Blue bond — an inventive financing solution for blue economy

The Sustainable Development Goals (SDGs), also known as the Global Goals, were set by the United
Nations in 2015. SDGs are considered the universal calls for ensuring that each person in every
corner of the world relishes the benefit of development and lives in peace and prosperity. UN
member states have adopted the SDGs and recognised the need for a balance among social,
economic, and environmental sustainability. The countries have pledged to "Leave No One Behind"
and fast-track progress for those furthest behind first. SDGs are intended to achieve a better and
more sustainable future for all, address the challenges our world and the people in it face every day.
These goals bring the world to several life-changing zeros, including zero poverty, hunger,
discrimination against women and girls etc. There is no doubt that these are ambitious targets in
every context and thus, the creativity, know-how, technology, and financial resources from all of
society will be necessitated to achieve them.

Bangladesh, as a signatory of the Global Agenda for Sustainable Development, is committed to

achieving the SDGs by 2030. The country, as an active contributor to the global discourse for
implementing SDGs, is continuously putting efforts into achieving its sustainable development
aspirations. It has taken two important steps towards implementing the SDGs. First, the Government
of Bangladesh (GoB), for better policy guidance, has completed all the preparatory works such as
integration of SDGs in the national plan, mapping of ministries and divisions, SDGs M&E framework,
SDGs financing strategy, SDGs action plan, and 39+1 national priority indicators. Second, the country
is working on disseminating the produced knowledge among the relevant stakeholders and
implementing SDGs at the local level. These are expected to be the important building blocks for
achieving the SDGs.

Nevertheless, there are two major challenges in achieving SDGs in Bangladesh. One is to engage
related stakeholders in the process of materialising SDGs. To overcome this challenge and
recognising the fact that SDGs are overarching, the GoB has adopted the "whole of society"
approach and involved the private sector, NGOs, CSOs, think-tanks, academia, and the media in the
implementation of SDGs. Besides, the General Economics Division (GED) of Bangladesh Planning
Commission has developed an SDG Localisation Framework. The primary aspiration of SDGs, Leave
No One Behind, remains at the core of this framework. The framework offers a set of strategies that
will enable the local government institutions to take part in the process of local implementation of
SDGs in Bangladesh. It also provides an opportunity for the local people to participate in the
accomplishment of the SDGs at the grassroots level. At the same time, the localisation process also
relates to how the SDGs can provide a framework for local development policy.

Another notable challenge for Bangladesh is to mobilise resources to finance SDG implementation.
Lack of resources can burden realising the SDGs in Bangladesh. The "SDG Financing Strategy:
Bangladesh Perspective" prepared by the General Economic Division (GED) of the Planning
Commission estimates that Bangladesh will need an additional USD 928.48 billion for attaining the
SDGs during the implementation period. According to the same report, on average, 85.1 per cent of
the financing should come from domestic sources where 42.1 per cent will be financed by the
private sector. The public sector will require to contribute 33.5 per cent to the total financing.

The effectual implementation of the 'whole of society' approach with a special focus on private
sector investment by the government and expansion of the economy's tax base will play a critical
role in reducing financial gap for SDGs implementation. However, as the implementation of SDGs
goes forward, just stimulating growth in private investment will not be enough. Bangladesh will need
to learn from the successful experiences of other countries and put efforts into designing innovative
financing strategies for managing and mobilising required resources from public and private sources.

Bangladesh has lately introduced some innovative solutions to create incentives, especially for the
private sector, to promote financing for inclusive development. For example, the country has
introduced the Shariah-based bond "Sukuk" in December 2020 as a new investment tool to promote
Islamic finance and attract local and foreign direct investment. The purpose of the Sukuk is to raise
BDT 80 billion to implement a safe water supply project titled "Safe Water Supply for the Whole
Country".

Bangladesh has also approved its first green bond to finance environment-friendly projects including
renewables. Bangladesh Securities and Exchange Commission (BSEC) has already approved a Non-
Governmental Organisation (NGO) named Sajida Foundation to raise money from the capital market
by issuing green bonds. The bond will be issued to institutional investors, insurance companies,
corporate entities, and prosperous individuals through private placement. The value of the bond is
BDT 1 billion for a tenure of two years. The fund raised from the green bond will be used to enhance
the micro-credit operations and ensure environmental development.

