Blue bonds and loans are specialized financing instruments dedicated to funding projects focused on ocean- and/or water-related initiatives in the sustainable debt market.

Notably, S&P Global Ratings has observed green projects in low- and middle-income countries that fall under the blue banner or align with blue themes, where there is significant need to close the climate finance gap and protect biodiversity. Blue project categories, such as conservation of the aquatic ecosystem, are predominantly financed by sovereigns, local governments, and public enterprises. Water and wastewater management projects are usually financed by for-profit companies.

Why it matters:   Blue issuances can be considered part of the sustainable financing landscape as long as they adhere to the fundamental principles, such as the Green Bond Principles. In doing so, blue issuances contribute to sustainable development and environmental preservation.

Who Determines Whether A Bond Is Blue?

The classification of a bond as green, blue, sustainability, or social is determined by the issuer, based on the primary objectives of underlying projects. An issuer can label bonds whose proceeds are used exclusively to finance ocean- and/or water-related projects as blue bonds. In some case, these projects may also have social co-benefits. We have provided SPOs on a range of financings with the blue label. We may opine on adherence to certain best practice documents for blue finance at the issuer's request, and where appropriate.

Chart 1

Blue Bond Issuance Is A Relative Newcomer

The first sustainable financing instrument was issued in 2007 by the European Investment Bank. More than 10 years later, in 2018, the government of Seychelles launched the world's first blue bond, with support from The Nature Conservancy (TNC) and the World Bank. The proceeds of that issuance were allocated to support marine protected areas and sustainable fisheries projects.

The Environmental Finance registry shows that 42 issuers from various sectors have since participated in the blue bond market. Corporates and sovereigns are the most active issuers, with the water and wastewater services sector the most common among corporates. Like sovereigns, for-profit companies and financial institutions play a crucial role in providing the necessary financing to support and develop the blue bond market (see chart 2).

Chart 2

SDG 14, Life Below Water, is currently one of the least funded of the U.N.'s 17 SDGs, according to Environmental Finance Data. The World Economic Forum estimates that $175 billion of blue finance is required annually to achieve SDG14 by 2030. Regionally, Latin America has the greatest issuance, namely in Brazil and Ecuador, followed by Asia-Pacific (see chart 3).

Chart 3

Blue Projects Typically Support Clean Water And Healthy Aquatic Ecosystems

In analyzing projects under our SPOs, we note that the majority with a blue label focus on improving environmentally sustainable outcomes. This means they also fall under the broader umbrella of "green" projects. The blue subcategory places particular emphasis on protecting and restoring healthy oceans and aquatic ecosystems, alongside other environmental objectives like climate adaptation and pollution reduction. Depending on the referenced guidelines, blue projects can include ocean- and/or water-related projects.

Some of the most common project categories with a blue label include:

• Aquaculture, fisheries, and the seafood value chain
• Offshore renewable energy development
• Water supply
• Wastewater treatment and sanitation
• Clean marine transportation
• Aquatic ecosystem restoration
• Sustainable ocean and marine tourism
• Ocean- and water-friendly products

Our SPOs Have Covered Marine Financings With And Without A Blue Label

Almost 40 of the SPOs we've produced since 2023 include ocean- or water-related projects. Nevertheless, only a small percentage of the financings we analyzed used a blue label or indicated alignment to a particular set of blue finance guidelines (see table 1). Our SPOs are a point-in-time analysis of a sustainable financing instrument, program, transaction, or framework and the characteristics of the issuing entity that we consider relevant for the implementation of the instrument, program, transaction, or framework. We use the term financing to mean any sustainable finance instrument, program, transaction, or framework that can be assessed under this analytical approach.

To provide transparency to the market, we will incorporate our opinion on whether the financing incorporates the key recommendations of selected blue finance or Sustainable Blue Economy (SBE) guidelines. SPOs are not credit ratings, do not consider credit quality, and do not factor into our credit ratings.

