Wall Street is showing an ever-growing appetite to finance solutions for issues like plastic waste, and blue bonds that fund marine conservation are among its newest approaches. How can investors position for the next wave of sustainable investing?
This interview was shortened for clarity—read and download the full Q&A here.
As investors show growing interest in committing capital to solve environmental challenges, blue bonds have emerged as the latest financing instrument to protect the world’s oceans and the economies that rely on their health.
Navindu Katugampola, Head of Green, Social and Sustainability Bonds at Morgan Stanley’s Global Capital Markets, spoke with Matthew Slovik, Head of Global Sustainable Finance, to explain this new credit asset and how it can help boost the burgeoning market of sustainable investing.
Matthew Slovik: Navindu, green bonds have steadily grown across the global market in the past decade, but we understand that blue bonds are starting to break ground as well. What can you tell us about them?
Blue bonds are a relatively new type of sustainability bond that finances projects related to ocean conservation.
Navindu Katugampola: Blue bonds are a relatively new type of sustainability bond that finances projects related to ocean conservation. Like green bonds, blue bonds operate similarly to other debt instruments by providing capital to issuers who repay the debt with interest over time. The main difference is that blue bonds dedicate the use of proceeds to marine projects, such as promoting biodiversity and supporting economies reliant upon healthy and sustainable fisheries.
They gained attention in October 2018, after the World Bank facilitated a bond agreement to offload a small portion of the Republic of Seychelles’ debt in exchange for marine protection. It served the dual purpose of stabilizing the country’s credit rating and investing in its economy, which is closely tied to the ocean.
Slovik: What’s suddenly driving so much interest in blue bonds?
Katugampola: As the Seychelles’ blue bond demonstrated, this is not purely an environmental issue; it’s an economic one. In part, the broader emergence of aligning business practices with the United Nations Sustainable Development Goals has catalyzed this conversation.
Blue bonds are emerging as an instrument to finance solutions at scale. Ocean plastic pollution is a tangible issue for investors and consumers alike—and one that is solvable. Investors have taken notice, and are seeking new ways to generate economically competitive solutions.
Slovik: Morgan Stanley is committed to advancing sustainability goals through the mobilization of capital. In April, we launched the Plastic Waste Resolution to prevent, reduce and remove 50 million metric tons of plastic waste by 2030. How is our Global Capital Markets group contributing to the effort? Can you give an example of a blue bond the firm has participated in?
Katugampola: Earlier this year, Morgan Stanley served as sole underwriter of a World Bank blue bond. The $10 million in proceeds focused attention on plastic waste reduction efforts in oceans and promoting marine resources, including scientific research, policy, regulatory reform and cross-sector collaboration in developing countries. The bond helps to highlight the growing need to protect the world’s oceans and the economies that rely upon their health and resilience. This issuance is part of a larger, thematic bond initiative from the World Bank to support the United Nations Sustainable Development Goals.
Sustainable investing assets now total more than $30 trillion globally—up 34% over the past two years.
Slovik: Where do blue bonds go from here?
Katugampola: We’ve seen significant progress across the sustainable investing spectrum in recent years. It’s no longer viewed as the niche market it once was. Sustainable investing assets now total more than $30 trillion globally—up 34% over the past two years.1 In the U.S. alone, 1-in-4 dollars—or $12 trillion—is sustainably invested.2 In 2016, the Paris Agreement heightened interest in green bonds; in the years since, we’ve seen a spike in companies, municipalities, sovereigns and banks issuing green bonds.
It’s too early to tell whether the blue-bond market will grow with the speed of green bonds, or if current interest will, in fact, spur future investment. However, the momentum seems high.
In May, the Asian Development Bank (ADB) committed $5 billion over the next five years to promoting more sustainable oceans through the Action Plan for Healthy Oceans and Sustainable Blue Economies.3 This commitment stands to infuse even more funding into a topic already atop public consciousness, and seeks to accelerate such investments by coupling technical assistance grants and funding with private capital through instruments like blue bonds.
Global Sustainable Bond Issuance
However, a great deal of uncertainty remains around how such approaches fit within a larger investment strategy. Even with 180 nations recently agreeing to a UN accord on plastic waste, it’s unlikely that any one event will trigger an uptick in demand for blue bonds, as the number of offerings remains, at the moment, very limited.
Given the existing framework for green, sustainable and social bonds, the lag time between scale-up and wider adoption could conceivably be shorter. Still, it’s reasonable to expect that blue bonds will encounter some of the early hurdles green bonds faced. If these instruments are to gain traction, developing standards, measuring data and sharing success stories will be critical. Thinking broadly about the adoption and application of blue bonds can direct the forces of the private sector and, in turn, better aid the oceans we share.
Learn about the Morgan Stanley Plastic Waste Resolution, the firm’s commitment to address the growing challenge of plastic waste by developing systemic solutions. Announced in April 2019, the initiative aims to prevent, reduce and remove 50 million metric tons of plastic waste from entering rivers, oceans, landscapes and landfills by 2030, through the speed, scale and innovation of capital markets, and by partnering with our clients, employees and non-profit organizations.
Discover more about Morgan Stanley’s Institute for Sustainable Investing and Investing With Impact, and hear insights on The Power of Sustainable Investing in this Morgan Stanley Minute.