Though there is still a long way to go, the bond market in Bangladesh is taking a shape. There is an
appetite for new types of bonds in the market. A recent example is the introduction of the Sukuk
bond in the country which has been oversubscribed by almost 4 times. The excess liquidity in the
banking sector, relatively higher rate of return, and risk-free investment as the rate of return is fixed
for the next five years have produced huge interest among investors for Sukuk bonds. Despite some
apprehensions, introducing Sukuk was a timely initiative by the government. It should encourage the
introduction of more bonds of new kinds to meet the long-term financing needs of the country. In a
true sense, it is high time for emboldening the private sector, particularly big corporate companies
to come forward with the issuance of "sustainable bonds" to raise funds.

Sustainable bonds promote environmental sustainability and the socio-economic development of a

country since the funds raised from sustainable bonds are used to support the financing of specific
projects related to climate change, environment, or social goals. There has been a surge in
sustainable bonds in recent years. Global sustainable investing assets are now valued at more than
USD 30 trillion-- an increase of 34 per cent over the last two years. However, the blue bond is the
newest member of the sustainable bond family which finances projects related to ocean
conservation.

Around 71 per cent of the earth's surface is the ocean. Billions of people rely on the oceans
resources for their livings. The annual value of the ocean is estimated to be USD 1.5 trillion per year.
Therefore, blue economy is receiving growing importance and gaining momentum amongst
policymakers all over the world. In the coming days, innovative financing solutions will be essential
to explore the ocean - a significant wealth generator and in this case, blue finance, especially blue
bonds, have huge potential. It is anticipated that the success of green bonds in the capital markets
will create a blueprint for the nascent blue bond market.
The Republic of Seychelles launched the world's first sovereign blue bond in 2018 to raise a total of
USD 15 million to implement the small island state's sustainable blue economy plan. Nordic
Investment Bank, the international financial institution of the Nordic and Baltic countries, launched a
"Nordic Sea Blue Bond" in January 2019 to raise USD 200 million to protect and rehabilitate the
Baltic sea. The fund will be spent on wastewater treatment, prevention of water pollution, and
water-related climate change adaptation projects. Moreover, Morgan Stanley, working with the
World Bank sold USD 10 million worth of blue bonds in April 2019 intending to solve the challenge of
plastic waste pollution in oceans.

Bangladesh has great potentials in respect of the blue economy. The country's coastal and marine
ecosystem resources can be used in increasing food security, creating jobs, alleviating poverty,
reducing inequality, lifting trade and industrial profiles whilst at the same time conserving
biodiversity, protecting the coasts and oceans as well as the health, livelihoods, and welfare of the
people in the coastal zone. There are huge scopes for ocean-based economic activities in
Bangladesh. Fisheries, shipping, and coastal tourism are the traditional use of coastal and ocean
resources in the country while there are also new sectors like offshore gas exploration, salt
production, and offshore renewable energy.

Bangladesh has taken initiative for huge industrial expansion in the coastal region including coal
power plant, deep-sea port, and LPG-LNG terminal. The blue economy concept features prominently
as a policy objective in the country's 8thFive Year Plan and Delta Plan 2100 of Bangladesh to support
the country's economic development. To help deliver on the objective, the government established
a new department called "Blue Economy Cell" in 2017, with a mandate to coordinate across sectoral
ministries to better chart a path toward sustainable development of the ocean resources and answer
key questions about the implementation of the medium-term development plans.

The old and new sectors of ocean use have a great prospect for innovation and growth. Nonetheless,
estimating the value of the blue economy will be important in realizing its full potential.
Unfortunately, there is no accurate estimate on the contribution of ocean-linked economic activities
in Bangladesh following the methods prescribed in the System of the National Account (SNA). An
estimate shows that the value of the blue economy in Bangladesh was USD 6.2 billion or around 3
per cent of GDP in 2014-15 ((P.G. Patil et al, 2018). This value was derived mainly from tourism and
recreation, fisheries and aquaculture, transport, and energy. It seems that the estimate is based on
guestimate and as a result, it undervalues the contribution of the blue economy in the country.

