Blue bonds could finance a fish stock recovery, says Planet Tracker
With wild-catch fishery production set to decline, favourable debt financing vehicles may be the incentive necessary to ensure long-term replenishment of global fish stocks
London, 20 August 2020. With demand projected to rise, seafood production must increase by 118% to meet healthy dietary requirements by 2050. However, wild-catch production is expected to decline, or, at best, plateau, under a business-as-usual (BAU) scenario. To ensure sufficient resources to feed the world’s growing population, a period of restraint is needed to allow ecosystems to replenish, says the latest briefing paper by financial think tank Planet Tracker.
Planet Tracker constructed a model to explore the feasibility of a global recovery of fish stocks, analysing all commercial wild-catch fishing companies worldwide. The model indicates that while a BAU scenario reveals higher free cash flow in the early years, profits and free cash flow drop below the recovery scenario from year 6 and become negative in year 17.
This means that commercial fishing companies will not be able to finance themselves through funds generated by their own operations from Year 17 and will require external capital. However, while most commercial fishing companies may agree that replenishing fish stocks will ultimately lead to higher profit, they may be unable or unwilling to bear the short-term financial consequences.
In this light, Planet Tracker proposes that a blue bond may be the solution, whereby investors would subsidise the difference in free cash flow compared to a BAU scenario for five years, provided that companies demonstrate they are fishing at a reduced capacity. Once stocks begin to recover, companies may fish at a higher rate again and begin repaying investors.
Under this framework, the interests of both investors and fishing companies are both aligned and there would be a financial incentive to prevent overfishing.
While there are barriers to the successful implementation of this framework including finding the right bond issuer agreement, appropriate monitoring and regulation and potential impact on seafood processing companies and employment in the wild-catch fishery sector, holistic management policies for the blue economy have been shown to improve sustainability and profitability at regional scale. Indeed, evidence indicates that the global costs-benefits ratio – the overall monetary benefits of a project relative to its costs – for fisheries management reform is approximately 9.2:1, with the ratio higher than 200 in some countries.
Agreeing a global quota to fish poses yet another obstacle; however, on August 17th 2020, the European Commission adopted a proposal to implement a multiannual management plan for some fish stocks in the Western Mediterranean, signifying a step towards solving this problem.
Restrictions on catch, together with robust debt financing vehicles, can assist in creating a financially conservative transition scenario to sustainable oceans, which is not only more profitable than BAU in the long-term, but also supports the global goal of feeding a growing population and preventing the collapse of vital ocean ecosystems.
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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 to investigate the risk of market failure related to environmental limits. This investigation is primarily for the investor community where environmental limits, other than climate change, are poorly understood, even more poorly communicated and 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 failure and financial collapse.
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