the Ocean Investment Deficit
The “blue economy,” as defined by the World Bank, refers to “the sustainable use of ocean resources for economic growth, improved livelihoods, and jobs, while preserving the health of ocean ecosystems.” The ocean sector represents a myriad of investment opportunities, yet they remain largely untapped despite overall surges in climate tech investment. Addressing climate change (urgently) is of the utmost importance, and given the timescales required to implement effective policy solutions, private capital investment likely provides the most effective and efficient path to climate change mitigation.
The importance of ocean health in the global climate system can not be overstated, as the ocean bears the brunt of anthropogenic climate change through heat absorption and CO2 absorption. It’s important to consider how ocean-climate tech solutions can relieve some of these stressors, and the intense need for such solutions at scale anticipates growth for the ocean sector. Given that the ocean contributes between $3-6 trillion to the global economy, supports the livelihood of up to 3 billion people worldwide, and covers 71% of the blue planet Earth, the case for protecting the global ocean is apparent. Nonetheless, the blue economy and ocean-climate solutions remain extremely underinvested in. The UN SDG 14, “Life Below Water,” aims to “conserve and sustainably use the oceans, seas and marine resources,” but is already falling short of its 2030 goals due to underinvestment. Reports suggest that $175 billion per year is needed to achieve SDG14 by 2030; data is limited in tracking total post-COVID dollars flowing into the ocean economy, but between 2015-2019, only an estimated $10 bn, approximately 0.06% of the 2030 targets, had been funded.
Given the confluence of climate tech and ocean tech, it is difficult to distinguish the true amount of funding going into ocean-specific climate companies- and where it’s coming from. In the United States, there’s been a proliferation of ocean-focused financing entities in the past decade operating across: venture capital, private equity, incubators/accelerators, corporate investors, natural capital financing, and more.
There is a pronounced data gap in the US describing the distribution of ocean investment deals across different investor classes- but the European Union provides a good blueprint for what could be expected in the United States blue economy sector. Looking to the EU, a significant proportion of deals in the European Blue Economy from 2000-2023 involved corporate investors (23%), followed by venture capital investors (21%), with private equity (12%) and Incubator/Accelerators (11%) also playing a notable role (EU Commission- Blue Economy Report 2023). Given the nascency of the blue economy sector, venture capital investment is primed as one of the best investment vessels for ocean-climate tech. As companies begin to grow/scale, and produce sustainable cash flows, opportunities for other investment types will follow suit- bolstering interest in the sector.
To address the perceived risk and incentivize investment in the blue economy, a multi-pronged approach may be necessary. In combination with non-dilutive investment opportunities, such as government programs and grant opportunities designed to spurn R&D and commercialize ocean climate technology, widespread funding to grow ocean-climate startups is urgently needed from the private sector. Several reasons contribute to the lack of investment in the blue economy to date: including but not limited to
lack of exit precedent in the ocean-climate sector— limited historical investment, and thus proven returns continue to threaten traction into this investment space. Looking to the earliest successful exits in the climate tech sector helps indicate overall potential
the true value of ocean services to society are not fully realized, and it’s difficult to capture non-market values of ecosystem services which would otherwise help justify investment; eventual development of carbon credit, nutrient credit, and biodiversity credit markets will help enable solutions here.**
terrestrial climate solutions, like vehicle electrification, are more apparently tied to positive human health outcomes (i.e. smog reduction, diminished air pollution related illnesses)
the ocean, specifically countries’ Exclusive Economic Zones or EEZ’s, tend to be poorly monitored. With inadequate baseline measurements of biodiversity, temperature, acidity, nutrients, etc. over time, it’s more difficult to track and document the devastating impacts of climate change on the ocean over space and time
These reasons provide some insight into the historical neglect of the blue economy from private investors, but also highlight the vast opportunities for investing in conservation/protection efforts through mechanisms like blue bonds, and investing in the development of impactful, scalable ocean-climate technologies.
The rhetoric around "blue" technology primarily focuses on carbon dioxide removal. However, investment in ocean technology extends beyond just CDR, to optimizing and innovating existing marine industries to enhance their scalability and sustainability. In addition to carbon dioxide removal technologies, areas to look towards include natural coastal infrastructure solutions, sustainable aquaculture systems (operations and monitoring), offshore renewable energy, maritime decarbonization and port automation, wastewater management and desalination technologies, and seaweed and microalgae functional products.
The best business models will be the one with clear value propositions for both investors and the ecosystems that they’re operating in. Between blue carbon ecosystem restoration and increased carbon cycling, biodiversity enhancement, and invasive species management, the co-benefits of ocean-climate tech companies should ultimately enhance planetary health while simultaneously generating outsized returns.
** Estimates for global “ecosystem services” are modeled to justify natural capital financing, but these models are only able to account for a limited number of the vast range of services the ocean provides (and that planetary health relies on). Estimates valuing ecosystem services entirely discount the fact that global systems will collapse in lieu of a healthy climate and ocean, and that by valuing certain ecosystems in terms of the perceived marginal benefit they provide to functioning economic systems, models fail to capture the interconnectedness of natural systems to carbon cycling, nutrient cycle, weather pattern formation, marine/terrestrial ecosystem functions and more. Even the most advanced models valuing natural capital fall short of addressing the full value of natural systems that make planet Earth inhabitable for humans and all other creatures.
Bibliography:
Barbier, E.B. (2007). Valuing ecosystem services as productive inputs. Economic Policy, 22(49), 177-229.
European Commission. (2023). The EU Blue Economy Report 2023. Publications Office of the European Union. https://safety4sea.com/wp-content/uploads/2023/05/EU-blue-economy-report-2023_05.pdf
McBain, D. (2023). What is the blue economy? Grantham Research Institute on climate change and the environment. https://www.lse.ac.uk/granthaminstitute/explainers/what-is-the-role-of-the-blue-economy-in-a-sustainable-future/
The Nature Conservancy. (2020). The Role of Mangroves in Fisheries Enhancement.
Spalding, M. (2021). Measuring sustainable ocean economy investing. Wilson Center. https://www.wilsoncenter.org/article/measuringsustainable-ocean-economy-investing
UN Global Compact. (n.d.). Blue bonds: Accelerating Sustainable Ocean Business.
World Bank. (2019). The Value of Mangroves to Lives and Livelihoods.
World Economic Forum. (2022). Tracking investment in and progress toward SDG14. World Economic Forum. https://www3.weforum.org/docs /WEF_Tracking_Investment_in_and_Progress_Toward_SDG14.pdf