An Investor Lens to the Blue Economy: The Rising Tide
SDG14 — focused on conserving and sustainably using the ocean — has historically been one of the most underfunded Sustainable Development Goals. According to the OECD, SDG14 has attracted the lowest share of investment (3.5%) amongst all other SDGs, having received just US$8.3 billion in philanthropic grants and US$5 billion from development banks since 2009 (Funding the Ocean). These figures pale in comparison with the estimated US$149 billion per year financing gap to achieve SDG14.
But a notable shift is underway, with booming recognition of the opportunities in blue finance. A recent survey by Credit Suisse revealed that nine out of ten institutional investors have a keen interest in financing initiatives within the sustainable ocean economy (1). Established financial institutions, such as commercial banks and asset managers with more than US$50bn in assets under management, have begun leading the charge to integrate the blue economy in their decision-making. These market-first evaluations of investor interest in the blue economy show that the sector is poised to be one of the key themes of the next decade.
This article applies an investor lens to the blue economy, asking:
— Market: How large is the market for ocean investment and which sectors are growing the most?
— Moment: Why is now a watershed moment for the blue economy?
— Ecosystem: How solid is the ecosystem supporting innovation for the blue economy?
Market
Investing in the ocean is not a new concept. Humans have been traveling through, trading across, and thriving near the oceans for millennia. Societal development has been historically linked to the exploitation of the ocean, recognizing it as an important driver of economic growth, jobs and innovation.
Of course, estimating the value of the ocean’s intangible services and assets is no easy feat. However, recent studies have valued the ocean’s asset base at a total of US$24 trillion, with an “Annual Gross Marine Product” of US$2.5 trillion per annum and US$1.5 trillion Gross Value Add (GVA). In other words, if the ocean were a country it would be the world’s seventh largest economy — ahead of heavyweights like France, Canada, South Korea, and Saudi Arabia. Looking ahead, forecasts paint an optimistic picture—by 2030, the ocean economy could double in GVA terms, surging beyond $3 trillion. How do we see this growth playing out in the future?
— Within established sectors: Aquaculture, coastal tourism, fish processing, and shipbuilding are forecasted to exhibit strong growth over this period, driven by growing food and energy demands. In addition, most established sectors in the blue economy will demand capital redirection towards sustainable practices, hence creating additional investment opportunities
— Within new sectors: Emerging frontiers, such as blue carbon, marine biotechnology, marine renewable energy, and robotics are developing quickly and will play an important role in the economies of most countries in the world.
2. Moment
If our relationship with the oceans dates back to the early development of human civilizations, what is special about investing in the ocean economy today? To us, the answer comes down to the intersection of 3 key factors: technology development, growing demand for ocean-based products, and pressing need to alleviate ocean-climate stressors.
— Technology development: Recent years have seen the accelerated development of technologies such as sensors, drones, AI / ML, computer vision, and data platforms. Fueled by scientific advancements, increased demand, and economies of scale, these technologies have become significantly more available and affordable— thereby allowing nimble ocean start-ups to integrate those technologies into new products and business models. Examples include Saildrone’s development of unmanned ocean drones for data collection and Sofar’s quest to deploy ocean sensing and exploration tools. To highlight this exponential cost decrease, a day of Saildrone data costs a client about $2,500 compared to the $30,000 daily cost of running a large research vessel.
— Growing demand for ocean-based products: Improvements in aquaculture production and changing cultural preferences are expected to drive up demand for fish, seafood and seaweed. By 2050, the world is expected to eat twice as much ocean-derived food compared to 2015. However, nearly 90 percent of the world’s marine fish stocks are now fully exploited, overexploited or depleted — and meeting the growing demand for fish and seafood will require drastic changes in the way humanity harvests fish.
— Pressing need to alleviate ocean-climate stressors: The oceans have absorbed more than 90 percent of the heat of global warming and can hold seventy times more carbon dioxide than the atmosphere. Hence, oceans will be the world’s largest carbon sink and humanity’s best shot at solving climate change. With the clock ticking for the world to reach net zero by 2050 to limit global warming to no more than 1.5°C, there is a pressing need for us to tap into the ocean’s immense capacity as a climate regulator — safely and sustainably. Our team is closely following companies such as EbbCarbon and Running Tide, which are developing new solutions for ocean-based carbon dioxide removal.
3. Ecosystem
Finally, if we are at a watershed moment for ocean technologies, is there a critical mass of entrepreneurs, innovators and scientists who will be at the helm of the blue economy — with support from investors, the public, and the government? There are many ways to assess the health of an ecosystem, such as the amount of available capital, the number of startups, the number of graduates in relevant fields, and the number of innovation hubs.
When measured by the number of innovation hubs, we see a thriving ecosystem in North America. During the 25 years between 1990 and 2015, approximately 14 marine-tech innovation hubs were created. But in the past 5 years alone, this number has more than doubled. The region now boasts 31 innovation hubs supporting marine-tech innovation and startups, signaling that there is talent, capital, and public support to drive innovation.
Innovation hubs and investment funds with a focus on the blue economy have sprung up in other countries as well, including Norway (Katapult Oceans) and Portugal (Faber Ventures). With the UN declaring 2021-2030 to be the “Ocean Decade”, in a global effort to boost ocean science technology, we expect to see this ecosystem continuing to grow.
Conclusion
Despite our long-standing relationship with the oceans, investment in the blue economy is a nascent field — and there is still immense work to be done for this ecosystem to reach its full potential. However, there is growing recognition that ocean conservation technologies can be game-changers for both established sectors and emerging sectors and ever stronger drums announcing that oceans are the new climate tech. At 71percent, we see a bright blue future for ocean investments.