The ocean is the largest ecosystem in the world. It covers more than 70% of the Earth’s surface and is home to an estimated 80% of the planet’s biodiversity. It provides clean energy and supplies us with oxygen, food and many important resources. As the most significant climate regulator and largest natural carbon sink, it helps limit the effects of climate change. It is not only an important component of life on earth from an ecological point of view, but also major industries, economies, and financial systems around the world depend on and influence the health of the oceans. However, it is no secret that the state of the oceans is not good: one-third of fish stocks are overfished, plastics and toxic chemicals are polluting the waters, and fertilizer inputs from agriculture have led to more than 400 dead zones in oceans totaling more than 245.000 km2. These changes have implications for economic stability, food security, and livelihoods. There is an immediate and growing need for action to conserve marine ecosystems and ensure the resilience of the economies that depend on our oceans (European Commission a; UNEP FI a; UNEP FI b).
This economic system is called the blue economy. It encompasses all industries and sectors related to oceans, seas and coasts, such as shipping, seafood, renewable marine energy, port construction, coastal tourism, coastal infrastructure and the consumption and production of solid waste such as plastics (UNEP FI b; European Commission b).
As the need for greater sustainability in this area grows, the European Commission has launched the Sustainable Blue Economy – a concept that promotes the sustainable use, innovation and responsible management of our oceans and their life-giving blue resources. Similar to the green economy, the blue economy balances human well-being, social justice and environmental sustainability (The Commonwealth).
“Healthy oceans are a precondition for a thriving blue economy. Pollution, overfishing and habitat destruction, coupled with the effects of the climate crisis, all threaten the rich marine biodiversity that the blue economy depends on. We must change track and develop a Sustainable Blue Economy where environmental protection and economic activities go hand in hand.” – Frans Timmermans, Executive Vice-President for the Green Deal (European Commission b)
The Sustainable Blue Economy aims to achieve the goals of climate neutrality and zero pollution. This includes the EU’s environmental and climate goals and the EU Commission’s initiatives such as the European Green Deal and the Economic Recovery Plan for Europe (European Commission a). Other goals include
- shifting to a circular economy and reducing pollution,
- preserving biodiversity and investing in nature,
- supporting climate adaptation and coastal resilience.
- ensuring sustainable food production
- and improving the management of marine space (European Commission b).
With an estimated annual economic value of $2.5 trillion, equivalent to the world’s seventh largest economy, the blue economy is increasingly attracting the attention of investors, insurers, banks and policymakers (European Commission a). The FERI Cognitive Finance Institute, together with GEOMAR Helmholtz Centre for Ocean Research Kiel and FRAUNHOFER Institute for Computer Graphics Research, has summarized the key strategies for sustainable economic use of the world’s oceans. The study “Sustainable Blue Economy – Transformation, Value and Potential of Marine Economic and Ecosystems” presents current scientific findings and identifies potential areas of investment and innovative technologies that could revolutionize shipping, marine infrastructure, marine renewable energy generation, and marine and coastal protection (FERI).
aware_ spoke with Dr. Steffen Knodt, Head of the FRAUNHOFER Center for Sustainable Ocean Business at the Ocean Technology Campus in Rostock, about the importance of a Sustainable Blue Economy and the role of the finance and investment industry in promoting sustainable investment.
aware_: Why is it so important to drive the blue economy in a sustainable way?
Dr. Steffen Knodt: The oceans have not only an enormous environmental, but also economic value, as they contain a vast variety of renewable and non-renewable resources that provide the inputs for ocean-based industries like renewable energy, food production, resource extraction, and tourism. Natural resources generate a vital ecosystem of goods and services such as food, climate regulation, coastal protection, and cultural values that support life on the planet and the survival and well-being of people worldwide.
The Sustainable Blue Economy defines as an economy that “provides social and economic benefits for current and future generations; restores, protects and maintains diverse, productive and resilient ecosystems; and is based on clean technologies, renewable energy and circular material flows”. It is an economy based on circularity, collaboration, resilience, opportunity, and inter-dependence. Its growth is driven by investments that reduce carbon emissions and pollution, enhance energy efficiency, harness the power of natural capital and the benefits that these ecosystems provide, and halt the loss of biodiversity.
