In July 2023, an Ecuador Blue Bond continues the country’s efforts to take pioneering steps towards sustainable marine conservation and economic growth ‘responsible management of oceans’ with the issuance of a Blue Bond (second after the marine blue bond for the Galapagos Islands) with incentives for achieving the targeted objectives, facilitated by IDB Invest, Banco Bolivariano, and FinDev Canada. This innovative financial instrument aims to channel investments into projects that protect marine ecosystems and promote sustainable practices.
We explore the financial details and significance of Ecuador’s Blue Bond aligned to the Taskforce on Nature-related Financial Disclosure (TNFD), highlighting its potential to transform marine conservation and support sustainable development. IDB Invest will subscribe US$ 40 million and FinDev Canada US$40 million to the blue bond issued by Banco Bolivariano.
Understanding Blue Bonds
“Blue Bonds” are debt instruments designed to raise capital for projects that protect and enhance marine and freshwater ecosystems. They align with the principles of sustainable finance, emphasizing environmental conservation, social inclusion, and economic viability.
Financial Structure of the Ecuador Blue Bond
Banco Bolivariano becomes one of the first banks in Latin America to adhere to the principles of the Taskforce on Nature-related Financial Disclosure (TNFD), a disclosure framework for organizations and financial institutions to report and act on evolving nature-related risks. In the event of failure to meet the objectives, a fee will be paid to investors by the issuer.
Bond Size and Tenor
- Total Issuance: USD 80 million
- Tenor: 5 years
As part of the bond issuance process, IDB Invest accompanies Banco Bolivariano with an advisory service whose objective is to define its roadmap to align with the recommendations of the TNFD framework, help the lender’s clients get training on the measurement reporting of environmental risks, and design the methodological framework for the use of funds. This contains the criteria for selection, monitoring and evaluation of projects, aligned with internationally accepted principles for blue emission.
IDB Invest also supported Banco Bolivariano in obtaining an independent verification of the methodological framework, known as a second-party opinion, issued by Sustainalytics (a Morningstar company), an external consultant specialized in this type of project.
Impact and Benefits
The issuance of Ecuador’s Blue Bond by IDB Invest, Banco Bolivariano, and FinDev Canada is expected to deliver substantial environmental, social, and economic benefits:
Economic Benefits
- Increasing access to financing for local businesses: The Blue Bond will provide financing to both existing and new clients: for example, seafood producers seeking a sustainability certification due to the increasing demand for sustainable seafood production in the global market, or the companies aiming to optimize production of seafood in a sustainable way, contributing to greater food security.
- Supporting sectors that contribute to local job creation: The sectors supported by the Blue Bond are important contributors to local employment. Furthermore, the certifications for seafood companies (Marine Stewardship Council (MSC), Aquaculture Stewardship Council (ASC) and Best Aquaculture Practices (BAP)) are granted upon evaluations of working conditions such as fair wages, working hours, child labour risk mitigation, and social responsibility towards employees and local communities. All companies in the Blue Bond will need to offer formal employment that meet national law requirements.
Social Impact
2X Challenge qualification: A portion of the Banco Bolivariano transaction is eligible for 2X Challenge based on the Bank meeting the direct “Leadership” (45% of women senior managers vs. the 30% 2X threshold) and “Employment” criteria (56% of women employees vs. the 40% 2X threshold for financial services).
Environmental Impact
- Promoting sustainable practices: The Blue Bond will allocate funds to projects promoting sustainable fishing practices or enabling the protection of the environment and water resources. Specifically, the Blue Bond will support sustainable seafood producers, water and wastewater management, as well as solid waste management. Depending on their sector of operation, companies will be required to report on a variety of climate and nature related KPIs, such as annual greenhouse gas reduction, share of sustainable production within total production, reduction in marine and freshwater pollution, water savings, and amount of plastic recycled or reused.
- Alignment with climate and nature‑related disclosure frameworks: In 2023, Banco Bolivariano will start reporting its Scope 1 and 2 emissions in its Sustainability Report and will add Scope 3 reporting in the following years. Banco Bolivariano also intends to integrate nature‑related considerations in its operations and disclose in accordance with the TNFD.
Future Positive Impact of Blue Bonds
As we navigate the challenges of climate change and biodiversity loss, innovative solutions like Blue Bonds are essential for creating a world where economic development and environmental stewardship go hand in hand. The successful implementation of this blue bond sets a precedent for future sustainable finance initiatives, inspiring more investments in the health and resilience of our planet’s invaluable marine ecosystems.
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