Advancing Our Sustainable Investing Strategy: Protecting Sustainable Use of Water and Marine Resources in Latin America

By Gregory Simcik, CFA, Director of Credit Research, Fixed-Income Investments and Lan Cai, Chief Investment Officer

The Pension Boards is committed to being faithful stewards of the assets we manage on your behalf in alignment with United Church of Christ values in regard to people, planet, and principles—and in creating a just world for all. An investment in blue bonds is another example of our commitment to sustainability and achieving real-world impact.

Lan: What are blue bonds? Why do they matter?

Greg: Blue bonds are a special type of green bond but with a specific mission. While green bonds support a broad range of environmentally friendly projects including renewable energy, energy efficiency, clean transportation, and green buildings, blue bonds focus on marine environments, whose proceeds are generally allocated to projects addressing two of the 17 U.N. Sustainable Development Goals (SDG)—Clean Water and Sanitation (SDG 6) and Life Below Water (SDG 14)—which conserve and use the oceans, seas, and marine resources in a sustainable manner.

Lan: When did blue bonds begin to emerge in the finance world?

Greg: Blue bonds are relatively new in the sustainable finance world. They are quickly becoming an important tool for protecting water resources and supporting climate resilience—particularly for countries whose economies depend heavily on ocean and freshwater ecosystems for tourism, fisheries, agriculture, and local livelihoods.

The first blue bond was issued in 2018 for the Republic of Seychelles for $15 million—11 years following the first green bond issue—setting the stage for countries to use financial markets to protect oceans and freshwater systems. Since then, the blue bond market has slowly grown to about $5 billion a year, representing just 0.2% of $2 trillion global sustainable finance. While blue bonds are tiny in terms of total volume, their impact can be huge—especially as water issues become more urgent around the world.

Lan: Why has Latin America become a focus of blue bond issuance?

Greg: A number of emerging market countries have been turning to blue bonds to protect their natural resources while managing economic challenges. Some use these bonds in “debt-for-nature” swaps, where part of a country’s debt is alleviated in exchange for long-term commitments to environmental protection.

Latin America has become a focus of blue bond issuance lately given its economic reliance on ocean and freshwater environments, so investing in clean water and resilient ecosystems isn’t just good for the planet, it’s good for local communities and economic stability.

Historically Committed to Investing Sustainably on Your Behalf

Lan: I see that this Pension Boards investment in blue bonds is a natural extension of its commitment to sustainability and longer-term positive impact of the retirement assets it manages on our members’ behalf. Can you offer our readers additional examples of our commitment to sustainability?

Greg: Of course. In 2014 for example, the Pension Boards made its first green bond purchase via European Investment Bank’s “Climate Awareness Bond,” which set the standard for using proceeds to finance climate-related projects. This followed with more varied green bond investments. Then, in 2016, the Pension Boards invested in Starbuck’s first social bond, which benefited historically underrepresented groups and underserved populations.

In 2020, to help curb the spread of Covid, we invested in the African Development Bank’s “Fight Covid-19” bond, which provided support to African countries to curb the spread of Covid-19 and cushion its negative impacts on economies and livelihoods.

Later, the Pension Boards made investments where capital raised by the Central European Bank was used to provide loans to its member countries that, in turn, addressed Ukrainian refugees’ needs for housing, education, vocational training, and health care.

While these are just some examples, the work toward justice and sustainability continues­—impacting lives and economies both locally and globally. 

Lan: Thank you, Greg, for providing examples of the positive impact our retirement assets have in creating a just world for all.