Table 1

Blue projects typically contribute to a low-carbon, climate resilient future, and are thus assigned a Shade of Light green, Medium green, or Dark green.   Since blue projects are generally a subset of green projects, we will assign them one of the three green Shades when they are included among the use of proceeds. The choice of financing label, be it green, environmental, or blue, depends on the issuer and is separate from our assignment of the Shade.

In our SPOs, we have assigned Dark green or Medium green shades to blue projects focused on the conservation of terrestrial and aquatic biodiversity, depending on the environmental and climate safeguards in place. Water and wastewater treatment projects with limited environmental and climate safeguards tend to be assigned a Medium green or Light green shade.

While assessing blue projects, we also consider the UN Environment Program finance initiative's "Recommended Exclusions for Financing a Sustainable Blue Economy" because those excluded projects may not have a positive environmental impact or be inconsistent with a low-carbon, climate resilient future.

A Shade represents our qualitative opinion of how consistent an economic activity or financial investment is with a low-carbon climate resilient (LCCR) future.   We define an LCCR future as one aligned with the Paris Agreement, where the global average temperature increase is held below 2 degrees Celsius (2 C), with efforts to limit it to 1.5 C above pre-industrial levels. We determine a Shade for an activity by weighing our analytical conclusions on climate and non-climate environmental factors across the activity's value chain and considering jurisdictional differences. We assess these factors jointly and holistically; we do not assess them individually because environmental factors often have material interconnections.

Our analytical approach to assign a Shade focuses on the most material climate and non-climate environmental factors (see "Analytical Approach: Shades Of Green Assessments," published July 27, 2023). In the case of many blue-labelled projects, non-climate benefits such as preventing pollution or restoring biodiversity may be the most material factors and will influence the Shade we assign. That said, these projects may also have important environmental co-benefits (such as stronger physical climate resilience) or introduce risks (such as energy-intensive processes). We will also consider these co-benefits and risks in our analysis.

Blue Projects Can Have Important Social Co-Benefits

Many blue projects are designed to achieve a range of social and environmental benefits. Our Shades of Green analytical approach focuses on environmental benefits associated with these projects. However, we may comment on material social benefits in our SPO, either in the issuer sustainability context or the project analysis section of the report.

We may also see blue projects that focus primarily on social objectives, such as employment generation. If the use of proceeds of blue financing is submitted to us as a social project, we follow our analytical approach to understand the social issue the project is meant to address. We also consider whether there is a target population and how it is defined, and then assess how the project is meant to provide social benefits. In addition, we consider what social risks the project may introduce and what safeguards have been put in place to manage or mitigate those risks. The presence of environmental co-benefits would not affect our determination of whether the project has social benefits, but we may mention this in our SPO.

Sustainability-Linked Financings May Use KPIs That Support Blue Objectives

Financing guideline documents, such as Bonds to Finance the Sustainable Blue Economy: A Practitioner's Guide, have addressed the role of sustainability-linked instruments in supporting sustainable oceans and marine economies.

If we are reviewing a sustainability-linked financing that is labeled as blue, we would expect the KPIs (key performance indicators) to address a material sustainability challenge for ocean or marine environments.  We would also expect to see a link with sustainability issues faced by the issuer's sector and sustainability strategy. In these cases, our opinion on whether the KPI meets the requirements for alignment with Principles will still be based on whether the KPI is relevant, core, and material to the issuer's overall business and sustainability strategy; whether it is measurable and verifiable; and whether it can be benchmarked.

For some issuers, such as governments with direct oversight of coastal and marine ecosystems, utilities with water and wastewater treatment objectives, or maritime transportation enterprises, there may be significant overlap between metrics that are most material to the issuer and its strategy, and measure improvements in the sustainable management of marine systems and economies. However, issuers with less of a direct relationship to blue themes may struggle to demonstrate a KPI that is material to its sustainability strategy.

A Review Of Adherence To A Blue Financing Guidance Document Is A Separate Exercise In Our SPO Assessment

Based on the SPOs we have conducted on blue financings, we observe that blue projects have consistently demonstrated environmental benefits and contributions toward a low-carbon climate resilient future. Hence blue projects and financings are included in the broader category of sustainable finance.

