Sustainable finances | 7 October, 2020

What are blue bonds?

Joaquín González Portfolio Manager

BBVA adheres to the United Nations Principles for Responsible Banking

BBVA joined in launching the Principles for Responsible Banking at the United Nations Environment Programme Finance Initiative (UNEP FI) global roundtable in Paris.

Today, most of the financial world knows what green bonds are, but it is still unknown what blue bonds are. So, what are blue bonds?

Blue bonds and the blue economy

We know that 70% of the planet is ocean and that 90% of international trade is represented by maritime transport, according to data provided by the United Nations.

However, and despite the importance of the so-called blue economy, the effects of climate change and human action are seriously impacting the biodiversity of the oceans, which absorb around 30% of the carbon dioxide we produce.

If the oceans were an economy, the sum of these would be the seventh largest economy in the world, representing 2.5% of world GDP.

Hence, the emergence of so-called blue bonds. These aim to preserve and protect the oceans. Experts predict growth for these bonds similar to that experienced by green bonds in their early years. The World Bank itself has been involved in issuing blue bonds, as it did at the time with green bonds.

The first blue bond issue

The first blue bond programme in the world was the Seychelles Sovereign Blue Bond.

The objective of this initiative is to save the 115 islands of the Seychelles that are flanked by coral (90% of the coral reefs in the world will be in danger of extinction by 2030, according to data from the Pacto Mundial de Naciones Unidas). This issue had the help of investors such as the World Bank and its Global Environment Facility.

How do blue bonds work?

The Nature Conservancy brings together the World Bank, investors, the coastal nation and public donors to negotiate the debt-for-seas swap deal. Through this initiative, a country’s government undertakes to protect at least 30% of marine areas near the coast, including the coral reefs, mangroves and other important habitats.

In exchange, these countries can restructure their sovereign debt, which leads to lower interest rates and longer payment periods. That saved money goes into a trust fund that pays for conserving marine protected areas and promoting fisheries and other sectors of the nation’s blue economy.

 

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