What investments are considered Blue Finance?

by Atikah Eria Putri and Long Hoang

Introduction

Water is essential for humans’ lives as well as the ecosystem’s health. It does not only provide well-being for societies but also food, jobs, and economic activities – all key elements of what is often referred to as the blue economy – the economy of water. However, precious water resources have become the forefront of the global climate crisis, where most climate change impacts are felt in the water systems. Moreover, there are more than two billion people currently lack access to safe water and basic sanitation[1]. These conditions lead to urgent demands for blue finance – an emerging cluster of financial investments focusing on sustainable water management and ocean conservation. In recent years, the global investment into blue finance and the blue economy has been increasing rapidly, and this is expected to grow further in views of the significant financing gap for meeting the water-related SDGs[2]. Current estimates shows that the blue SDGs takes about 20% of the total SDG financing gap of USD 4 trillion per year

Together with increasing investment and projected growth, interests in blue financing and blue economy have grown considerably. Since 2018, 18 guidelines, principles, and frameworks for blue and green finance have been released by the European Commission, IFC, ICMA, UN, ADB, LMA, LSTA, and APLMA. This article aims to provide an overview and in-depth understanding of what investment activities are considered blue financing. We do this by systematically analyzing 18 existing prominent guidelines (Table 1).

The 18 Guidelines, Principles, and Frameworks of Green and Blue Finance

In Table 1 we present an overview of the prominent guidelines, frameworks, and principles related to blue and green finance. A few observations are worth noting. The earliest document was issued starting in 2018 and notably, most of the documents, especially those for blue finance, were published after 2021. This directly suggests that the field is new and still under development. Out of 18 documents, only eight involved the blue economy activities. In contrast, the others focused on green finance, sustainability bonds, or the principles of blue finance without specifying the eligible activities to be considered “blue.” Lastly, the guidelines and frameworks were released by a wide range of organizations from banks (ADB) to inter-governmental organizations (UN), etc., suggesting interest from relatively diverse groups.

Table 1 The Comprehensive of the 18 Guidelines, Principles, and Frameworks of Blue and Green Finance

Here, we also attempt to conceptualize the relationships between blue finance, and several interrelated financing mechanisms based on the current guidelines. Blue finance, green finance, and climate finance together form a framework for mobilizing capital to address environmental, social, and governance (ESG) challenges while fostering economic growth, all belonging to the umbrella concept of sustainable finance.

• Sustainable finance: Encompasses all financial activities that integrate environmental, social, and governance (ESG) considerations into decision-making, aiming for long-term sustainable

  

  outcomes.

  • Green finance: A subset of sustainable finance, dedicated to financing projects that have positive environmental impacts, such as conserving biodiversity, reducing pollution, and supporting renewable energy.
    • Blue finance: A subset of green finance, focusing on financing sustainable use and conservation of ocean and water resources.[3]
    • Climate Finance: A subset of green finance, focusing on financing activities aimed at mitigating or adapting to climate change impacts.

The Activities that are Considered as Blue Finance

Reviewing the ten prominent guidelines on blue economy and blue finance, we identified a total of 25 activities which are considered blue finance. As can be seen from Table 2-4, there is remarkable differences amongst the guidelines in terms of what is categorized as blue finance. This suggests that the taxonomy of blue economy and blue finance is still underdeveloped, where there is no general consensus on what constitutes a blue investment. Several activities show a stronger consensus as they are regarded as blue, including Sustainable marine value chains; Marine Ecosystem Management, Conservation, and Restoration; Marine Renewable Energy; Sustainable Shipping and Ports Logistic Sectors; Water Sanitation. On the other hand, some activities showing divergent classification include water supply; sustainable tourism services; marine pollution; sustainable marine transport; and Ocean-Friendly and Water-Friendly Product.

Table 2 Taxonomy of blue financing activities according to 10 prominent guidelines

Table 3 Taxonomy of blue financing activities according to 10 prominent guidelines

Table 4 Taxonomy of blue financing activities according to 10 prominent guidelines

Conclusion

Blue finance is an emerging concept that can be utilized to address water-related pressing issues. It embodies a targeted investment focusing on sustainable water management and ocean preservation, which are essential to promote the blue economy and achieve the water-related Sustainable Development Goals (SDGs). Although the concept is relatively new, as shown by the emergence of frameworks and guidelines since 2018, it is rapidly gaining momentum. There are many activities that exemplify the scope of blue finance, ranging from renewable energy from the marine ecosystems to the water supply.

The taxonomy of blue finance remains under-established, with varying definitions across organizations and international financial institutions (IFIs). Recently, an increasing number of guidelines and frameworks for blue finance have been released, amongst which the IFC guideline (2022) is a predominant guiding framework (Figure 1). While the overarching goal is to support sustainable ocean and water resource management, there is currently no universal agreement on what constitutes “blue” investments. For example, some entities include coastal infrastructure, renewable energy, and sustainable fisheries, while others emphasize ocean-based climate mitigation (e.g., blue carbon ecosystems). Another example is with inland water resources (water supply and sanitation), where financing for such systems are sometimes considered blue investments (according to the IFC blue finance guideline[4]), and sometimes not listed under blue financing activities (for instance according to joint practitioner’s guide for Bonds to Finance the Sustainable Blue Economy jointly published by ADB, IFC, ICMA, and UNEP[5]. This lack of standardization complicates efforts to mobilize and track capital flows. The divergence stems from differing priorities, regional contexts, and organizational mandates. A harmonized taxonomy is therefore crucial for ensuring transparency, scalability, and impact in blue finance investments[6].

[1] There are still around 2 billion people around the world without access to safely managed drinking water services https://blogs.worldbank.org/en/opendata/world-water-day-two-billion-people-still-lack-access-safely-managed-water

[2] https://www.rabobank.com/knowledge/d011423183-blue-finance-closing-the-water-financing-gapmber

[3] Also note that sometimes blue finance is considered a subset of climate finance (e.g. by the IFC Blue finance guideline https://www.ifc.org/en/insights-reports/2022/guidelines-for-blue-finance

[4] https://www.ifc.org/en/insights-reports/2022/guidelines-for-blue-finance

[5] https://www.adb.org/publications/bonds-finance-sustainable-blue-economy-practitioners-guide

[6] Nobel, A. (2024, April 15). Blue finance: Closing the water financing gap. Rabobank. Retrieved from https://www.rabobank.com/knowledge/d011423183-blue-finance-closing-the-water-financing-gap