Some of the most important services provided by the sea are climate regulation, the production of oxygen, as well as natural water purification through the breakdown of nutrients and pollutants. These are the basic prerequisites for life on this planet. However, the combined pressures of climate change, overexploitation, habitat destruction and pollution are leading to dramatic changes and declines in these valuable ecosystem services. Mitigating climate change and adapting to the inevitable changes are critical to maintaining the vital resources and functions of the sea.
As everything is interconnected – from the economy to ecosystems, industry to biodiversity – not only emerging conservation initiatives but also the banking sector, insurers, and investors became increasingly aware that their financial activities have a major impact on the health of the oceans. It is therefore crucial and of great benefit to nature, society, and the global economy that financial flows are directed towards a Sustainable Blue Economy.
aware_: How do we move from green to blue and how can we connect these two movements?
Dr. Steffen Knodt: In 2021, the European Commission integrated the ocean policy into Europe’s new economic policy in order to ensure that the Blue Economy plays a major role in the implementation of the European Green Deal. A Sustainable Blue Economy is thereby essential to achieving the objectives of the European Green Deal – so both movements are already closely tied. The communication starts from the premise that a dualism between environmental protection and economy is of no use today. Hence, it proposes a paradigm shift: from ‘blue growth’ to a ‘Sustainable Blue Economy’. For this shift to happen, economic activities at sea and in coastal areas need to reduce their cumulative impacts on the marine environment and value chains need to transform themselves to contribute to climate neutrality, zero pollution, circular economy and waste prevention, marine biodiversity, coastal resilience and responsible food systems.
The Sustainable Blue Economy Partnership is a co-funded partnership under the EU Framework Programme for Research and Innovation “Horizon Europe 2021–27”. The format is a public initiative with a core group of partners including research and innovation ministries and funding agencies from participating countries. It is based on the Strategic Research and Innovation Agenda, which builds on existing knowledge and new research programs to develop a pan-European and regional strategic framework, involving all stakeholders. The partnership aims to reduce fragmentation by linking existing initiatives to combine and align pan-European, regional, and national investments and socio-political priorities. This should promote a high return on public investment and sustainable economic development. The partnership is expected to make a substantial and measurable contribution to the climate neutrality of the Blue Economy and to the sea-related goals of the European Green Deal and Digital Europe.
aware_: What frameworks are needed to finance a sustainable ocean economy?
Dr. Steffen Knodt: A very relevant framework is the UN 2030 Agenda for Sustainable Development. This agenda is I based on 17 Sustainable Development Goals (SDGs). In this sense, the SDGs are increasingly becoming the market standard and internationally recognized guidelines for impact-oriented investing. While the SDGs were originally intended as targets for nations, they are now more often used as a basis for investment decisions and impact. SDG 14 “Life under Water” is mostly used as a reference for any Blue Economy activity while the objectives of SDG 14 are generally linked to all other 16 SDGs. Therefore, the UN Decade of Ocean Science for Sustainable Development 2021-2030, or in short, the “Ocean Decade” is an outstanding initiative to amplify the efforts to foster SDG 14. It brings together scientists, resource providers, governments, business and industry, philanthropic foundations, UN agencies and many other stakeholders from diverse sectors to generate scientific knowledge and develop the partnerships needed to support a well-functioning, productive, resilient, and sustainable ocean.
Complementary to the Ocean Decade, the Sustainable Blue Economy Finance Initiative created a global community convened by the UN to act as an interface between private finance and the Blue Economy. As key cornerstone of the initiative, the Sustainable Blue Economy Finance Principles were developed in 2021. They are the world’s first global guiding framework for banks, insurers, and investors to finance a Sustainable Blue Economy. The principles promote the implementation of SDG 14, and set out ocean-specific standards, allowing the financial industry to mainstream sustainability of ocean-based sectors.
