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A deep dive into the ‘blue economy’ with a dedicated index

Responsible Investing

BNP Paribas Asset Management
 

In a fast changing world, our focus is on achieving long-term sustainable investment returns for our clients.

The blue economy is worth trillions of dollars and includes a rich palette of resources, providing many jobs, livelihoods and food security. It can be a source of great investment opportunities, but the question is how to invest in it in a way that ensures sustainable management, protection and preservation.

Responsible investing requires improving human wellbeing and social inequity, while containing environmental risks and threats to the ecology. At stake are tangible ‘blue resources’ such as fish stocks and deep sea oil, but also intangibles such as coastal ways of life and carbon sequestration.

The blue economy comprises these sectors:

  • Fisheries
  • Aquaculture
  • Coastal and maritime tourism
  • Marine biotechnology and bioprospecting
  • Extractive industries
  • Desalination
  • Renewable marine energy
  • Maritime transport, ports and related services, such as shipping and shipbuilding
  • Waste disposal management
  • Supporting activities, such as ocean monitoring and surveillance, ecosystem-based management, activities supporting carbon sequestration, and supportive financial mechanisms [1]

How to select companies for a blue economy portfolio?

One way is to target those companies that are leading the field of the sustainable use of ocean resources, that meet strict environmental, social and governance (ESG) criteria and whose practices are aligned with the principles of the UN Global Compact.

This is the approach of the ECPI Global ESG Blue Economy index. The ECPI Group research database covers more than 4 000 listed issuers of securities throughout the developed world. Using extra-financial ratings based on three ESG pillars, companies are assigned an ESG rating. They are scored on factors such as environmental strategy and policy, production process, community relations and governance.

At the next filtering stage, it is determined which blue economy categories they fall into: protection of the coastline and ecotourism; offshore wind power, marine biotechnology, tidal and wave power; wild fishing, fish farms, fish breeding and genetics; recycling, waste management and environmental services; and container shipping and ships’ equipment.

Exhibit 1: Blue economy index – industry sector breakdown

Source: ECPI Group; 29 January 2021

Alignment with the UN Global Compact principles means companies should, for example, support and respect human rights and the freedom of association, steer clear of forced labour and child labour, and promote greater environmental responsibility.

To ensure diversification across countries, there is a geographical limit. For example, the US cannot account for more than 50% of the index. The bar is set at 10% for all other countries.

To be eligible for inclusion, the companies selected must have a minimum market capitalisation of EUR 500 million and the average volume of securities traded over the preceding six months must total at least EUR 3 million.

An additional opportunity to invest sustainably

As a global sustainability theme, investing in the blue economy is fully aligned with BNP Paris Asset Management’s sustainable investment priorities. These are focused on the energy transition, environmental protection and equality & inclusive growth.

We believe investing in the blue economy will help advance the fight against climate change and ensure that the oceans can continue to function as a sink for carbon emissions from human activity. Such investments are suited for investors with a long-term perspective, an interest in contributing to a greener future and making a positive impact.

In our view, finance can play a major role push companies linked to the blue economy to improve their practices. Those investors who consider the preservation of marine resources as an absolute priority are set to see investment opportunities in companies that develop marine and ocean projects opening up as awareness of the blue economy’s appeal grows.

 

[1] Source; The potential of the blue economy; World Bank Group, UN; 2017


 

This material is issued and has been prepared by a representative of BNP PARIBAS ASSET MANAGEMENT Australia Limited (“BNPP AMAU”) AFSL 223418 ABN 78 008 576 449.

This material is produced for information purposes only and does not constitute:
1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or
2. investment advice.

Opinions included in this material constitute the judgement of BNPP AMAU at the time specified and may be subject to change without notice. BNPP AMAU is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the financial instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for an investor’s investment portfolio.
Given the economic and market risks, there can be no assurance that the financial instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the financial instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the financial instruments may have a significant effect on the results portrayed in this material.

All information referred to in the present document is available on www.bnpparibas-am.com

 

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