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How Blended Finance Can Help Global Fisheries Recover

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POST WRITTEN BY
Tim Fitzgerald
This article is more than 6 years old.

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There is power in returns. At its core, that’s the notion behind blended finance, or the strategic use of philanthropic funds and development finance to mobilize private capital flows to emerging and frontier markets. Blended finance takes advantage of different types of capital – and their varied structures, risk preferences and desired investment outcomes – to grow the overall size of the pie dedicated towards critical conservation challenges.

A new report just released by Environmental Defense Fund’s Fishery Solutions Center and Duke University’s Nicholas Institute for Environmental Policy Solutions asserts that blended capital approaches offer a new opportunity to fill the all-too-common finance gap that has hampered the recovery of many of the world’s fisheries. And since I’m much more knowledgeable about fish than finance, let me tell you why this is important.

Most of the world’s wild fisheries are underperforming biologically and economically. They are fished either at or above their sustainable limits and the fishing communities that rely on them suffer as a result. This can stem from any number of factors - incomplete science, failing regulations, too much fishing effort, the use of destructive fishing gear, or a lack of enforcement.

But unlike other difficult conservation challenges, we already have most of the tools at our disposal to solve these problems. In fact, a recent study estimated that under sustainable management, nearly 80% of the world’s fisheries would recover within 10 years. Additionally, we could generate an additional 16 million metric tons of seafood and increase fishing sector revenues by more than $50 billion each year.

What we are often lacking is money, technical expertise, and political will. That’s where blended capital comes in.

Traditionally, the bill for fisheries reform has been footed by a combination of limited public sector capital, philanthropy and the work of NGOs. While this has resulted in notable successes around the world, the pace of this model will never keep up with scale of the problem. Although exact figures are nearly impossible to come by, one study estimated a global fisheries rebuilding effort would cost approximately $200 billion.

Despite clear evidence that rebuilding fish stocks will generate impressive upside for fish populations, local fishing communities and food security, fisheries reform has not attracted sufficient capital in the places where it is needed. We believe that increasing the use of blended capital approaches can build the necessary political will and amplify the supply of capital for effective fisheries reform – but only if development finance institutions (DFIs), philanthropy, NGOs and the impact investing community partner on innovative financing solutions with governments and the private sector.

So, where is the investment needed?

Essentially, the costs of fisheries governance reform occur in three stages:

  1. Policy instrument design (i.e. developing the solution);
  2. Policy instrument delivery (i.e. implementation); and
  3. Building sustainable seafood value chains to capture the economic upside of reform.

Each stage involves different economic costs, risks and agents of reform, with varying degrees to which the economic benefits can be monetized and captured to repay investors. Costs are typically weighted towards the initial stages of the process while the opposite is true of benefits, analogous to the ‘J-curve’ metaphor applied to startup companies. Typical stage one and two costs include things like stakeholder consultations, scientific studies of fish populations and sensitive habitats, and the design and implementation of systems to monitor and enforce sustainable levels of catch.

It’s worth noting that stage three has already proven attractive to private capital providers, who are often much more familiar investing in seafood quality improvements, processing infrastructure, and marketing. Yet without proper funding for the early stages of reform, the sustainability of the underlying resource cannot be secured, and investment in sustainable seafood value chains will ultimately fail.

Enter blended finance and the approaches articulated in the paper.

So to bring blue bond, impact, and more incremental investment approaches to fruition, a range of capital sources is needed to join the conversation, think creatively, make commitments and ultimately dig into the finer points of structuring blended capital investments. A key role that non-private sources of capital can play is leveraging their existing fisheries knowledge as a way of fostering dialogue and mitigating investment risk with the private finance community. This could include continued assessment and analysis of fisheries to better understand the unique risks the sector faces, as well as ongoing dialogue with both the investor and project developer communities to better understand their needs and challenges in overcoming those risks.

In summary, blended finance can become a key tool in our arsenal to mobilize meaningful amounts of capital towards fisheries management reform, which can help fish stocks recover, improve prosperity for fishing communities and contribute financial returns for private sector investors looking to be innovators and first movers.

For our part, we will continue to share best practices of sustainable fisheries management, and work with investors and other interested stakeholders to clearly identify the capital needs inherent in fishery reform opportunities around the world. Please join us in this effort to accelerate the pace and scale of global oceans recovery.