Sustainability has become a buzzword in almost every industry in the last few years. While you’ve likely heard of sustainable energy, you might be surprised that sustainable investing is a growing trend in finance. Socially conscious investing (also called green, social, or sustainable investing) is gaining traction and taking many forms, including blue bonds.
These bonds may lay the groundwork for the next wave of sustainable investing and preserve our most precious natural resource. Here’s what you need to know.
Blue Bonds Explained
Blue bonds are relatively new as they emerged in 2018. That year, the Republic of Seychelles teamed with The World Bank to create the world’s first blue bond. Seychelles, an archipelago nation in the Indian Ocean, depends on its oceans for economic growth. Blue bonds provide a way to protect the delicate ocean ecosystems and spur economic growth.
In short, blue bonds are a type of green (environmental) bond dedicated to raising funds for ecological conservation and preservation. What sets these bonds apart from others is that all funds are used for oceanic projects. According to a report from The World Bank on these bonds in Seychelles, “The proceeds from the bond will help pay for marine protection, fishery management and other projects to safeguard the ocean economy that the country depends on.”
Following the emergence of blue bonds in Seychelles, Morgan Stanley made waves in 2019 by being the sole underwriter of $10 million in blue bonds for The World Bank. Partly through the use of blue bonds, Morgan Stanley pledged in April 2019 to reduce plastic waste into the water by 50 million tons in the next decade.
According to Navindu Katugampola, Morgan Stanley’s Head of Sustainability Bonds, “As concerns grow about the millions of tons of plastic waste added annually to the oceans, blue bonds serve as one example of how the capital markets can focus on reducing [marine] plastic waste.”
The Future of Sustainable Bonds
The market for sustainable bonds has massively expanded since 2014. In that year, less than $40 million in sustainable bonds were issued worldwide. In 2018, more than $210 million in bonds were issued. The recent political focus on climate change has helped spur this trend, but it’s unknown how widespread green bonds will become.
What is clear, however, is that sustainable investing is far from a niche market. Time will tell exactly what impact green bonds will have, but examples like Seychelles paint an encouraging picture.