Discovering the potential of the blue economy through sustainable development

Nick Trueman Welcome to “The Angle” from T. Rowe Price. Sharper insights on the forces shaping financial markets begin here. In this inaugural season of “The Angle”, we're diving into the world of the blue economy. I'm Nick Trueman and I'll be your host, as we learn more about this intriguing and rapidly evolving area of the economy and financial markets. In this first episode, we're discussing the features of the blue economy.

A few stats to set the scene and provide context for why this is such an important topic. The numbers are staggering. The United Nations Environment Program Finance Initiative estimates that ocean linked sectors contribute 2.5 trillion USD to the global economy and support over 30 million jobs worldwide. The oceans provide a vital source of protein to 3 billion people, while its ecosystems are significant mitigators of climate change. According to the UN, over 2 billion people lack access to clean drinking water and 2.4 billion people live in water stressed areas. Water is both a development issue and a sustainability issue.

Here to discuss the blue economy are my guests today, Poppy Allonby and Samy Muaddi. Both were involved at the COP 28 conference in Dubai. Samy is head of Emerging Markets fixed income at T. Rowe Price and an adjunct professor at Georgetown University. He has a wealth of experience as a global investor and engages in international forums on the role of finance to help develop a sustainable blue economy.

Poppy is head of ESG enablement at T Rowe Price. Over her career, Poppy has worked as a portfolio manager focusing on companies that enable the transition to a lower carbon economy and has been a board member at one of the world's largest endowments. Poppy has also worked as a commissioner at the Energy Transitions Commission, which works to help accelerate the adoption and use of low carbon energy systems.

Poppy/Samy welcome to the podcast. Thank you very much for giving me your time today.

Poppy Allonby Nick, It's great to be here. and I look forward to the conversation.

Samy Muaddi Thank you for having us.

Nick Trueman Samy, perhaps I can start with you. Many people are familiar with the idea of the green economy. What is the blue economy and why is it important?

Samy Muaddi So, Nick, let's start with an image. The image in my mind was from the Apollo spacecraft in 1972. That famous photo called the Blue Marble. I think it changed everyone's perspective as to the importance of water and ocean. But why are three financial professionals here sitting around the table talking about this theme? Right. I think when I reflect on it, it's our responsibility as a financial industry to amplify the work that has been done for decades since from the scientific community, academics, policymakers, civil society to amplify their work, because there's an issue of urgency around here. Since that photo was taken from the Apollo spacecraft the world population has more than doubled. It has increased by 120%. And so, despite the collective efforts of everyone involved in clean water and clean ocean initiatives, we still have this tragedy of the commons.

Clean water is a universal value. I go around the world meeting a client base from the United States to Europe, from the Middle East to the Far East. The importance of water is tied to our history, our culture, our communities. But yet sometimes it feels easier to talk about financing exploration into Mars than financing clean waterways here on our blue marble.

So when we think about the blue economy, it's everywhere. Two thirds of the global economy is moderately or highly dependent on ocean resources. Yet ocean resources, the UN Sustainable Development goals associated with clean water and clean ocean are among the least funded of all the UN SDGs. These themes, they run across all the industries that I've seen in my 18 years of investing in emerging markets – across utilities, transportation, shipping, renewable energy, water treatment, distribution, sanitation, water efficiency. That two and a half trillion dollars of value that you referenced. I see it every day in my investing field, and I'll just close my opening remark here on that point of urgency. More than 90% of all the additional energy accumulating on Earth because of human changes to the climate has ended up in the ocean, more than 90%. And obviously that's most evident in the poles, but now also in the barrier reefs and changing weather patterns and coastal communities. So, I think as a financial industry, there's a lot we can do to amplify the great work being done by other members of this ecosystem.

Nick Trueman Thanks Samy. Really helpful introductory comments. Let me see if Poppy wants to wants to add anything at the top of the podcast.

Poppy Allonby Well, I just, when I think about the blue economy from a financial perspective, I think of two things. I think you've outlined and Samy has outlined, that this is an area that is a large part of the economy but is also growing. It's got a strong growth outlook. And secondly, when we're talking about the blue economy, it's about growth, but it's also about the preservation of our oceans and clean water resources. And Samy’s done a great job of highlighting that, but we need to look at sustainable approaches that can also serve to develop economies and improve livelihoods all around the world.

Nick Trueman It's clear then that the blue economy is a vital sector for the environment, for economies, for jobs, for communities around the globe. Definitely an important one to foster and develop. We know that water resources are under threat, and you can't have a blue economy without reliable and clean water to underpin it. Poppy, can you elaborate on some of the threats confronting the blue economy?

Poppy Allonby Sure. There are a number and they're coming at us from all directions. So the areas that people chiefly focus on are around water scarcity. So lack of available clean water. Pollution related to that, and then degradation of our waters ecosystems and, you know, where land meets water. As we've talked about, water covers 70% of the Earth's surface. But increasing demand and unpredictable supply have led to significant accessibility challenges for a huge amount of people. I think the U.N. estimate that now 2 billion people have challenges with getting access to sort of safe and secure water. So that is essential to health, food security, poverty reduction and economic stability. And then there are also big risks to marine ecosystems. This is to our fisheries stocks. But also oceans generate oxygen. They absorb excess heat and carbon and support those vital ecosystems that so many of us rely on.

So, you know, I'm naturally an optimist I would say Nick. So even though you can look at all of these challenges and it can feel overwhelming, generally when I hear the word challenge, I also think about opportunities for solutions. And I think the positive story here is as Samy mentioned, there's innovation underway, whether that be in terms of power supply and offshore renewables, or through to the transformation of ports and shipping. So, while there are many challenges, that also paves the way for people to get involved and do something about it.

