Frankfurt-based Solactive has introduced the Solactive Blue Bond Index, an innovative new fixed income index that is the first to target so-called ‘blue bonds’, debt securities whose proceeds are earmarked to finance sustainable marine and water-related projects.
The blue economy contributes to approximately 5% of global GDP.
The new index may be used as the underlying for investment products, including ETFs, which cater to investors who are interested in integrating ESG impact strategies into their portfolios.
The blue economy, encompassing sectors such as shipping and aquatic resources, contributes to approximately 5% of global GDP, equivalent to around $3 trillion annually, according to the UN Global Compact. The sector also plays a crucial role in supporting the livelihoods of approximately three billion people worldwide.
Despite the importance of the blue economy, there are many risks affecting ocean and water systems worldwide. These include the sustainability of global fish stocks (research from the Food and Agriculture Organization showed that the proportion of fish stocks within biologically sustainable levels declined from 90% to 68.6% between 1974 and 2013) and the availability of safe drinking water (which, as of 2020, was still not a reality for over a quarter of the global population, according to the World Health Organization).
First introduced in 2018, blue bonds are aimed at directing finance into projects that can make a positive impact on solving these problems through the protection of water and ocean life.
The Solactive Blue Bond Index has been designed in partnership with the Climate Bonds Initiative (CBI), an investor-focused not-for-profit working to mobilize bond markets for climate change solutions.
The index harnesses CBI’s data capabilities to screen for ‘blue’ bonds issued globally by governments, development banks, or other financial institutions. According to the organization, blue bonds are instruments in which the proceeds will be exclusively applied (either by specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing Blue Projects – defined here as projects and activities that promote marine conservation and sustainable use of marine resources, protecting ocean ecosystems, and improving water management.
Inflation-linked bonds, convertible bonds, municipal bonds, ABS, MBS, and other structured securities are not eligible to be included in the index.
Constituents are weighted by market value, and the index is rebalanced on a monthly basis.
The new index’s release comes approximately a decade after Solactive introduced the world’s inaugural index targeting green bonds, a broader category of debt securities designated to finance environmentally friendly projects. Several launches of green bond index variations followed over the years, serving as the basis for multiple ETFs which now collectively house billions of dollars in assets under management.
Timo Pfeiffer, Chief Markets Officer at Solactive, commented: “We are extremely proud to be at the forefront of launching the Blue Bond Index, underscoring Solactive’s commitment to innovation, the same way we did with the Green Bond Index and the Social and Sustainable Bond Index. While the blue bonds’ segment is still in its early stages, we aim to provide greater visibility and transparency into this vital market’s development and effectively respond to the needs and expectations of society.”