Here are the questions and my answers.
1, Please introduce us the evolution of the global blue finance trend.
As is known to all, WWF is a conservation NGO, aspiring to conserve biodiversity throughout the world, including both terrestrial and marine ecosystems. However, our experience in the past decades taught us that although focusing on our beloved species will gain sympathy and support, it is not strong enough to change the drivers behind the environmental degradation. Therefore, as I just mentioned, WWF began to emphasize the monetary value of ecosystems in 2015.
In the same year, WWF launched the Principles for a Sustainable Blue Economy. I would spell out our definition here, very easy to remember, that’s sustainable, blue, and economy.
Sustainability means that the economy should provide social and economic benefits for current and future generations.
Blue means that the activities should restore, protect, and maintain diverse, productive, and resilient marine ecosystems.
Economy refers to the economy based on clean technologies, renewable energy, and circular material flows.
Based on the principles of SBE, WWF, together with other like-minded organizations like the European Investment Bank, declared the Sustainable Blue Economy Finance Principles in 2018. The fourteen principles were later hosted by UNEP, becoming the UNEP Finance Initiative. This is the first global framework to deliver guidance to both the private and public sector finance on ways towards a sustainable blue economy. We see this as a simple entry point for financial institutions. By joining the voluntary initiative, they will have access to a global community of practice, peer-to-peer learning, blue finance resources, and a knowledge base. Till now, five Chinese financial institutions have signed, and we encourage more to join in.
WWF was among the key NGOs pushing for nature-related financial disclosures even before TNFD’s launch in 2021. And we explored the value at risk in the global blue economy in 2021, finding that up to 66% of publicly listed companies are exposed to risks if the ocean is no longer healthy. Around US$8.4 trillion of assets and revenues are at risk in the coming 15 years, if business as usual.
Therefore, we can see that the notion of SBE has a quite clear evolution trend, identification of ocean assets, launch of the concept of sustainable blue economy, definition of financial principles for it, and then informing the risks and requirements to financial institutions. We feel fortunate to be a part of the trend of SBE. Now, like the meeting today, is a good opportunity to think about how to realize it.
2, Why should multilateral development banks and policy banks be aware of the ocean-related risks?
As some of you have heard many times, human beings benefit from marine ecosystems services, including provisioning, regulating and cultural services. These services have clear intrinsic value in supporting economy and society. In 2015, WWF began to assess the assets and flows of the monetary value provided by the ocean. In the report of Reviving the Ocean Economy, WWF evaluated the assets of the global ocean as 24 trillion USD, and annually it yields production worth 2.5 trillion USD. That is a 10% year-over-year return, more profitable than most investments. In 2022, applying the same methodology, we assessed the ocean in China as 54 trillion CNY.
So why should banks care about ocean? Well, marine economy rely on the ecosystem and cast impacts on it. Today’s environmental impacts are tomorrow’s financial risks, and it is clear that many of these impacts stem from or harm the health of the ocean. Ocean-related sectors have significant dependencies and impacts on nature in the ocean, such as seafood, shipping, ports, tourism, marine renewables, etc. As a result, the opportunities and risks associated with their development and contribution to economy and society should be considered relevant to the responsibilities and activities of policy banks in financial regulation for maintaining stability.
Let me give two examples. The first one is physical risk, usually straightforward. Let’s take an example. Fishery stock depletion can drive up prices for consumers, a form of ‘ecoflation’ that can reduce demand for seafood as stocks collapse. While this may incentivise catch reduction over time, this may not result in ecosystem recovery. Meanwhile, as seafood consumption is increasing due to growth in the middle class, notably in Asia, this form of inflationary pressure can drive consumers towards alternative sources of animal protein with higher carbon intensity and/or reduce household budgets, with knock-on effects on spending and saving.
Many of you are also familiar with transition risks. Blue economy transition risks are diverse and relate to the interventions made in markets and society to support the transition to sustainability. Let’s take regulatory risk in the transition risks as another example. Regulatory risk is prominent in cases where regulatory adjustments on sustainability may result in costs, including stranded assets, which are particularly relevant in the context of commodities and sectors with high capital costs. Shipping, recognised as a sector that’s challenging to decarbonise, may be especially exposed to regulatory risk on net zero. Just imagine when a strict net-zero requirement is imposed someday, the investment ends up with high-emission ships will eventually be stranded in the harbour.
3, How can International NGOs like WWF support multilateral development banks and investors to contribute to blue finance in China?
Different sectors have their ways of being engaged in the SBE?
1, for multilateral development banks like AIIB and also for policy banks.
In China, WWF has developed a China-specific “blue taxonomy” last year that can help both policy banks, like multilateral development banks and central banks, and investors find sustainable sectors to invest in. This comprehensive taxonomy entails 8 ocean-related sectors, including fishery, shipping, and marine engineering, marine renewable energy, etc. For each specific industrial sector, it explains the definition, climate change performance, potential risks, management policies, etc. It is in much detail. As it is developed using existing Chinese national standards, guidance, and policies like green bond, they are ready to be adapted in China policies. We will explore its application among policy banks, finance regulatory departments, investors, etc., as well as their local counterparts.
Globally, WWF launches its annual report on the development of the Sustainable Financial Regulations and Central Bank Activities, assessing the integration of environmental & social considerations in regulatory and supervisory practices, as well as in central banking activities and other measures that support the redirection of financial flows towards more sustainable practices. Please feel free to contact me if you are interested in.
2, for financial institutions and investors.
Since seafood is the most traditional and representative industrial sector in the ocean, WWF studied the baseline of seafood finance, finding that this sector is prone to policy influence, has significant conflict between supply and demand, and has limited integration of sustainability. WWF also identified and analyzed various sources of environmental risks within the seafood industry, ultimately inducing environment-related financial risks faced by financial institutions.
Meanwhile, WWF attempts to set up a sustainable fishery project inventory that financial institutions can directly choose projects to invest. It is still in progress. Since WWF is a conservation organization, our inventory is still too “natural” and not “financial” enough.
