JANUARY 12, 2024 | Nature, Climate, and the Economy
New Publication: ‘Blue Bonds’ Knowledge Primer

A new publication by CSF helps unpack what blue bonds are, for stakeholders in both the finance as well as environment professions, alongside Sri Lanka’s interest in pursuing such instruments following other developing countries like Seychelles, Belize, Barbados, and others. There is growing interesting among developing countries like Sri Lanka on using sovereign debt instruments linked to nature, to meet both debt restructuring or new capital raising needs, while also meeting environmental conservation targets aligned to the Sustainable Development Goals (SDGs). A blue bond is one such debt-instrument typically issued by governments (but also by development banks, or other financial institutions) to raise capital for the implementation of projects that meet SDGs, help bridge sovereign finance gaps, and to finance the transition to a sustainable blue economy with blue natural capital at its core. Since such instruments are new and innovative, there is a tendency among stakeholders to be apprehensive about their true motives and their credible deployment. Meanwhile, marine conservation stakeholders (and indeed environmental scientists, activists, and ecologists writ large) tend to be less knowledgeable about these instruments that perhaps those in Ministries of Finance, Central Bank, or financial institutions. public finance objectives. It is important for all stakeholders concerned to be more aware, so it enriches the debate and ensures meaningful and sustainable outcomes.

While there are no formal Blue Bond Principles in existence today, a framework has been established in alignment with the International Capital Market Association (ICMA)’s Green Bond Principles (GBP) and the International Finance Corporation (IFC)’s Guidelines for Blue Finance. There are several identified incentives for the use of blue bonds for investors, businesses, and issuers in the form of direct financial incentives, and a multitude of other incentives pertaining to positive brand/corporation image While blue bonds have risen in popularity and gained significant recognition in recent conversation, they come with some limitations that must be taken into consideration. These include the lack of a universal standard due to its novelty, the relatively small size of the blue bond market, issues in governance stemming from political reasoning and high transaction costs. In particular, Sri Lanka must carefully study the blue bond issuance experiences of other countries, in structuring its own approaches for the future, following a completion of the sovereign debt restructuring. This Knowledge Primer is a component of a series focused on labelled bonds (including green bonds, blue bonds, and biodiversity bonds).

Download the Knowledge Primer here

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