The ocean is a cornerstone of the global economy and a critical source of resources for the world’s growing population. It provides food, jobs and livelihoods to over three billion people, facilitates global trade and creates a home for the nearly 2.4 billion people who live in coastal areas. Before the COVID-19 pandemic, forecasts suggested that the ocean economy could provide economic growth opportunities over the coming decade, creating $3 trillion annually in gross value added by 2030. However, investment into the ocean economy is drastically low. Just 1% of the ocean economy’s total value was invested in sustainable project through philanthropy and official development assistance over the last ten years.
The impacts of climate change, pollution and overfishing put mounting pressure on the ocean, its natural capital and the services it provides. To change this trajectory, it is imperative that capital of all types go toward building ocean resilience and minimizing ocean risks by restoring, protecting and effectively managing how humans use ocean ecosystems. Fundamentally rethinking how humans interact with the ocean — and transforming economic models and market systems accordingly — is a critical step in slowing the decline in ocean health, stopping biodiversity loss and realizing the full economic potential of the ocean. Making additional finance available will be key to doing this effectively and achieving a sustainable ocean economy (SOE).
The Blue Finance Gap
Mounting evidence points to the benefits of investing in the transition to an SOE. Recent research commissioned by the High Level Panel for a Sustainable Ocean Economy (Ocean Panel) shows that investing $1 in key ocean actions can yield at least $5 in global benefits. Ocean-based investments are also one way that policymakers can ensure sustainable and equitable economic recovery from COVID-19. In addition to economic benefits, a sustainable ocean economy provides innumerable non-material value, such as serving as a source of social and cultural identity.
There is also growing awareness that not transitioning to a sustainable ocean economy will come with high costs. For example, unabated climate change could cause coral reef tourism revenue losses of over 90%. Developing countries that rely on reef tourism and fish stocks for jobs and food security will likely experience the worst impacts of this revenue loss.
Despite the immense value in creating an SOE, there is a major financing deficit in the fight to protect biodiversity and, by extension, ensure sustainable use and conservation of ocean resources. A recent report by the Paulson Institute estimated that biodiversity finance faces an average annual shortfall of around $711 billion, ranging from $598 to $824 billion per year. Estimates for ocean-specific biodiversity financing gaps remain tentative, but it is clear that protecting biodiversity will require financial flows toward an SOE.
Barriers to Financing an SOE
Gaps in understanding about how the ocean economy contributes to the wider global economy creates a fundamental financing barrier. Information about the ocean and its economic, social and environmental value is often missing or inadequate. Additionally, many of its services provide value generally not reflected in market prices, leaving investors unaware of the value their investments would have. As a result, more effective understanding and comprehensive measuring of the ocean economy’s contributions would help increase financing.
Another major limitation is the lack of universally adopted definitions, standards and taxonomy on what counts as an SOE investment. Current frameworks and taxonomies on which investments support an SOE do not adequately communicate with each other, do not provide necessary details on standards or metrics and are not yet guided by universally adopted principles. As a result, there’s a lack of clarity, uniformity and harmonization regarding SOE investments. The development of the Sustainable Blue Economy Finance Principle offers promise, as it seeks to guide public and private sector financing of the ocean economy in alignment with SDG 14.
Market distortions further compound these issues. This includes subsidies for ocean economic activities that create negative externalities. Of the around $35 billion in subsidies given to global marine fisheries each year, about $22 billion goes to harmful subsidies that prop up unprofitable, large-scale industrial fishing operations. These harmful subsidies artificially increase profits by reducing the cost of fishing or increasing the revenue received by fishers, leading to overcapacity and, by extension, overfishing. The resulting excessive fishing capacity enables the overexploitation of fisheries and leads to detrimental impacts on small-scale coastal fisheries and the vulnerable coastal populations who rely on them for food and income.
Each of these barriers inhibit necessary levels of financing for an SOE, which jeopardizes the future of biodiversity and ocean-based economic opportunities. However, addressing these barriers to sustainable financing and investment in an SOE could result in real and sustained change in the utilization and management of ocean ecosystems and the services they provide.
Opportunities for Action
A new report commissioned by the Ocean Panel identifies seven key actions to plug the blue finance gap while ensuring equitable distribution of benefits from a sustainable ocean economy.
1. Set up and implement new common guidelines and principles that help define sustainable investments in the ocean economy. If widely adopted, principle-led investment guidelines could help positively transform ocean ecosystem use and management.
2. Strengthen knowledge, data and capacity in ocean health and finance, particularly in developing countries. This will allow decision-making processes and activities to adapt to new knowledge of potential risks, cumulative impacts and opportunities associated with business activities.
3. Create a supportive and inclusive enabling environment. Effective and stable regulatory and policy environments will incentivize investment. Governments and multilateral agencies have critical roles to play in creating attractive financing conditions by reforming policies to deliver more sustainable outcomes.
4. Stimulate the pipeline of investible sustainable projects. Use mechanisms to blend grant funding and concessional finance from philanthropic organizations and development finance institutions with private capital to lower perceived risks and increase returns.
5. Explore new financing mechanisms and tools. These are necessary to scale investments for sustainable, inclusive and climate-resilient ocean activities. It is essential to create innovative mechanisms that bring new forms of finance into the system; are accessible to communities in developing countries, particularly women, youth and marginalized communities; and reduce the exploitation of ocean resources.
6. Develop best practices to incentivize sustainable behavior. While the sustainable ocean economy finance ecosystem develops, immediate action should be taken to avoid financing practices that support illegal and significantly harmful activities, such as illegal fishing and pollution, and instead work toward incentivizing positive behavior.
7. Boost new approaches to insurance. The insurance industry can build upon recommendations derived through research, modelling and data analysis to support only those clients or projects that contribute to a sustainable ocean economy.
Financing a Sustainable Ocean Economy
A healthy ocean that supports an SOE requires interventions to improve governance, science and management. Finance is an important enabler of an SOE and the major driver behind all ocean-based commercial activities. Ensuring a sustainable ocean economy and receiving all the benefits that come with it requires a significant increase in sustainable ocean finance to support healthy ocean.
The most significant action will be to redirect mainstream finance toward more sustainable ocean economy outcomes. Widely adopted and clear principles; guiding frameworks and metrics; and proactive avoidance of financing illegal and harmful activities could redirect billions of dollars toward sustainable development pathways, creating long-term and positive systemic change. To achieve this, both the public and private sectors must agree on common standards; mobilize a full suite of financial tools and approaches, fiscal and market incentives; employ insurance to remove the risk from ocean-benefitting activities and defund harmful activities; and strengthen key aspects of the enabling environment for both sovereign and non-sovereign investments.
The ocean holds immense opportunity for our shared prosperity and a wealth of resources for the billions of people who rely on it. Addressing the barriers to financing a sustainable ocean economy and flowing investments into it will help ensure benefits of the ocean are available to all.
Rashid Sumaila is Professor and Canada Research Chair in Ocean and Fisheries Economics at the University of British Columbia’s Institute for the Oceans and Fisheries and School of Public Policy and Global Affairs.
Melissa Walsh is a Blue Finance Specialist with the Asian Development Bank and also a principal at Marine Conservation Finance Consulting.