Mobilising Capital for the Oceans: The New Frontier in Natural Infrastructure Investment
What are the risks and barriers to investing in oceans? How can we scale blue investment products? Rare, the Blended Finance Taskforce, and the Inter-American Development Bank co-hosted a roundtable during the World Bank/IMF Spring Meetings in April 2019 to explore these questions and identify pathways for action with leaders from the investor, development finance and NGO community.
This article provides a summary of key discussion points covered during the roundtable, as well as a call to action as we invite others to join the preparations for the next meeting on this topic, which will take place in the fall, again alongside the World Bank/IMF Meetings.
Key Discussion Topics
The growing interest in blue finance is an opportunity for the international community to accelerate action and investment into the ocean economy. To do so, we need to mainstream ocean investment by: (a) demonstrating this as a real economic opportunity, not an issue to be left to conservation NGOs or the philanthropic community; (b) developing a bankable pipeline of projects with sustainable revenue streams; and (c) getting the financing right, which will require innovative partnerships across the development capital and investment community.
We need to better demonstrate that there are growing economic opportunities in the ocean sector ranging from sustainable fisheries, to coastal infrastructure, ecotourism, blue carbon, and reducing plastics, as well as medicinal and nutraceutical applications, which investors can add to their portfolios. To make these investments economically viable, we must work together to mitigate risk (e.g. technology or country risk) in the investment structure and provide market ready, scalable product offerings for the oceans. We should aim for the ocean economy to “copy clean energy,” taking a similar journey to the renewables sector to create a vibrant, viable asset class of more sustainable investments.
During the roundtable, participants discussed ways to reduce risk and create a roadmap to bring investable opportunities to market. Examples included:
- Aggregating and structuring funds to meet capital and regulatory requirements of host governments and investors.
- Bringing asset managers to the table early to understand various investor needs.
- Using guarantees as tools to mitigate entry and exit risks for investors.
- Reducing the time frame to bring new products to market by sharing lessons learned and developing innovative partnerships.
There is a need to create more scalable, bankable projects and opportunities. There is a lack of investable and scalable projects in the ocean sector to help deliver on the Sustainable Development Goals and achieve global climate targets under the Paris Agreement by 2030.
Although investors are drawn towards more “traditional” sectors (e.g. clean energy) and capital market products that deliver market rate returns, we are seeing a growing recognition from investors that the ocean is a market opportunity and there is a credible pipeline of projects and early stage ventures slowly emerging. Nevertheless, it can be difficult for first-time ocean funds to raise capital because they do not have a track record and investors like successful proof points. To build the market, we need to accelerate the development of new projects, ventures, and first-time funds – this is where philanthropic capital can be particularly catalytic. Various risk mitigation tools, such as guarantees, can also help overcome barriers to investment and provide access to the ocean sector for more mainstream players.
Greater standardisation will drive a larger supply of products and market issuances. There are a number of actors currently operating in the blue economy, developing financing blueprints to define eligible blue investment categories, and piloting investable products that show positive return and impact on ocean resources.
Challenges for these innovators include a lack of data, up-front transaction costs, and the internal capacity required to bring financial products to the market. Standardisation of due diligence processes and best practices can help to accelerate mainstreaming of scalable ocean products. Improved data will be critical to help value conservation better and calculate risk. Most importantly, platforms and investors working on these issues need to work together to identify synergies and share lessons learned to amplify impact, develop best practices, and avoid duplication.
Early engagement with the private sector will help develop the right financial products for the blue economy and capture new synergies. By bringing investors into the process early, we can understand what they need – by understanding how the money moves and what regulatory requirements exist, we can unlock capital in a more scaled and systemic way. Engaging private sector players working in “ocean relevant” countries can create new opportunities which were not immediately obvious. There will naturally be a learning curve when engaging new players, who will need help to better understand blue investment criteria - which is where clear guidelines and definitions will help. We need to work with new investors to aggregate assets and create structures that meet the capital market requirements to tap large scale investment.
Ultimately, working more closely with private sector players at an earlier stage in the transaction process will be critical to scale and develop the market, replicate existing transactions, and access new pools of capital.
Ocean products must be context-appropriate. Participants discussed how the demand side for investment into blue projects at the local level is as important as the supply of funds from commercial capital. Communities must be able to absorb capital and deliver on the impact in marine resources, and simultaneously generate revenue that provides the investment returns.
The government can be a critical player for larger scale ocean projects. Strengthening capacity on the ground and engaging forward-leaning political leaders (potentially in partnership with development banks) should aim to reduce transaction times and integrate the oceans agenda into ambitious national planning strategies for economic development, climate, the environment, waste management, innovation, and gender equality.
Partnerships among diverse stakeholders is essential for success. In order to scale and replicate solutions across geographies to achieve measurable impact, governments, development banks, philanthropy, NGOs, investors, and corporations/businesses need to work together. Increased coordination and innovative partnerships on ocean-relevant transactions will lead to improved governance, new business models, cross-sector synergies, optimal forms of risk sharing and more efficient financing structures, creating an environment for more investable products.
The Way Forward
Participants were asked to consider taking the following actions as we prepare for the next gathering, which will take place alongside the next World Bank/IMF meetings in October 2019 in Washington, DC.
Take a lead on actionable solutions. We welcome your input on the subject matter and format for the next meeting to ensure these sessions drive tangible, high impact outcomes. Please reach out to us and send your suggestions by July 2019.
Share your ideas and experiences. We aim to create an open environment where we can discuss what’s working, what’s not, and lessons learned. We welcome case studies that can be shared with the wider group and encourage you to connect with roundtable participants, as well as with Rare, the IDB and the Blended Finance Taskforce to become more closely involved in their ocean investments and initiatives.
Engage the non-converted. We need to frame the oceans as an investment opportunity and bring new partners to the table. We welcome suggestions for how to reach new audiences through other platforms for this agenda.
We welcome your contributions and look forward to further collaboration.