change (Till et al., 2019). 


As policy makers and international organizations mobilize efforts to increase financial flows to achieve the SDGs, investors often highlight their hesitancy to participate due to a high risk perception, also referred to as risk premia (Choi & Laxton, 2023). In this scenario, a mechanism called Blended Finance receives a lot of attention, as it consists of the combination of state or philanthropic capital and private capital to finance ventures (OECD/UNCDF, 2020). 


What is Blended Finance?


Blended Finance is considered a strategy to de-risk private investments because the risk is shared between the public and private investors. It has a catalyzing effect that results in bigger amounts of capital per project, making those projects more robust and less vulnerable to unforeseen risks. Political and regulatory risk is decreased by the participation of the state, which protects the private investors by increasing the venture’s credibility in terms of alignment with development objectives and market needs (Farber & Reichert, 2023). Blended Finance can be applied to both debt and equity investment structures. Additionally, it can come in the form of grants and technical assistance. The design of each Blended Finance investment should take purpose, costs, and investee context into consideration (Kwon et al., 2020). 


Blue Economy and Blue Finance


As discussions on strategies to fight the challenges faced in achieving SDG14, it is noticeable that cleaning the oceans and protecting biodiversity has immense value. Since Oceans are particularly vulnerable ecosystems, and loss of ocean biodiversity can have large socioeconomic effects on communities that are reliant on pisciculture; in addition, loss of ocean biodiversity is strictly related to climate change and innovations for in ocean biodiversity protection can therefore be considered climate change adaptation strategies (Ehlers, 2016). Nogueira and Pereira (2021) define the Blue Economy as economic activities in the oceans based upon sustainable fashion with economic efficiency, social inclusion, and maintenance of healthy coastal and marine ecosystems. The Blue Economy provides social and economic benefits for current and future generations and sustains the environmental quality of the oceans. Investing in companies that generate sustainable commercial activities that contribute to ocean protection, which are a part of the Blue Economy, is called Blue Finance. 



Morgan et al. (2022) define Blue Finance as innovative ocean financing schemes and strategies for mitigating the effects of climate change and unsustainable practices on ocean and coastal ecosystem-reliant communities and sectors, through effective governance, planning, sectoral management, and risk management mechanisms that contemplate all stakeholders including nature. With the right approach, significant revenue can be generated by businesses that take care of the ocean.


What companies are currently a part of the solution?


To provide an example of how such Blue Finance mechanisms and companies work, 4Ocean is a company that removes plastics from beaches and the sea in Indonesia, Haiti, Guatemala, and the United States. With the help of local communities, the materials collected are turned into sustainable jewelry, decorative items, and kitchen utensils. 4Ocean has removed over 8 tons of plastic waste from the oceans, employs over 200 people, and is estimated to generate $80 million US dollars in yearly revenues. 



Another example is the Irish startup Carbon Kapture cultivates seaweed farms, that absorb tremendous amounts of carbon dioxide, reduce ocean acidification, improve water quality, and protect biodiversity. Other than generating revenue through the sale of carbon credits, Carbon Kapture converts harvested seaweed into biofertilizers which are then sold to local farmers. This characterizes a circular business model.


In addition, environmental engineering researchers from the University of Madeira (Portugal) developed Aqua, a virtual whale and dolphin-watching tool to enhance eco-tourism and raise awareness for ocean biodiversity protection (Dionisio et al., 2022). They received funding from the Interagua Project for ocean preservation which is financed by the European Union and the Laboratory for Robotics and Engineering Systems, funded by both private (for example Santander Bank) and public actors (the Portuguese Government).


As the examples mentioned above illustrate, Blue Finance offers various opportunities for Blended Finance, and Blended Finance has great potential for scaling the Blue Finance agenda. Blue Economy activities can generate multiple sources of revenue, which are of particular interest to private investors, and meet public interests such as contributing to cleaner waters and environmental education and therefore protecting nature capital.




