Asia Primed for Rare Blue Bond Sales to Fund Sea Protection

(Bloomberg) -- Few places in the world have greater need for a new type of sustainable debt to fund water projects and protect the oceans than Asia, with its more than 100,000 kilometers of coastline.

While so-called “blue bonds” are relatively rare, that’s about to change as more Asia-Pacific nations set their sights on improving the sustainability of water resources and marine life, according to BNP Paribas Asset Management.

“I’d expect to see more focus on ecosystem restoration and preservation, which could result in more sustainability bond issuance focusing on the blue economy, water and waste,” according to Gabriel Wilson-Otto, global head of sustainability research at BNP Paribas AM in Hong Kong.

While the Seychelles sold the world’s first sovereign blue bond in 2018, just a handful of borrowers have followed suit, led by Asia. A China issuer completed the first dual-currency blue deal in the offshore market in September, the first of its kind in the region.

Bank of China Ltd.’s Paris and Macau branches issued a $500 million three-year note and a 3 billion yuan ($464 million) two-year note to help finance marine-related projects. Spreads on the bank’s dollar bond tightened about 26 basis points since being sold, outperforming the broader market of Chinese investment-grade bonds, where average spreads narrowed around 23 basis points, according to Bloomberg-compiled data.

In November, Industrial Bank Co.’s Hong Kong branch sold a similar $450 million bond.

Australia may join the blue list. Pollination Group, a climate change advisory and investment firm, is working with private issuers including banks to launch a corporate blue bond with proceeds funding ocean-based biodiversity projects, according to Martijn Wilder, a co-founding partner at the firm. These could produce “blue carbon credits” which can be sold to the Australian government’s carbon-offset program, he said.

“Blue carbon is one of five priority methods being developed in 2021 under an accelerated work program,” said a spokesperson for Angus Taylor, Australia’s federal minister for energy and emissions reduction. More than 88 million metric tons of abatement has been credited under methodologies developed by the government there, he added.

“More blue bonds would be useful,” said Rhys Petheram, head of environmental solutions at Jupiter Asset Management, noting Australia could issue a security to protect the Great Barrier Reef. “It’s an area of investing that’s hard to access otherwise.”

Global sales of green bonds have risen dramatically over the past five years, with some $233 billion sold in 2020, up nearly 13% over the previous year, according to data compiled by Bloomberg. That’s been accompanied by a clutch of new securities sold or in the works, such as carbon neutral, transition, nature and sustainability bonds.

While the rise of these labels is a global phenomenon, the defining characteristic in Asia is the focus on local sustainability challenges, according to Wilson-Otto. That includes the blue economy -- clean oceans, sustainable fishing and plastic waste, water, and creating sustainable cities with better transit and affordable housing, he added.

The Asian Development Bank aims to promote blue-bond issuance through its Oceans Financing Initiative, which will expand its investments and assistance in the “blue economy” to $5 billion by 2024. The initiative also plans to facilitate revenue guarantees to reduce investor risk.

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