By Jaya Ramachandran
The Government of the Republic of Seychelles, an archipelago of 115 granite and coral islands in the Indian Ocean, off East Africa, has been acclaimed for showing “the leadership to create the world’s first sustainable Blue Bond”.
The pioneering financial instrument was launched within four weeks of the High-Level Forum the government of Seychelles organised together with the 79-member African, Caribbean and Pacific (ACP) Group of States at the United Nations headquarters in New York focusing on the emerging new “blue economy” underlining the protection and preservation of the world’s heavily-exploited oceans.
The concept for a Seychelles Blue Bond to support the island nation’s transition to sustainable fisheries was conceived in 2014 by The Prince of Wales’ International Sustainability Unit, says its former director Justin Mundy, Distinguished Fellow, World Resources Institute.
“Therefore, I am delighted that the Government of the Seychelles has shown the leadership to create the world’s first sustainable Blue Bond,” adds Mundy. “The bond demonstrates that institutional investors can become involved in helping to build a truly sustainable blue economy that supports critical marine ecosystems while providing economic prosperity for local communities and Island Developing States.”
Announcing the launch of the pioneering bond at the Our Ocean Conference in Bali on October 29-30, 2018, Vincent Meriton, Vice-President of the Republic of Seychelles said: “We are honoured to be the first nation to pioneer such a novel financing instrument.”
The Blue Bond, which is part of an initiative that combines public and private investment to mobilize resources for empowering local communities and businesses, “will greatly assist Seychelles in achieving a transition to sustainable fisheries and safeguarding our oceans while we sustainably develop our blue economy,” Meriton added.
Marine resources are critical to the country’s economic growth. After tourism, the fisheries sector is the country’s most important industry, contributing significantly to annual Gross Domestic Product (GDP) and employing 17 percent of the population. Fish products make up around 95 percent of the total value of domestic exports.
The Seychelles is home to numerous beaches, coral reefs and nature reserves, as well as rare animals such as giant Aldabra tortoises. It also has the mountain rainforests of Morne Seychellois National Park and beaches, including Beau Vallon and Anse Takamaka.
The Seychelles has a land area of 455 square km spread across an Exclusive Economic Zone of approximately 1.4 million square km. As one of the world’s biodiversity hotspots, Seychelles is balancing the need to both develop economically and protect its natural endowment.
With this in view, Laura Tuck, Vice President of Sustainable Development at the World Bank, said: “The World Bank is excited to be involved in the launch of this sovereign Blue Bond and believes it can serve as a model for other small island developing states and coastal countries. It is a powerful signal that investors are increasingly interested in supporting the sustainable management and development of our oceans for generations to come.”
CEO and Chairperson of The Global Environment Facility (GEF), Naoko Ishii, added: “The Seychelles Blue Bond is a significant milestone in our long-standing support for ocean conservation, and the GEF is proud to invest in developing national blue economies that protect the rich marine ecosystem while supporting economic growth, improved livelihoods and jobs.”
The bond, which has raised US$15 million from international investors, demonstrates the potential for countries to harness capital markets for financing the sustainable use of marine resources. The World Bank assisted in developing the Blue Bond and reaching out to the three investors: Calvert Impact Capital, Nuveen, and U.S. Headquartered Prudential Financial, Inc.
Proceeds from the bond will include support for the expansion of marine protected areas, improved governance of priority fisheries and the development of the Seychelles’ blue economy. Grants and loans will be provided through the Blue Grants Fund and Blue Investment Fund, managed respectively by the Seychelles’ Conservation and Climate Adaptation Trust (SeyCCAT) and the Development Bank of Seychelles (DBS).
“We are privileged to be working with the many partners involved in this unique transaction, and we are excited about the possibilities to back pre-development and growth stage projects in support of Seychelles’ blue economy, said Martin Callow, CEO of the Seychelles Conservation and Climate Adaptation Trust, which will co-manage proceeds from the bond.
“With these new resources, our guiding principles, and the blended finance structure that we have developed, we will support Seychelles’ ambitions to create a diversified blue economy and, importantly, to safeguard fisheries and ocean ecosystems,” Callow added.
DBS CEO Daniel Gappy noted: “The Development Bank of Seychelles (DBS), through its mandate, is here to support Seychelles in its quest to promote and sustainably develop the country’s fisheries sector.”
DBS will co-manage proceeds from the bond via the creation of the Blue Investment Fund.
“Establishing the Blue Investment Fund will bring additional exposure both locally and internationally for the Bank and will provide opportunities to enhance our competency in fund management for positive environmental, social and governance outcomes,” Gappy said
According to a press release, the Seychelles Blue Bond is partially guaranteed by a US$5 million guarantee from the World Bank (IBRD) and further supported by a US$5 million concessional loan from the GEF which will partially cover interest payments for the bond.
Proceeds from the bond will also contribute to the World Bank’s South West Indian Ocean Fisheries Governance and Shared Growth Program, which supports countries in the region to sustainably manage their fisheries and increase economic benefits from their fisheries sectors.
A World Bank team comprising experts from its Treasury, Legal, Environmental and Finance groups worked with investors, structured the Blue Bond and assisted the Government in setting up a platform for channeling its proceeds.
While the business case for a sovereign Blue Bond was initially identified through support to Seychelles from Prince of Wales’ Charities International Sustainability Unit, Standard Chartered acted as placement agent for the bond and Latham & Watkins LLP advised the World Bank as external counsel. Clifford Chance LLP acted as transaction counsel, a World Bank press release said.
The significance of the world’s first Blue Bond was emphasized by investors.
Jenn Pryce, CEO of Calvert Impact Capital, said: “The Blue Bond demonstrates the potential for capital markets to scale sustainable oceans solutions that expertly align marine conservation and economic opportunity.”
The oceans finance market is quite nascent, but the need for capital to address threats to the health of our ocean is increasingly urgent. “The Blue Bond sets a great example of the type of bold leadership from governments and financing from public and private sectors that we need more of,” Pryce added.
“Climate change has created both challenges and possibilities for investors. Its attractive relative valuation and the technical and financial support of the World Bank make the first Blue Bond a significant opportunity for our clients,” said Stephen M. Liberatore, manager of Nuveen’s ESG fixed income strategies, including the TIAA-CREF Social Choice Bond Fund.
“Sustainable development of blue economies such as the Seychelles aligns with our view that investing with a responsible approach is both prudent and financially rewarding in the long-term. We hope this transaction serves as a template for creative impact investment solutions in the future,” Liberatore added.
“Sustainable access to food sources, such as fisheries in the Seychelles, can have a transformative impact on communities, providing both sustenance and an opportunity for individuals to achieve financial stability,” said Andrea Kaufman, Vice President, Impact Investments at U.S. Headquartered Prudential Financial, Inc.
“Prudential shares the long-term vision of the World Bank to make the Blue Bond a model for future investments to preserve the sustainability of water resources for generations to come,” Kaufman added.
Daniel Hanna, Global Head of Sustainable Finance and Global Head of Public Sector & Development Organisations, Standard Chartered Bank, said: “Standard Chartered is proud to play a leading role in the world’s first sovereign Blue Bond. This landmark transaction is testament to our commitment to find innovative ways to mobilise capital to tackle development issues. The Seychelles Blue Bond will help protect the health of our oceans while developing a blue economy and serve as a powerful example for how finance can play a role as an important force for good.”