How blue bonds promise to boost Latin America’s economy



* This article was originally published by Fair observer

Craig Dempesey | The recent issuance of Latin America’s first blue bond could be a milestone. The region should benefit from this nascent financial mechanism to protect water sources and create opportunities for the populations living nearby.

Announced at the UN climate summit in Glasgow, the fixed-rate bond issued by the Inter-American Development Bank (IDB) will generate $ 37 million to help finance projects aimed at increase access to drinking water in Latin America. This aims to help the region achieve the United Nations Sustainable Development Goal 6 – “Ensure access to water and sanitation for all” – one of the 17 interconnected goals established to promote a better future. sustainable in the world.

According to the IDB, around a quarter of Latin America’s population lives near the region’s 40,000 kilometers of coastline. This means that a program designed to raise funds to protect water sources while generating investments and opportunities in these areas is likely to have a transformative impact.

Although it has not been specified exactly where the funds raised are intended, many countries in Latin America and the Caribbean could benefit substantially from the expansion of blue bonds – whose first in the world was only issued in 2018. They also promise to be an important source of funds for investors doing business in Latin America or interested in entering the region.

How did the blue bonds come about?

The concept of blue bonds is closely related to green bonds, a more established type of fixed rate bonds used to generate funds to promote general environmental protection.

The first green bond was issued by the World Bank in 2008. Less than 15 years later, more than $ 312 billion has been generated from the issuance of these bonds. The concept of blue bonds was developed based on the success of the previous system, and in 2018, Seychelles became the first country to issue a sovereign blue bond. The bond offered 6.5% annual interest over a 10-year period and raised $ 15 million to support the island nation’s blue economy.

With the tourism and fishing sectors being two of the largest employers in Seychelles, boosting the blue economy is essential for its future prosperity.. The blue economy is associated with any type of economic activity linked and dependent on oceans and waterways. This can mean activities dependent on the presence of healthy waters, such as fishing, as well as energy production or other initiatives to promote sustainable and productive use of water resources.

According to a high-level report released in December 2020, the blue economy generates 2.5 trillion dollars worldwide each year, while the total value of assets in the world’s oceans is estimated at $ 24 trillion. This makes the protection of the oceans an urgent issue and for which the blue bonds represent a major tool for the international community.

Where could the blue bond funds be spent?

The possibilities for spending the funds raised through blue bonds are vast. However, some of the following areas will be preferred for investment.

Renewable energy: The world is moving more and more towards sustainable and renewable energy supplies, and the oceans represent a major resource for the production of electricity through offshore wind farms and tidal energy.

While Chile is well known for having a considerable capacity for wind power at sea, countries like Argentina, Brazil, Colombia and Mexico – with their vast coasts and large coastal populations – stand to benefit from the development of these technologies.

Sustainability programs: According to one estimate, every dollar invested in ocean protection brings in $ 5 in profits, underscoring the financial effectiveness of protecting oceans and water sources. This may include the protection of mangrove habitats, increase the production of wind energy at sea, promote decarbonization in the shipping industry and increase the sustainable production of proteins of ocean origin.

Maritime industry: According to the Development Bank of Latin America, the region’s maritime and port industry needs around $ 55 billion in investment over the next two decades in order to significantly improve competitiveness. Much of this is needed in Brazil, Mexico, and Panama.

Given that maritime transport accounts for around 18 to 30% of the global production of nitrogen oxides and that approximately 70% of ship emissions occur within a radius of 400 kilometers of land, it will be imperative to approach this development with sustainability in mind through the promotion of decarbonization.

Tourism: With tourism providing around 16 million jobs in Latin America and the Caribbean and generating nearly $ 350 billion annually, the sector is of great importance to the region’s economy. Ecotourism has grown considerably in recent decades, with countries like Costa Rica attracting millions of visitors and generating significant revenues through innovative programs to protect and restore the environment.

As efforts to protect the oceans are intensified and promoted, they can be expected to attract the interest of tourists, with countries like Argentina, Brazil, Chile, Colombia , Mexico and Peru which will benefit considerably.

How long before the blue bonds start to have an effect?

While this is still in its early stages, given the pace at which green bonds have been adopted and the amount of funds they have generated, it can be expected that Blue bond issuance will begin to accelerate significantly globally.

Already, they are garnering considerable interest in Asia, with the Thai government exploring them as a possible tool to promote protection of its critical blue economy. During this time, earlier this year, the Asian Development Bank issued its first blue bonds, raising more than $ 300 million in funding to devote to ocean-related projects in the Asia-Pacific region.

This could prove to be a powerful example for Latin America, which, like much of Asia, is home to emerging economies that are major producers of primary products and for which the oceans are of economic importance. crucial. While the ball is now on for large financial institutions issuing blue bonds, it can be expected that their positive impact will soon be felt in a significant way, which should inspire the expansion of this financial mechanism.

The future prosperity of Latin America and the Caribbean will be closely linked to the preservation and efficient use of its water resources, as well as to the development of sustainable solutions to current and emerging challenges. To this end, the Blue Bonds promise to be a major tool for generating income and promoting a more sustainable future for the region.

* This article was originally published by Fair observer


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