27-09-2023 15:45

'Blue bonds': New ICMA guidance aims to bolster credibility and activity

Blue bonds offer a financial mechanism to address pressing challenges relating to marine conservation and sustainable resource management. Practitioner’s guidance recently published by ICMA aims to support issuers, investors and underwriters interested in “blue” formats in order to catalyse investment in the sustainable marine economy.
Two people swimming in front of windmills

In an era fast becoming defined by environmental challenges, we must become increasingly diligent and targeted in our search for solutions. Where financing these solutions is concerned, particularly in the form of debt financing, this often requires the creation of clear guidelines and standards in order to direct funds towards appropriate projects, and to ensure adequate follow-up and transparency. With the aim of unlocking finance to support a sustainable ocean economy, ICMA released new such guidance on blue-themed bonds in September 2023.

The importance of marine ecosystems

As our oceans face mounting threats from overfishing, resource extraction, pollution and climate change, the need to safeguard these vital ecosystems has never been more pressing. Data from the World Wildlife Fund reveals that the current state of ocean health is already regrettably poor, with marine species populations having declined by nearly 50% since 1970, and that more than 90% of the world’s fish stocks are either overfished or fully exploited. Further, it is not only ocean life that is impacted by the declining health of our marine ecosystems. Covering 70% of our planet, these ecosystems play an irreplaceable role in regulating the Earth’s climate. In addition to regulating patterns in our climate through their currents and moisture exchange, the oceans have absorbed over 90% of excess heat generated by human-induced climate change since the 1970’s, according to the IPCC.

Human systems and ecosystem services affected (positively, negatively or both) by the impact of climate change and warming oceans, by marine area:

Source: IPCC Special Report on the Ocean and Cryosphere1 in a Changing Climate (SROCC)

The human and economic impact, and funding opportunity

Beyond climate and ecosystems, there is a clear documented human and economic impact from declining ocean health. According to a report by the United Nations, over 3 billion people worldwide depend on marine and costal biodiversity for their livelihoods, making the preservation of these ecosystems not only an ecological necessity but a social and economic imperative.

The opportunity for funding, and more importantly protecting, a currently underfunded and overexploited  sustainable ocean economy is clear. Ocean trade alone is estimated to be worth $2.5 trillion a year and the full potential of the marine economy, including currently untapped areas such as ecosystem services, is estimated to be worth at least $24 trillion. Aiming to draw sustainability-aligned funding from the global financial market’s largest asset class, blue bonds have the potential to pull investments towards sustainable marine activities and to kickstart initiatives that will benefit ocean ecosystems and societies that rely upon them.

What is a blue bond?

Similar to green bonds, blue bonds are a use-of-proceeds format, meaning that money from the bonds is explicitly earmarked for financing activities that fall under pre-defined categories deemed beneficial for the development of a sustainable marine economy. Such bonds serve the function of connecting investors seeking “blue” investments with issuers in need of funding for projects considered beneficial to ocean or marine environments.

Central to the issuance of a blue bond, eligible projects for financing must be identified. In line with the existing Green Bond Principles criteria, blue bond projects must fall within one of the five categories in order to be considered eligible:

  1. Climate change mitigation
  2. Climate change adaptation
  3. Natural resource conservation
  4. Biodiversity conservation
  5. Pollution prevention and control

These categories are rather broad, as they predate the latest blue bond guidance and are applicable elsewhere. ICMA has therefore identified an indicative list of blue project categories and sub-categories to aid issuers in the identification of suitable projects. While further detail is provided directly in the guidance, the following list serves as an indication of project types that are expected to be commonly supported by the blue bond market and align with observed best practices:

  • Coastal climate adaptation and resilience
  • Marine ecosystem management, conservation, and restoration
  • Sustainable coastal and marine tourism
  • Sustainable marine value chains
  • Marine renewable energy
  • Marine pollution
  • Sustainable ports
  • Sustainable marine transport

While there is some room for interpretation as to precisely what each category encompasses, some activities have been explicitly excluded from funding via “blue” formats. “Non-renewable extractive industries” have been excluded from ICMA’s definition of “sustainable blue economy,” thereby locking activities such as deep-sea mining, dredging and any offshore oil and gas out of eligible use categories.

What has the blue bond market looked like so far?

Blue bonds are relevant across a range of issuers, including sovereigns and sub-sovereign agencies, multilateral development banks and other financial institutions, and large and medium-sized companies. The distribution of the relatively small blue bond market has been somewhat evenly distributed across issuer type since inception. Despite not entering the market until 2020, FIG issuers have been the most prominent overall, with a cumulative volume of just over USD 2bn.

Blue bond volume by issuer type (2018 – 2023 YTD)

Source: EF Data

In a reversal of the usual trends seen in sustainable finance, EMEA is lagging other regions significantly in terms blue bond issuance, with only 2% of cumulative volume since 2018. Emerging economies have so far been the champions of blue bonds, taking a significant share of total issuance. It remains to be seen how this trend will continue over time, with ICMA’s new guidance having the potential to reassure European investors of the credibility of blue bonds, and point European issuers towards the successful identification of eligible projects. Notably, the latest guidance by ICMA focusses primarily on ocean-based marine ecosystems, rather than freshwater-based projects such as those seen commonly in Brazil, for example, relating to access to clean water and sanitation.

Total blue bond volume per region (2018 – 2023 YTD)

Source: EF data

ICMA guidance for the use of bonds for financing the sustainable blue economy

New guidance on “blue-themed bonds” published by ICMA in September 2023 provides a broad range of support to market participants, including specific criteria as well as examples of blue bond-related lending and issuances. The publication is grounded in alignment and best practice, having been built upon existing standards and market practices, including both instrument-specific guidance such as ICMA’s Green Bond Principles and marine economy-specific guidance such as UNEP FI’s Sustainable Blue Economy Finance Principles and associated Blue Finance Guidance

Benefits of the voluntary guidance

According to ICMA, the guidance is suitable for broad use across the market and is specifically designed to facilitate the following: 

  • Define blue economy typology and eligibility criteria
  • Suggest key performance indicators
  • Showcase latest case studies from the field
  • Highlight the critical need for increased financing to achieve Sustainable Development Goal 14, and other global sustainability targets.

In addition to promoting alignment with current expectations and best-practices, the guidance will help provide much needed credibility to “blue” issuances, as well as the broader sustainable use-of-proceeds formats. It is intended that this added credibility will go hand-in-hand with the knowledge sharing aspects of the guidance, which is directly usable by practitioners, to not only increase the quality of blue financing but also to increase appetite for blue formats, thereby catalysing greater investment in a sustainable marine economy. In reference to the publication of the guidance, Nicholas Pfaff, Deputy CEO and Head of Sustainable Finance, ICMA, stated that “Green bonds that focus on blue projects, also known as ‘blue bonds,’ have great potential to expand the pool of capital market finance dedicated to the blue economy.”

Each of the major three stakeholder groups can draw slightly different benefits from the new guidance:

  • Issuers should use the guidance to familiarise themselves with the key components involved in the launching of a credible blue bond. The identification of eligible projects is an important keystone here.
  • Investors can seek reassurance though the guidance relating to the evaluation of the true environmental impact of blue bonds. This aspect is particularly important in ensuring that financing continues to flow to the desired areas over the long-term.
  • Underwriters are offered guidance relating to the facilitation of transactions, which is required to maintain a healthy level of market activity and integrity.


David Ray
Nordea Sustainable Finance Advisory

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