‘Blue Bonds’: Selling Seychelles for the Seashore

July 6, 2019, 2:00 PM UTC
(GERMANY OUT) Anse Source d'Argent, La Digue, drittgroesste Insell, Seychellen, Seychelles, SYC, Inselstaat, Africa, Afrika, Suedliches Afrika, Westkueste, Afrasia, Indischer Ozean, Maskarenruecken, Tropen, Archipel, Inseln, Granitinseln, Koralleninseln, Insel, Trauminsel, Naturreservat, Natur, Landschaft, Urlaubsparadies, Traumreise,Strand, Traumstrand, Palmenstrand, weisser Sandstrand, Sand, Sandkueste, Tropenstrand, exotisch, Bucht, Korallen Riff, Meer, Kueste, kristallklares Wasser, Palmen, Granitfelsen, Granit, Gestein, Granitfelsen, Felsen, Felseninsel, granite, granite rocks, eroded rocks, colour tones, Eastern Africa, Indian Ocean, island, dream island, coast, costal, bay, Beach, dream beach, tropical beach, nature, Landscape, white sandy beach, holiday, clear blue water, Top Strand der Welt, beruehmteste Strand der Insel , Aufnahmedatum:2016, (Photo by Raimund Franken/ullstein bild via Getty Images)
Raimund Franken—ullstein bild via Getty Images

Can we financially engineer our way out of climate change and polluted oceans? Maybe not, but financial innovation is emerging as a popular tool to help in the race to protect the planet. Last year, the market for “green bonds,” a decade-old asset class that funds environmentally friendly projects, reached a record $163.7 billion, up from $36.6 billion issued in 2014, according to the Climate Bonds Initiative, an international not-for-profit.

Now there is a wave of novel financial instruments aimed at saving the oceans and alleviating the world’s water crises. They include “blue bonds,” which, structured like their chromatic cousins, are being used to raise money to tackle issues from the ocean’s plastic waste problem (Morgan Stanley recently sold $10 million worth) to wastewater management. Last year, Seychelles launched a multimillion-dollar blue bond, and the Nordic Investment Bank, on behalf of Baltic and Nordic countries, did so this year. “We’re just scratching the surface,” says Navindu Katugampola, head of green, social, and sustainability bonds at Morgan Stanley.

Seychelles, whose economy—largely, tourism and fish—heavily depend on healthy oceans, also did a groundbreaking deal with the international nonprofit The Nature Conservancy (TNC). In exchange for TNC purchasing and refinancing a chunk of the nation’s debt, the government committed to using the newly raised capital to protect and manage marine resources. TNC, which structured the deal like previous (and successful) debt-for-nature swaps in Latin America, plans to work with dozens of other coastal and island nations on similar financing maneuvers. Done right, says TNC’s Robert Weary, the whole “blue economy”—livelihoods and the environment—should be better off.

A version of this article appears in the July 2019 issue of Fortune with the headline “Selling Seychelles for the Seashore.”

More must-read stories from Fortune:

Don’t miss the daily Term Sheet, Fortune‘s newsletter on deals and dealmakers.

Read More

LeadershipCryptocurrencyInflationGreat ResignationInvesting