Sustainable Investment Awards 2024

Making waves in the blue economy

For Investment Professionals only – not for further distribution

Tongai Kunorubwe, head of ESG fixed income at T. Rowe Price, explains how it is partnering with the International Finance Corporation (part of the World Bank Group) to grow the blue bond market to address the planetary and societal risks posed by the current underfunding of the blue economy.

Environmental Finance (EF): What is the ethos behind T. Rowe Price’s partnership with the International Finance Corporation (IFC)?

Tongai KunorubweTongai Kunorubwe (TK): The ethos behind the partnership is the realisation that SDG 6 and SDG 14 – respectively, Clean Water Sanitation and Life below Water – are chronically underfunded. We were very cognizant that the bond market is a powerful agent for change and transformation. If you look through multiple market cycles, the bond market does phenomenally well in incentivising capital flows and bringing that capital to bear whenever we have some sort of exogenous crisis event.

One reason we were keen to highlight the blue economy is the realisation that oceans and riverine bodies are integral to making the transition to a decarbonised society. Oceans are very important nature-based carbon sinks and absorb upwards of one-third of all emissions and 50% of all oxygen is produced within oceans and riverine bodies, principally by photosynthesising plankton.

There are societal benefits also. For example, the burden of water collection principally falls on women and girls, mainly in emerging markets. UNICEF numbers suggest it adds up to 200 million hours per day. Sanitation is also a very real and relevant human health consideration, with consultancy McKinsey showing that 1.6 million deaths could be avoided every year.

EF: Can you explain your investment approach and philosophy?

TK: First of all, we perform a lot of very robust due diligence around prospective issuers. If an issuer has a strong framework but there is no congruence between the strategy and the assessment we do at the issuer level, you won't pass stage one. Secondly, we perform analysis – fundamental, bottom-up, responsible investment work on a bond-by-bond basis. We will go through a very detailed due diligence process around the projects and structure of the bonds. On the social and governance side, we also try to make sure there are no potential tripwires. The final element is ensuring we are very intentional around the theory of change and five dimensions of impact to give us a structure to hold ourselves to account.

We want to invest in the blue economy, but we need to be very thoughtful about the potential intended and often unintended consequences. We can not afford to have even the semblance of 'blue-washing' because that will kill off a very important, nascent asset class.

EF: Why should investors consider investing in the blue economy?

TK: Collectively, we need to appreciate the broad role that the blue economy plays. Although there are plenty of downside implications if we fail to tackle this issue, there is also an upside case. The World Economic Forum has been very clear that the ocean economy is already a significant and material contributor to global GDP and will effectively be the size of a G7 economy by 2030.

Blue economy projects need to be economically viable for several reasons. Firstly, the ability to generate positive economic returns is a very important catalyst for the bond market. If you look at what has happened with the green bond market, some issuers have become repeat issuers because they have become economically viable, self-sustaining projects. This is not a project looking at sub-optimal returns; the return profile stands on the same level with existing emerging market corporate credit strategies.

We need the asset owner community to support this. We're not just trying to make T. Rowe's proposition a success; we want the asset management industry to join in because then we will see corporate credit issuers get into blue bonds like we've seen with green bonds.

T. Rowe Price and the International Finance Corporation are not affiliated companies

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