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A deep dive into the ‘blue economy’ with a dedicated index

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BNP Paribas Asset Management
 

The blue economy is worth trillions of dollars and includes a rich palette of resources, providing many jobs, livelihoods and food security. It can be a source of great investment opportunities, but the question is how to invest in it in a way that ensures sustainable management, protection and preservation.

Responsible investing requires improving human wellbeing and social inequity, while containing environmental risks and threats to the ecology. At stake are tangible ‘blue resources’ such as fish stocks and deep sea oil, but also intangibles such as coastal ways of life and carbon sequestration.

The blue economy comprises these sectors:

  • Fisheries
  • Aquaculture
  • Coastal and maritime tourism
  • Marine biotechnology and bioprospecting
  • Extractive industries
  • Desalination
  • Renewable marine energy
  • Maritime transport, ports and related services, such as shipping and shipbuilding
  • Waste disposal management
  • Supporting activities, such as ocean monitoring and surveillance, ecosystem-based management, activities supporting carbon sequestration, and supportive financial mechanisms [1]

How to select companies for a blue economy portfolio?

One way is to target those companies that are leading the field of the sustainable use of ocean resources, that meet strict environmental, social and governance (ESG) criteria and whose practices are aligned with the principles of the UN Global Compact.

This is the approach of the ECPI Global ESG Blue Economy index. The ECPI Group research database covers more than 4 000 listed issuers of securities throughout the developed world. Using extra-financial ratings based on three ESG pillars, companies are assigned an ESG rating. They are scored on factors such as environmental strategy and policy, production process, community relations and governance.

At the next filtering stage, it is determined which blue economy categories they fall into: protection of the coastline and ecotourism; offshore wind power, marine biotechnology, tidal and wave power; wild fishing, fish farms, fish breeding and genetics; recycling, waste management and environmental services; and container shipping and ships’ equipment.

Exhibit 1: Blue economy index – industry sector breakdown

Article 2 blue economy exhibit 1

Source: ECPI Group; 29 January 2021

Alignment with the UN Global Compact principles means companies should, for example, support and respect human rights and the freedom of association, steer clear of forced labour and child labour, and promote greater environmental responsibility.

To ensure diversification across countries, there is a geographical limit. For example, the US cannot account for more than 50% of the index. The bar is set at 10% for all other countries.

To be eligible for inclusion, the companies selected must have a minimum market capitalisation of EUR 500 million and the average volume of securities traded over the preceding six months must total at least EUR 3 million.

An additional opportunity to invest sustainably

As a global sustainability theme, investing in the blue economy is fully aligned with BNP Paribas Asset Management’s sustainable investment priorities. These are focused on the energy transition, environmental protection and equality & inclusive growth.

We believe investing in the blue economy will help advance the fight against climate change and ensure that the oceans can continue to function as a sink for carbon emissions from human activity. Such investments are suited for investors with a long-term perspective, an interest in contributing to a greener future and making a positive impact.

In our view, finance can play a major role push companies linked to the blue economy to improve their practices. Those investors who consider the preservation of marine resources as an absolute priority are set to see investment opportunities in companies that develop marine and ocean projects opening up as awareness of the blue economy’s appeal grows.

Also read:

Read more about sustainable investing

[1] Source; The potential of the blue economy; World Bank Group, UN; 2017

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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