Nick Trueman So there are two factors at play here. The importance of the blue economy to global economic activity and livelihoods, and the rising threats to water resources that underpin it. It partially explains why bodies such as the United Nations have created programs that foster more sustainable development of these resources. Among them are a series of sustainable development goals or SDGs. Samy - Help us understand more about these activities and the Sustainable Development Goals.

Samy Muaddi Thanks, Nick. I'd start in 2010 when the United Nations General Assembly passed a resolution recognizing that access to clean water and sanitation is a human right. And expanding upon that this is tied into the 17 sustainable development goals passed in 2015 that defined specific targets to be met by 2030. The Sustainable Development Goals or SDGs. They provide a blueprint of the global goals to achieve a sustainable future and an equitable future.

The two that I think we're really focused on here in our discussion are the goals linked to water. SDG 6 for clean water and sanitation and SDG 14 for life below the water or clean ocean. These are among the least funded of the SDGs despite what I talked about earlier, is the universal value shared by everyone that I meet around the world on the importance of clean water to our history, our culture and our communities. Now the investment required to fix that. So taking that challenge and then Poppy's optimism on opportunity, the investment required to meet the UN SDGs is now estimated, it's going to require 5 to $7 trillion in annual investment through 2030. You know, a significant portion of that being tied to clean water.

And I would just close again, I really want to underscore this point that Poppy made. While we're focusing on water. Water is a development issue. It's an equity issue. The lack of clean water disproportionately impacts the poorest populations, it disproportionately impacts youth in the global south, and then it disproportionately impacts women, as well. So I would go back and maybe close that word responsibility. I think we in the financial industry have a responsibility to amplify the work that's being done to help address these issues.

Nick Trueman With 5 to 7 trillion US dollar dollars in annual investment required through to 2030 to meet the UN SDGs, there appears to be a clear role for the financial sector to play a part in mobilizing capital towards projects that can help address these challenges. Poppy, you were a COP 28. COP stands for Conference of Parties. It's an annual UN climate change conference. What were you hearing from the delegates?

Poppy Allonby Thanks, Nick. So one of the things that came out of COP was much more of a narrative around how important the oceans are. In fact, you often heard in the hallways and in the meeting rooms that you can't get to a Paris one and a half degree aligned scenario without considering the oceans. Some of that is because of the reasons Samy outlined in that the ocean is the largest carbon sink and absorbs about 90% of the warming generated from climate change and forms. Part of the nature-based solutions that are being discussed at COP and other related events.

I was encouraged by a number of announcements at COP. For example, the US and the UK reaffirm support of the Green Shipping Challenge to help propel the shipping sector towards zero emission fuels. And the US and the UK are together establishing a taskforce to try and create green shipping corridors between the two countries. Also, the high level commitment to triple renewables globally should impact oceans. When we think about things like offshore wind and tidal generation. I think that private and public partnerships can play an important role here. They can do that in a number of ways, but when they work well, they can really mobilize larger amounts of capital than public sector can do on its own, or the private sector can do it on its own. This can be through creating direct joint ventures and partnerships. It can be through the public sector underwriting first losses or taking first loss provision. Equity markets also have a role to play.

Nick Trueman We have heard from Poppy around some of the discussions that took place at COP 28, Samy do you have any additional perspectives that you would like to share?

Samy Muaddi Yeah, I just want to underscore one point. I think we often think of water issues as being funded by the public sector. And I just want to spend a little bit more time elaborating why the private sector can also play a role there.

First, I've been investing in developing countries for almost 20 years now, and it's not lost on me that we're currently experiencing the most significant period of sovereign distress, probably since the 1980s, with high levels of debt in developing countries, and also higher interest rates because of the volatility in global inflation. So public sector balance sheets are constrained and cyclically therefore, it is quite important for the private sector to play a role here. As we shared earlier in our conversation there's no time to waste. Climate change doesn't wait for our debt issues to get resolved.

Second, there's a real opportunity on why the private sector can play a role in an area that I think most have traditionally thought of as public oriented investment.

Nick Trueman Let's stop there because we're going to be talking about innovations in blue financing in a future episode. We'll also be taking a closer look at some of the distinct water pressures threatening the blue economy in Latin America, and the implications of climate events like El Nino.

If I were to summarize today's discussion that the key takeaways are how important the blue economy is for our planet and our daily lives, but also how important it is for the global economy. At the same time, there are numerous challenges confronting global water resources, chiefly water scarcity, pollution and degradation. While there are global initiatives to help address these challenges, such as the UN Sustainable Development Goals, there remain real funding gaps to achieve them.

Samy/Poppy - thank you very much for the insightful debate and discussion that we've had today. I really enjoyed it and I hope our listeners have too.

Poppy Allonby Thanks, Nick. I look forward to listening to the other episodes of “The Angle”.

Samy Muaddi I enjoyed that. Thank you both.

Nick Trueman And thank you for listening to “The Angle”. We look forward to your company on future episodes. You can find more information on the blue economy on our website. Please rate us and subscribe wherever you get your podcasts.

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The views contained herein are those of the speakers as of the date of the recording and are subject to change without notice. These views may differ from those of other T. Rowe Price companies and/or associates. Information is based upon sources we consider to be reliable; we do not, however, guarantee accuracy.

The green bond market value is sourced from Climate Bonds Initiative’ (Climate Bonds’) Market Intelligence, which announced that USD2 trillion in green bonds had been issued-to-date, as of September 2022.

The amount of 5 to 7 trillion US dollars estimated in annual investment required to meet the UN SDGs through 2030, is provided by the United Nations.

This podcast is copyright 2024 by T. Rowe Price.