Increased investor focus on climate adaptation and biodiversity is encouraging the issuance of blue debt – especially blue bonds – to finance projects supporting freshwater resources and marine ecosystem health, Sustainable Fitch says. However, a major obstacle to the expansion of the blue debt market is the lack of comprehensive taxonomies to identify eligible ‘blue’ projects. Although projects involving freshwater – such as water infrastructure – are clearly defined within sustainable finance frameworks globally, the same cannot be said for a broader array of ocean-related activities, Sustainable Fitch noted in its report. It suggested this could be due to technical ambiguities and the nascent stage of understanding the potential environmental impact of eligible ocean activities. Issuers do also use green and sustainability bonds to fund sustainable water-related projects, such as wastewater management. Up until 2023, supranational entities and financial institutions were the main issuers of blue bonds, but local governments and agencies have been leading the way on blue label fundraising since. Sustainable Fitch expects more asset managers will start incorporating blue bonds into their fixed income strategies to diversify assets, while positively affecting sustainable water and ocean ecosystems. Blue bonds can provide investors with exposure to ESG-related investment opportunities in emerging markets, it said – noting that many projects financed by blue debt are based in less-developed coastal economies.
