The Blue Recovery Bond Dashboard is based on Planet Tracker’s award-winning research
LONDON, 28 June 2021. Financial think tank Planet Tracker has launched an interactive dashboard to help investors identify how they could finance a recovery of fish stocks, generate higher returns for fishing companies and secure a significant return for themselves.
The Blue Recovery Bond Dashboard lets investors see in practice how such a blue bond could help achieve these goals by allowing users to input their own modelling assumptions.
This demonstrates how the interests of fishing companies and investors can be aligned with a recovery in fish stocks and the necessary temporary reduction in fishing.
The dashboard has been created on the back of the award-winning Planet Tracker research, “Can Blue Bonds Finance a Stock Recovery?”. For the second year in a row, Planet Tracker has been named a winner of the Environmental Finance Sustainable Investment Awards 2021, for a thought leadership paper on sustainable investing which included including the Blue Bonds research.
It is widely accepted that our oceans cannot sustain the ongoing imbalance driven by declining wild fish stocks and rising demand. Every year, a quantity of seafood equivalent to the weight of 1.5 billion people is taken from the sea, and 90% of fish stocks are either fully fished or overfished. As fish becomes harder and costlier to find, wild-catch volumes are expected to decline, resulting in lower profits for the wild-catch seafood industry.
A period of restraint – where wild-catch volumes are temporarily and significantly reduced – is needed to allow ecosystems to replenish. Yet few fishing companies are likely to be able or willing to bear the short-term financial consequences of such voluntary transition.
The Blue Bonds report proposes a Blue Recovery Bond and sets out a recommended framework whereby fishing companies accept a voluntary decrease in the quantity of fish caught for a set period of time.
EBIT and free cash flow at these companies would decrease, but the difference would be financed by investors (via an intermediary), provided that fishing companies demonstrate they are fishing at the agreed reduced capacity.
When there is sufficient evidence that stocks are recovering, companies can fish at a higher level again (but no more than the maximum sustainable yield of each stock) and investors cease payments. Fishing companies then repay investors some of the cash invested in the form of a coupon calculated as a function of the wild-catch volumes, until the bond’s maturity. Users of our dashboard can choose the value of the coupon in USD per tonne of wild-catch. If fish stocks are not deemed to be sustainable, investors have lost their money. If companies fish more than their quota, they must refund the cash received.
Inevitably, the barriers to success of such a blue bond are significant. They include: finding the right bond issuer to underwrite it; agreeing quotas for the species and the areas the blue bond covers; monitoring compliance with the rules and regulation; and limiting the impact on the rest of the seafood chain and on employment.
Yet in Planet Tracker’s modelling, such a bond would generate an internal rate of return (IRR) of 25% for investors, assuming a 40% reduction in catch over five years, an 8% discount rate (which users can change too) and a coupon of USD 50 per tonne of fish caught by fishing companies paid to investors.
These returns are before costs of monitoring, implementation and transaction, which can be high, but depend on the scope and practical details of the blue bond and are therefore not included in the dashboard.
Any solution to overfishing is going to be challenging. If the will is there, the prize is the opportunity to simultaneously improve the state of marine ecosystems and generate high financial returns.
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Notes for editors
ABOUT PLANET TRACKER
Planet Tracker is a non-profit financial think tank aligning capital markets with planetary boundaries. It was created primarily for the investor community to analyse the risk of market failure related to environmental limits which, other than climate change, are often not aligned with investor capital. Planet Tracker generates breakthrough analytics to redefine how financial and environmental data interact with the aim of changing the practices of financial decision makers to help avoid both environmental and financial failure.
Find out more: www.planettracker.wm165.uk
Terri.Bloore@finnpartners.com / +44 20 7539 3578