Bangladesh will need large investment to promote a sustainable blue economy. Experiences of other
countries show that long development financing is served through fixed income securities or bonds.
The world has experienced a surge in green or sustainable bonds, in particular, in the last 10 years.
With an increase of 34 per cent over the last two years, global sustainable investing assets are now
valued at more than USD 30 trillion. However, the country should use blue investments financed
through blue bonds -- a relatively new type of sustainable bond at promoting the implementation
and achievement of SDGs, specifically SDG 14 (Life below water) and related SDGs (i.e. 1,2, 6, 8, 10,
13, and 15), that contribute to the good governance of the ocean and coastal habitats, deliver long
term value to marine and coastal ecosystems, reduce carbon emissions and strengthen resilient
livelihoods of people who depend on oceans and their resources in a changing climate. Blue bonds
will propound an opportunity to mobilise the private sector capital to support the blue economy.
Recent consultation with the relevant state and non-state stakeholders reveals that Bangladesh will
require to emphasise on new innovative financing strategies to engage the private sector in
financing the SDGs. In this regard, the blue bond can be an innovative tool to finance public
investment in projects related to ocean and marine that will ultimately contribute to environmental
sustainability, employment generation, poverty alleviation, and reducing inequality in Bangladesh.
Nevertheless, the blue bond is a new concept, and thus, there is a lack of aeareness and expertise in
this area. Knowledge products and more discussion will be required to sensitise the relevant
stakeholders on this issue to explore the full potential of blue economy in the country.

GED, with support from the "Strengthening Institutional Capacity for SDGs Achievement in
Bangladesh (SC4SDG)" project of UNDP Bangladesh and UNEP-PEA4SDGs, has recently conducted an
important study on "Assessing the Feasibility of Instituting Blue Bond in the Bond Market of
Bangladesh". GED, through this study, has endeavoured to understand the possibility of promoting
the blue economy in Bangladesh through the issuance of blue bonds. The blue economy and its
prospect, bond market, suitability of bond financing, and likelihood for releasing a blue bond in
Bangladesh along with mapping the pathway of releasing such a bond have been evaluated in this
study.

The study has attempted to project the value of blue economy in Bangladesh. Since there is no
accurate estimate available for Bangladesh and there is a lack of data on the blue economy, it is
tough to project the future potentials of blue economy. However, there have been efforts to
introduce assessment of the blue economy through developing the "Blue Economy Satellite
Account"(BESA) - a method proposed in the SNA. It fits well with the SNA endorsed national account
measurements such as the Supply and Use Table (SUT) and Input-Output Table (IOT).

The study has considered three scenarios for the Bangladesh Blue Economy (BBE). They are - BBE will
grow at (i) 5 per cent, (ii) 8 per cent, and (iii) 10 per cent rates. Under these three scenarios,
projections have been made up to 2035. The calculation shows that the size of BBE can be between
USD 12.9 billion to USD 25.9 billion in 2035. The study has also tried to estimate the required
investment for the three scenarios since one of the key preconditions of 5 to 10 per cent growth
rates of BBE is to invest in the BBE. The results show that Bangladesh will need to invest between
USD 2.45 billion to USD 7.22 billion annually during the years 2021-2035.

Harnessing the blue economy is a costly venture and thus, will require a huge investment in projects
with time-bound completion and clear outcomes. There is a demand for development financing in
Bangladesh. However, the current model of development financing with excessive reliance on the
banking sector may not be suitable for long-term investment needs. Thus, Bangladesh must adopt a
strategy to mobilise funds through developing fixed-income securities or bonds. In this case,
sustainable bonds - for instance blue bonds - should be a priority policy option for Bangladesh.

Several issues need to be addressed to carry forward the plan of a sustainable blue economy
through sustainable financing, i.e., blue bonds. Due to the scarcity of data, there should be a
comprehensive study on the Bangladesh Blue Economy (BBE) encompassing - setting the BBE vision
and goals; defining the scope of the BBE; better valuation of the BBE; firmer projections of the BBE
(in conformity with PP 2041 time frame) and additional resource requirements; and exploring
financing options including the issuance of the blue bond. There is also a need for awareness and
capacity building on the scopes and potentials of blue economy. This is not known to many local
investors in Bangladesh. Thus, Bangladesh may conduct a survey on the future of the blue economy
covering investors (mainly institutional investors), regulators, policymakers, environmentalists, and
researchers. External companies and investors interested in sustainable projects should also be
made aware of the potential of the blue economy in Bangladesh. Lastly, Bangladesh should gather
first-hand knowledge from Seychelles or Indonesia in the areas of defining the blue economy,
assessing the potential, addressing the barriers, and determining the institutional arrangements for
promoting the BBE.