A combination of climate change, overfishing and pollution is pushing the planet’s vibrant oceans to the brink of collapse. Climate change is particularly damaging the oceans in Latin America and the Caribbean, where many economies and the livelihoods of millions of people are closely linked to the sea.
The sea accounts for 60% of the territory in 22 countries in the region, with a coastline stretching for more than 70,000 km. In Latin America alone, 25% of the population lives in coastal areas, and in the Caribbean it is almost 100%.
The looming ocean crisis will be a central focus of COP28 discussions taking place in Dubai at the end of November, where world leaders will seek to deploy an arsenal of initiatives to address the challenge of climate change. One of the pillars of this effort is likely to be a new range of financial instruments, including blue bonds and blue loans, which have already taken initial steps in the region and hold enormous potential in the fight against climate change.
These instruments raise funds for water-related projects such as maintaining access to clean water, wastewater treatment plants, plastic recycling, marine ecosystem restoration, sustainable shipping, ecotourism and offshore renewable energy.
In Brazil, Chile, Mexico and Peru, the blue financial market is estimated to be more than $7 billion (mdd). Opportunities include increasing recycling in Brazil, which would reduce the 830,000 tons of plastic that end up in the marine environment each year, sickening fish and potentially people.
Likewise, investments in sustainable salmon production in Chile represent an investment potential of $5 billion and could help increase the sector’s income, boost exports and support local jobs while protecting natural resources.
Jay Dickman (Getty Images)
Some countries are already paving the way for the development of blue finance in the region. This is, for example, Ecuador, where Banco Internacional became the first bank in the region to issue blue bonds in 2022. The issuance, backed by the International Finance Corporation (IFC), could be a benchmark in a country that is home to the largest fleet of small-scale artisanal fisheries in the southeastern Pacific and also has huge growth potential in the blue economy. The Ecuadorian fishing sector contributes around 1.5% of the country’s gross domestic product and 13% of its non-oil exports, employing 108,000 people.
Since 2020, IFC has issued more than $1.3 billion in loans and blue bonds to financial institutions and private sector companies. In Colombia, one of the five most diverse countries on the planet, BBVA, with the support of IFC, was the first financial institution in the country to issue blue bonds. This is an initial tranche of $50 million intended to finance projects to build water and wastewater treatment plants, conserve the oceans and protect lakes, peatlands and mangroves.
In the middle of last year, the IFC granted a $150 million loan to Companhia de Saneamento Básico do Estado de São Paulo (SABESP), one of the largest water and sanitation companies in the world. The impact of the loan is enormous as it will be used to finance investments aimed at improving water quality and expanding wastewater collection and treatment in São Paulo’s poorest neighborhoods.
Despite these cases, there are still many tasks to be completed for Blue Finance to gain a foothold in the region. For example, it is crucial to develop properly defined taxonomies, certifications and standards so that blue finance becomes tools that meet its impact expectations. The Blue Finance Guidelines, a document developed by the IFC that establishes eligibility criteria for blue projects, aims precisely to translate the general principles of financing the blue economy into guidelines for the issuance of blue bonds and blue loans.
This story is not only an opportunity for growth, but also a commitment to protecting our environment. Investments in the blue economy, supported by strong financial institutions and regulations, can make a difference in protecting our oceans and combating climate change.
According to an estimate by the Organization for Economic Cooperation and Development (OECD), the blue economy accounts for about 2.5% of global GDP. Likewise, its scope can lead to a significant change in problems such as the scarcity of fresh water or the use of renewable energy, thus promoting a better quality of life for people living connected to the sea.
The blue economy has already demonstrated its potential, in some cases bringing tangible benefits such as decarbonizing maritime transport in Brazil, supporting sustainable tourism in Chile, protecting marine biodiversity in the Eastern Caribbean and on the Galapagos Islands as well as coral restoration in Belize and species conservation in Mar del Plata in Argentina, to name a few.
Humpback whale (Megaptera novaeangliae) in Puerto López, Ecuador. Source: Shutterstock.Shutterstock
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Without private innovation there is no sustainable horizon
Efforts to combat climate change will not succeed without a massive increase in private capital for developing countries, which account for more than 60% of global decarbonization investment needs. According to its annual report (Building a Better Future), the IFC has committed a record global amount of $14.4 billion to climate finance by 2023. From July 1, 2023, 85% of all new IFC investments will be in line with the goals of the Paris Agreement, increasing to 100% on July 1, 2025, meaning that climate change mitigation and adaptation will be integrated into all investment decisions. Mere financing is not enough: innovation also plays a fundamental role, especially in protecting the planet’s carbon reserves. In the area of blue finance, for example, the IFC published a study this year that identifies opportunities to finance projects that help protect the carbon stored in the world’s coastal ecosystems. In Latin America and the Caribbean, protecting so-called blue carbon – that is, the carbon stored in the form of biomass and sediments in coastal ecosystems – will be one of the main areas to be explored for blue finance in the coming years.