Blue Bonds: Making a splash in the Capital Markets

What is a “Blue Bond”?

Blue bonds are use-of-proceeds bonds which finance marine and ocean-based projects. Blue bonds can be considered a sub-type of green or ESG bonds, functioning in the same way as a conventional bond. For a bond to be labelled “blue”, the project that is funded should be consistent with the project categories of the International Capital Markets Association’s (ICMA) Green Bond Principles (the GBPs). Blue bonds must also contribute to particular Sustainable Development Goals (SDGs). SDGs are global goals adopted by the United Nations in 2015. These goals set out the steps that should be taken globally in order to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030. There are a total of 17 SDGs, and each of them set out targets to meet the relevant goal. Investors typically view blue bonds as contributing to SDG 6 (clean water and sanitation) or SDG 14 (life below water).

Blue bond issuers are typically sovereign entities, financial institutions, multilateral development banks, corporations and municipalities, reflecting the nature of these instruments. Investors in blue bonds generally include a diverse range of profiles, from high-net-worth individuals to venture capital firms and investment banks. They enable issuers to expand and diversify their investor base while gaining reputational advantages from supporting sustainable development initiatives.

The guidance provided by ICMA on launching a blue bond is an extension of its pre-existing global market standards in respect of ESG instruments. These standards include the GBPs, the ICMA Social Bond Principles, the ICMA Sustainability Bond Guidelines and the ICMA Sustainability-linked Bond Principles. Although ICMA has produced specific blue bond guidance² , it is important to note that the existing ICMA guidance for ESG instruments also applies to blue bonds.

The GBPs recognise blue bonds, stating that green bonds that finance 100 per cent. of “blue projects” can be labelled as a “blue bond” by an issuer. As such, blue bonds are also green bonds as long as they contain the four core principles of an ESG bond, as laid out in the GBPs: use of proceeds, process for project evaluation and selection, management of proceeds, and reporting.

Practical Steps to Issue a Blue Bond

The United Nations recommends that issuers take three key steps in order to issue a blue bond³. First, issuers need to ensure that their proposed issuance of blue bonds align with existing global standards, as well as with existing blue bond-specific guidance, such as the GBPs.

Secondly, issuers must develop a framework that sets a “blue baseline”, setting out clear targets and regularly disclosing sustainability performance metrics. The framework should make it clear that the purpose of the bond is to contribute to one or more of the SDGs (particularly SDG 6 and 14) by financing ocean-related projects. The baseline must be consistent with the relevant SDGs, and should also consider the UN’s Sustainable Ocean Principles.

The framework should also set out key performance indicators (KPIs) that are measurable and auditable. These KPIs should have positive targets which contribute to the relevant SDG and set a blue criteria that is guided by the critical ambitions as set out in the Ocean Stewardship 2030 report, a United Nations report which provides a roadmap for how both ocean-related industries and policymakers can secure a healthy and productive ocean by 2030. The report sets out five tipping points to achieve this: sustainable and fully traceable seafood, decarbonised shipping, harnessing ocean energy, mapping the ocean and ending waste entering the ocean. For each of these tipping points, the report sets out two ambitions to address what can be done to accelerate these solutions.

Finally, like most other ESG issuances, best practice suggests that an issuer should obtain a second party opinion to be provided in respect of its framework.

Types of projects

Generally, the proceeds raised in the issuance of blue bonds are best suited to large-scale infrastructure projects, such as maritime transportation and marine renewable energy. However, a bond for which the proceeds are invested in any project relating to the blue environment can be labelled as “blue”. Recent examples of projects that have been financed by way of an issuance of blue bonds are as follows:

• investments in coastal ecotourism projects (Ørsted, June 2023);
• sustainable energy (including offshore wind, wave and tidal) projects;
• investment in sustainable maritime transport projects (Mitsui O.S.K. Lines, January 2024);
• investment in sustainable marine fisheries management, sustainable aquaculture operations and seafood supply chain sustainability projects (Indonesia, May 2023);
• investment in clean water and waste water management projects (Nordic Investment Bank, January 2019); and
• investment in port infrastructure and projects that prevent marine pollution (DP World, December 2024).

Debt-for-nature Swaps

When issuing sovereign blue bonds, two potential formats can be considered. The first is a regular use-of-proceeds bond issuance, as described above. The second format is a debt-for-nature swap structure. Debt-for-nature swaps are a financial instrument through which a developing country’s external debt is forgiven or reduced in exchange for local environmental conservation measures. This ensures that the relevant country can take action to protect nature, whilst still being able to focus on other budgetary priorities, such as social and economic factors. Thus far, debt-for-nature swap structures have been utilised by Seychelles, Indonesia, Colombia, Gabon, Belize and Barbados, and have been facilitated by The Nature Conservancy to finance blue projects.

The general process for debt-for-nature swaps involves sovereign debt being raised by the government that is used to refinance and restructure debt. Creditors then hold the newly issued sovereign blue bonds in place of their previously held sovereign debt. In return for providing debt relief, the government agrees to set aside a portion of the debt savings for marine conservation efforts.

Although these can be beneficial for investors, borrowers and the ocean, the debt-for-nature swap structure is far more complex than that of the traditional use-of-proceeds blue bond structure, making it more expensive to implement.

Market Predictions and Conclusions

As climate change becomes an increasingly pressing global matter, there is more demand for sustainable solutions, it is realistic to expect that blue bonds will become an effective way for issuers and investors alike to contribute to solving this issue. Out of all of the UN’s SDGs, SDG 14 (life below water) is the least funded to date⁴. Blue bonds are increasingly seen as a way of addressing this.

Despite growing concerns over greenwashing, issuances of blue bonds have increased in momentum significantly since the first blue bond was issued in 2018. According to the International Finance Corporation, the blue economy is expected to double in size to U.S.$3 trillion by 2030, creating 40 million jobs and making the blue economy the eighth largest economy in the world, with an asset value estimated at US$24 trillion.⁵

With the urgency of the climate crisis, sustainable solutions within the marine industry need funding to be properly implemented. Blue bonds are seen as a way of facilitating this; an innovative method of financing projects that provides economic, social and environmental benefits to all stakeholders.

Senior Apprentice, Sienna Feshias also contributed to this article.