Our SPO provides an opinion on whether the documentation of the financing aligns with certain third-party published sustainable finance principles and guidelines (together, Principles).  

The key components that determine whether the financing aligns with the Principles are the issuer's use of the proceeds, process for evaluating and selecting projects, management of proceeds, and reporting. For sustainability-linked financings, they are the selection of KPIs, calibration of sustainability performance targets, bond characteristics, reporting, and verification. For more information about the requirements for alignment, see our Analytical Approach: Second Party Opinions: Use Of Proceeds.

There are numerous guidance documents for blue finance, which may inform our opinions.   Although there are differences in audience and granularity among the main documents, available guidelines have largely consistent objectives. They emphasize the importance of sustainable practices in managing ocean and marine resources, and highlight the need for financing that supports environmental and economic sustainability. Moreover, they stress the need for collaboration among various stakeholders, including governments, financial institutions, and the private sector, to effectively implement blue finance initiatives. The varied approaches in these documents can complement each other, providing a comprehensive toolkit for stakeholders engaged in blue finance.

Table 2

When relevant, or upon request from the issuer, we may assess adherence with certain published blue finance guidance documents.   Since the recommendations or requirements in such guidance documents may vary, our assessment will coincide with different analytical components of our SPO. First, we will provide a summary within the issuer sustainability context section of our SPO an opinion on the issuer's adherence to the selected blue finance guidelines' requirements and key recommendations.

We may additionally comment on specific analytical considerations throughout the report, where the requirements or recommendations of blue finance guidance documents have been incorporated. Depending on the type of financing, this would most frequently be in the project analysis section, in the process for project evaluation and selection sections of our use-of-proceeds SPOs, or--for sustainability-linked financings--in the selection of KPIs section.

For example, in our SPO on Los Cipreses S.A.'s (Buquebus) Blue Finance Framework, we noted in the issuer sustainability context section that the financing framework specifically references the IFC's Guidelines for Blue Finance. Similarly, the Qingdao and Maoming Port Group SPOs noted that the issuer referenced the Guide for Bonds to Finance the Sustainable Blue Economy in the use-of-proceeds section.

The Blue Bond Market Is Small But Growing

As of Oct. 31, 2024, the global blue bond market was worth approximately $13.4 billion, representing less than 1% of the sustainable finance market according to Environmental Finance Data. Issuers, investors, and governments are showing increasing interest in blue bonds and loans, due to the potential environmental benefits of projects financed, particularly related to resilient aquatic ecosystems.

Our SPOs include a range of opinions on the transparency, governance, and sustainability benefits of blue projects and financings. While our published SPOs to date have included only a handful of financings with the blue label, we anticipate this number may rise alongside growth of the blue-labeled issuance market.

Editor:   Bernadette Stroeder

Digital Designer:   Victoria Schumacher

Related Criteria

• Analytical Approach: Shades Of Green Assessments, July 27, 2023
• Analytical Approach: Second Party Opinions: Use Of Proceeds, July 27 2023

Related Research

• Los Cipreses S.A.'s (Buquebus) Blue Finance Framework, Aug. 14, 2024
• Qingdao Conson Development (Group) Co. Ltd. Green and Blue Finance Framework, July 12, 2024
• SPO Spotlight: Second Party Opinions, March 28, 2024
• Maoming Port Group Co. Ltd. Green and Blue Finance Framework, March 14, 2024
• Debt-For-Nature Swaps Are Gaining Traction Among Lower-Rated Sovereigns, Feb. 27, 2024
• Sustainable Bond Issuance To Approach $1 Trillion In 2024, Feb. 13, 2024
• Sustainable Finance Newsletter Q2 2024, Aug. 1, 2024

External Research

• Environmental Finance Data (website)
• Guidelines Blue Finance: Guidance for financing the Blue Economy, building on the Green Bond Principles and the Green Loan Principles, January 2022
• Bonds to Finance the Sustainable Blue Economy A Practitioner's Guide 2023 , September 2023
• SDG14 Financing Landscape Scan: Tracking Funds to Realize Sustainable Outcomes for the Ocean [White Paper], World Economic Forum, 2022.