The Potential for Blended Finance in Blue Finance


Jens Christiansen (2021), professor of Economics at Mount Holyoke College, conducted a thorough review of the rich universe of Blue Blended Finance and demonstrated how philanthropic, public, and private capital complementary contributed to Blue Economy initiatives. He argues that by offsetting the uncertainties related to investing in a new conservation finance space, Blended Finance is applied as a way to fix investors’ fictional expectations and gradually transform uncertainty into risk. Christiansen proposes that as Blended Finance enters the blue economy sphere, it will a) increase private participation and leadership development projects related to ocean protection, b)  scale technical innovations for sustainable marine activities, and c)  be a great example for investors to have faith in the sustainable finance market beyond the Blue Economy, as philanthropic and state capital actively participates in investing in these ventures giving them more credibility and officiating demand for Ocean protection, and the value it offers to society.


In sum, the urgency to protect our oceans under SDG14 necessitates innovative solutions. Blended Finance emerges as a pivotal mechanism, merging capital sources to de-risk investments and drive sustainable ventures. Exemplary initiatives showcase the lucrative fusion of profitability and environmental stewardship. The convergence of Blended Finance with the Blue Economy not only mitigates uncertainties, but also sparks investor interest, fostering vital ocean conservation projects while paving the way for a resilient and sustainable future for our oceans. As Blended Finance mechanisms continue to evolve in the impact investing industry, it will be interesting to accompany its influence on the protection of Oceans.




References


Carbon Kapture – The smart way to combat climate change. (n.d.). Retrieved November 30, 2023, from https://carbonkapture.com

Choi, E. S., & Laxton, V. (2023). Mobilizing Private Investment in Climate Solutions: De-risking Strategies of Multilateral Development Banks. World Resources Institute. https://doi.org/10.46830/wriwp.22.00091

Christiansen, J. (2021). Fixing fictions through blended finance: The entrepreneurial ensemble and risk interpretation in the Blue Economy. Geoforum, 120, 93–102. https://doi.org/10.1016/j.geoforum.2021.01.013

Dionisio, M., Mendes, M., Fernandez, M., Nisi, V., & Nunes, N. (2022). Aqua: Leveraging Citizen Science to Enhance Whale-Watching Activities and Promote Marine-Biodiversity Awareness. Sustainability, 14(21), 14203. https://doi.org/10.3390/su142114203

Ehlers, P. Blue growth and ocean governance—how to balance the use and the protection of the seas. WMU J Marit Affairs 15, 187–203 (2016). https://doi.org/10.1007/s13437-016-0104-x

Farber, V., & Reichert, P. (2023). Blended Finance and the SDGs: Using the Spectrum of Capital to de-Risk Business Model Transformation. Ethical Economy, 37–48. https://doi.org/10.1007/978-3-031-26959-2_5

Huang, M. H., Voyer, M., Benzaken, D., & Watanabe, A. (2022). Blue Economy and Blue Finance: Toward Sustainable Development and Ocean Governance. https://doi.org/10.56506/hdlz1912

Kwon, T., Panulo, B., McCallum, S., Ivankovik, K., & Essa, Z. (n.d.). Blended Finance: When to use which instrument? In University of Zurich - Center for Sustainable Finance and Private Wealth. University of Zurich . Retrieved November 28, 2023, from https://www.csp.uzh.ch/en/research/Practitioner-Research/Blended-Finance-When-to-use-which-instrument.html

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Pereira, M. G., & Nogueira, J. M. (2021). BLUE FINANCE: OPPORTUNITIES FOR THE BLUE ECONOMY. Brazilian Institute for the Environment and Renewable Natural Resources (IBAMA), 575–600. 10.21544/2359-3075.v27n3.

The 4ocean Bracelet - Every purchase pulls a pound of plastic from our. (n.d.). 4ocean. https://www.4ocean.com

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