In addition to the SDGs as a target orientation, one of the most important decision-making factors for the development and promotion of the Sustainable Blue Economy is Marine Spatial Planning (MSP). The MSP is a public process foranalyzing and distributing the spatial and temporal distribution of human activities in marine areas to achieve environmental, economic, and social goals, usually established through a political process.The engagement of private capital is indispensable. Together with public activities and regulatory measures, the implementation of the global goals can become reality.
aware_: What are the main barriers to financing a Sustainable Blue Economy and how can we break them down?
Dr. Steffen Knodt: Within our study we have identified various obstacles and solutions of institutional investing in the Sustainable Blue Economy. First, many of the emerging investment areas are new to investors while at the same time risks and long-term impacts are difficult to assess. Therefore, start focusing on well-known asset classes and instruments like e.g., infrastructure projects or blue bonds. Second, the product markets are still underdeveloped, specialized managers are not yet numerous, market evolution and its risks are still poorly researched. Also, substantial information on impact and sustainability risks is lacking, so called ESG and impact data. So, from our perspective, the first steps should be taken in cooperation with specialized asset managers, companies and focus on clearly definable investments. And thirdly, the screening, monitoring of companies and managers in the private market sector for sustainability, is not yet established among many investors. As a solution, the gradual build-up of in-house and external resources should be done. Finally, also high-quality investment opportunities with track record and sizeare required along with suitable impact measurement and monitoring.
A special aspect of sustainable investment strategies today is also impact measurement, which is also required by regulation This is actually one of the biggest challenges. New procedures, innovative technologies and comprehensive governance guidelines must be implemented at the companies and projects seeking funding. As a solution, cross-industry efforts are needed here. Strategic investors should be aware of the opportunities of a Sustainable Blue Economy and its potential for environmental, social, and economic change. Therefore, the structure of our study focuses on the overall context of marine ecosystems with its key drivers and transforming factors of corresponding industries. Thereby, it highlights the interrelation to potential investment fields, scientific findings, new technologies and transitory changes from the fields of global climate, marine mobility, marine infrastructure, marine resources, and marine conservation.
aware_: What role do Artificial Intelligence, Big Data, Blockchain and other digital technologies play in a Sustainable Blue Economy?
Dr. Steffen Knodt: There are strong signs that the pace of digital innovation is set to accelerate in the ocean economy and in the potential applications of a range of technologies, both for commercial purposes and for gaining a better understanding of marine ecosystems. Throughout the ocean domain, a pervasive spread of such generic technologies as AI, big data, complex digital platforms, blockchain, drones, sophisticated arrays of sensors, small satellites, genetics, and acoustics takes place.
Examples of these technologies include the use of AI and Blockchain technology in monitoring and increasing the efficiency of ship routes, monitoring wind and wave strengths, tracking schools of fish or even lost nets. Drones are used in coastal protection and surveillance of protected areas. Many of these are expected to make an important contribution to the sustainable development of the marine economy, not least by significantly improving data quality, volume, connectivity, and communication from the ocean depths to the surface for further transmission. In the longer term, the widespread deployment of digital technologies has the potential to transform the performance, efficiency, and location of many marine activities, create new activities and contribute significantly to the sustainability of the oceans.
The importance of marine ecosystems for both the global climate and economy cannot be underestimated and is currently being addressed in numerous policy initiatives. However, it is now undisputed that the ocean and its inhabitants are under massive pressure from the effects of human civilization: noise, pollution, and destruction. At the same time, it is becoming increasingly clear that the Blue Economy based on marine resources can no longer be answered in the long term by the massive exploitation of planetary resources. Long-term investors who want to make a significant contribution to climate protection and climate change mitigation should familiarize themselves with existing and emerging investment opportunities in the Sustainable Blue Economy. “New” asset classes such as carbon credits or blue bonds, marine infrastructure projects and innovative technologies not only open up interesting return opportunities, but also hold the potential to achieve a high positive impact on the environment and society.
– by Marie Klimczak