The Blue Economy – Making Waves

The blue economy are activities associated with preserving the health of the world's oceans and using those activities in a sustainable way that develops economies, supports the environment, and improves livelihoods. An increasingly important environmental pressure point that we're contending with though is the declining health of the world's oceans. Let's recall for a second the very important role that oceans play. They generate half our oxygen, absorb 90% of excess heat that's produced by human activity, as well as act as hosts to vital ecosystems. Yet our oceans are under threat from issues such as climate change, pollution, overfishing, as well as habitat damage, among a host of other pressures. And this is why governments, policymakers, companies, and communities are collectively seeking ways to support and mobilize investment into the blue economy. And blue bonds have emerged as an exciting and innovative tool that could potentially help attract and bring forward some of that much needed investment into the ocean economy. Blue bonds are debt instruments where proceeds are utilized to finance initiatives, such as providing access to clean water and sanitation, as well as promoting marine conservation and biodiversity to support the health of the world's oceans. Blue bonds are an exciting and innovative component within the broader sustainable bond market. Other areas of the sustainable bond market that you might be familiar with would include green bonds, social bonds, sustainability bonds, as well as sustainability-linked bonds. It is early days, but we see momentum and interest increasingly building for blue bonds across the capital markets. And blue bonds are important for three reasons: One, issues such as climate change, sustainability, and ocean health are intertwined. And blue bonds have the ability to provide investment to address these pressure points. Secondly, blue bonds have the capacity to address funding gaps. Take the United Nations (UN) Sustainable Development Goals for instance. These were 17 goals written by UN member countries designed to protect the planet, promote shared prosperity, and end poverty. And two of those goals, Sustainable Development Goals six and 14 are directly tied to water. And unfortunately, these are among the most underfunded of the 17 Sustainable Development Goals. So there is a material funding gap that blue bonds can help address. And lastly, blue bonds have the capacity to drive economic growth on a global scale. The Organisation for Economic Co-operation and Development estimates that the ocean economy could potentially double in size to USD 3 trillion by 2030. At T. Rowe Price we believe that, like sustainable bonds, blue bonds, which are, of course, a subset of sustainable bonds, require an additional element of evaluation and rigor. There are four elements that we believe are important to consider in the evaluation and analysis of blue bonds. So, the first one is the sustainable investing profile of the issuer itself. And that's absolutely critical because you need to see congruence with the issuer’s ambition, its targets, its overall goals, and the actual blue bond that it's issuing. That's the first element. The second element has to do with industry standards. And here we're looking for real ambition, best-practice ambition, and alignment with industry standards. And the third element has to do with bond credibility. And here, we are looking for clear evidence of ambition and credibility of the bond itself and the deployment of proceeds, and we're looking for it over the life of the bond. The fourth and final element we'll talk about today is the post-issuance reporting. And here we are looking for very clear reporting around the actual distribution of capital into blue economy elements. And that's very important. In addition, we are looking for post-issuance impact reporting, and here would like to see quantifiable, tangible evidence of that coming through over the life of the bond. So, if you think about the four elements we've talked about and why we focus on them at T. Rowe ([Price], one of the things we believe they will help us do is identify and potentially mitigate against greenwashing. In the blue bond sphere, this is known as bluewashing, and this refers to a scenario where a financial product potentially overstates its own sustainability impact and outcomes and/or the issuer overstates — again focused on the blue economy — its own sustainability ambitions, targets and outcomes. At T. Rowe Price, we're very excited about the potential opportunity for the blue bond market. We look at the parallel for the green bond market. And of course, blue bonds are a subset of green bonds. But we've seen the green bond market go from a very nascent asset class 10 to 15 years ago, to being well over USD 2 trillion*, and that's on data out of the Climate Bonds Initiative. DISCLOSURE Source for size of the green bond market: Climate Bonds Initiative, as of December 2022. Any references to the dollar means U.S. dollar. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute Important Information This video is for educational purposes only and for people interested in the development of the blue economy. This video does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. All investments are subject to market risk, including the possible loss of principal. As with any fixed income security, blue bonds carry investment risks, which include credit risk and interest rate risk. This video does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The video has not been reviewed by any regulatory authority in any jurisdiction. Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the video and are subject to change without notice. Under no circumstances should the video, in whole or in part, be copied or redistributed without consent from T. Rowe Price. The video is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material.  © 2023 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/ or apart, trademarks of T. Rowe Price Group, Inc.