The Delaware Advantage for Impact Investors
By Jennifer Ayer & Steve Aucamp
Impact Investing, Trust and Estate Planning
It is out at sea that so many dramatic climate effects are so starkly felt. Ocean acidification diminishes coral reefs, for example, with the impact on biodiversity well documented.1 The destruction of this marine habitat itself has the knock-on effect of releasing more carbon dioxide, a key driver of climate change.2 It is estimated that oceans have absorbed something like 90% of the heat of industrialised civilisation and become a global trashcan for major oil spills and tiny microplastics.3
The fundamental problem lies in the fact that it can be hard to measure impact in the ocean given its sheer size and propensity to succumb to the tragedy of the commons. The effects on biodiversity are more readily measurable if we are to consider a plot of forestry or agriculture land, for example.
Despite the challenges, the oceans are the single biggest carbon sink on the planet, with biodiversity so rich we are still regularly discovering new species. Critically, the ocean economy provided $1.5 trillion in global added value in 2010, with projections that it could reach $3 trillion in 2030, according to the OECD. Given the importance of oceans to climate, biodiversity, and economic health, impact investors have begun to consider oceans as the next frontier of climate investing. In fact, recently ImpactAlpha reported that the investment opportunity in this sector has grown exponentially with the number of ocean-focused funds quadrupling since 2018 and capital invested in the blue economy has more than quintupled from $700 million in 2021 to close to $4 billion in 2023. 4
For all the unknowns, we increasingly see opportunities that mirror terrestrial investments in sustainable food production, clean energy generation and transport, and carbon sequestration. Indeed, AlTi is currently working with fund managers that are focused on ocean impact investment opportunities in all of these areas.
More than 3 billion people rely on fish to provide 20% or more of the animal protein in their diet. 5 New technologies that support sustainable aquaculture can protect wild fish stocks while still meeting the growing protein needs of the world. Spanning from software to measure fish health and hardware to collect detailed data, to nutritious fish feed derived from insects and microalgae, there are venture scale technologies and companies that will help feed the world.
Above the surface, ocean waves and sea winds can provide abundant clean energy. Examples include well-known opportunities like offshore wind, but we’re also tracking developments in floating solar technology and power generated by wave energy. Another exciting investment opportunity we are seeing develop rapidly is in electrifying fleets of commuter and sightseeing ferries. Paired with green fuels for cargo ships we believe ocean transport is poised to become much less carbon intensive. The sector has developed in a similar vein to the electric vehicle industry; the transition started with a program of reducing emissions on traditional fuels before bringing in a mix of hybrid, followed by fully electric power.
Nature-based solutions to carbon capture in the oceans present another welcome opportunity to catalyse impact while reaping financial returns. Kelp and microalgae have incredible potential to sequester carbon, and, crucially, they have several potential end-uses. Some companies are working to sink kelp in the ocean to store carbon for millennia while others are developing sustainable fuels, packaging, pharmaceuticals, fertilizers, and food from kelp and algae. The broad array of uses is opening new markets and opportunities.
Outside of the traditional private equity and venture capital opportunities commonly associated with climate investing, we’re also looking for catalytic ways to help coastal communities adapt to climate change and protect ocean biodiversity at scale.
With hurricane and flooding severity and frequency on the rise, many seaside communities need ways to protect their shorelines. Traditional concrete seawalls do little to protect biodiversity or improve ecosystems. Alternative models, such as replanting coral reefs, grown offsite in nurseries akin to a tree nursery, not only protect shorelines but provide a plethora of other benefits.
Consider a coastal resort that pays to replant coral reefs instead of building a concrete sea wall. One benefit is that the resort’s insurance premiums go down because coral reefs provide valuable green infrastructure. The reefs effectively serve as natural, underwater sea walls to protect against storm surge damage and other natural disasters, as well as further enhancing resilience to climate change. And as ocean biodiversity flourishes in among the restored reefs, more and more eco-tourists are attracted to the resort. It’s a win for both biodiversity, climate adaptation, and financial returns.
Governments at the UN Biodiversity Conference (COP 15) in late 2022 adopted a series of goals to protect global biodiversity. Among 23 targets is a goal to protect 30% of the world’s terrestrial, inland water, and coastal and marine areas by 2030, commonly referred to as “30x30”. To date, roughly only 17% of land and 8% of marine areas are under some form of protection. 6
Since the announcement of the global goal, AlTi has been seeking investment opportunities that can accelerate ocean protections. One idea we’ve explored is debt-for-nature swaps, which allow struggling economies to restructure their sovereign debt in ways that save money, satisfy bondholders, and support conservation. 7 Debt-for-nature swaps are not a new idea, the first was conducted in 1987, but they are increasingly being used to help coastal countries protect their oceans.
In late 2021, the Belize government signed a debt-for-nature swap deal with The Nature Conservancy (TNC), which reduced Belize’s sovereign debt by a sizable 10% of GDP.8 In return for this deal, Belize agreed to invest a portion of the cost savings from its sovereign debt restructuring into marine conservation, including doubling the number of marine protection parks by 2026.
More countries have followed suit. In May, the government of Ecuador signed a debt-for-nature swap, a central tenet of the deal looking to conserve and enhance biodiversity of marine ecosystems in the Galapagos Islands.9 These deals often require impact capital as part of the complicated financial restructuring, capital that is often in short supply. At AlTi, we’re actively investigating how climate and biodiversity focused impact investors can help catalyze and accelerate the adoption of ocean protections.
The risk is that the oceans are a vast and relatively unknown expanse, whose metrics on biodiversity and other impacts are difficult to measure, making it difficult to quantify potential returns. But the same trends advancing climate technology on land are coming to the oceans. Paired with the scale and potential of the oceans to deliver positive economic and climate outcomes, investors can’t afford to overlook these opportunities.
A good ocean investment strategy will always cautiously assess the risks ahead. At AlTi we’re charting a course to find the best investment opportunities to protect ocean biodiversity, while harnessing the full potential of the seas to mitigate and adapt to climate change.
Brad Harrison is Managing Director of Impact Investing at AlTi. His thought leadership on subjects such as family philanthropy and impact investing have led to partnerships with organizations like the Global Impact Investing Network and contributions to the New York Times, Impact Alpha and other publications.
Grant Mulligan is a Vice President at AlTi. He focuses on the firm’s climate sustainability impact investments, specifically net-zero strategies and nature-based solutions.
By Jennifer Ayer & Steve Aucamp
Impact Investing, Trust and Estate Planning
Trust and Estate Planning, Family Governance and Education, Impact Investing
By Teresa Wells
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