Ocean investing was a hot topic at the COP17 climate change conference in Egypt, as we discuss with Christian Lim of SWEN Capital Partners, managers of the Blue Ocean Fund.
The COP27 climate change conference fell short of expectations in terms of yielding extra commitments to limit global warming, but one positive outcome reported from Sharm el-Sheikh was a growing understanding among delegates of the key oceans play in the process.
Christian Lim, managing director of venture capital firm SWEN Capital Partners, mangers of the Blue Ocean Fund, who attended the conference, said heightened awareness of the need for greater investment in products and services contributing to ocean protection and restoration was good news for impact investors.
“The lack of concrete commitments at COP27 to limiting warming to 1.5 degrees is obviously a concern. But an important takeaway for us in the ocean space is that greater attention was given to the ocean as a key regulator of climate change, and for the first time at climate change talks, there a was an ocean pavilion at COP 27,” Lim told Impact Investor.
The SWEN Blue Ocean Fund, invests in startups providing solutions to overfishing, pollution or climate change. In October, SWEN announced the fund had exceeded a target of €120 million from its backers, having already reached €150m ahead of its close in December.
Lim said that a pledge by donor countries at COP27 to establish a loss and damage fund to finance remedies to climate change impacts in the developing world could result in some increase in funding for projects focused on ocean restoration and conservation, given rising sea levels are caused by ice melt triggered by global warming. But the huge sums needed, and the broad range of pressures on the oceans, such as wastewater and plastics pollution and biodiversity loss, meant the bulk of ocean financing would need to come from elsewhere.
“Even a well-endowed fund would probably only scratch the surface. We will still need to develop market mechanisms such as blue carbon and biodiversity credits to address the problems,” he said.
Pressure to act
The world’s oceans have not received the same focus from financiers as other areas of sustainable investment, partly because many climate change impacts on the oceans are harder to see and monitor than those above water. However, there are signs that both public and private investors are starting to incorporate measures to improve the health of the world’s oceans into their environmental strategies.
“There’s been a rising awareness of the threat to oceans from the impact of consumers that live around them, and this translates into pressure on governments and corporates to address the impact that industry is having on the ocean,” Lim said
The launch of the Blue Mediterranean Partnership at COP27 is one indication of efforts to create a more joined up approach to funding projects that reduce ocean pollution, boost sustainable aquaculture, improve coastal resilience, and cut marine transport emissions among other things. Financing from donor countries, financial institutions, philanthropists and beneficiary countries will initially target projects in Egypt, Jordan and Morocco.
Meanwhile, attitudes towards the impact benefits on offer from ocean investing – and the returns – are changing fast, according to Lim.
“Three years ago, it was almost only family offices investing. Now, we have institutional investors investing. Mainstream investors all now looking at the ocean, so I think there’s clearly momentum and the growing understanding of the opportunity,” he said.
Targeting competitive returns
The scope for a venture capital company with a stated sustainable investment mission, such as SWEN, to provide competitive returns for its backers from the ocean sector is increasing, according to Lim.
“The companies we invest in would all be able to raise money from non-impact investors. Their rounds are generally oversubscribed. But they want an investor who is aligned not just in terms of returns and business performance, but also on impact. They choose us because we can help them accelerate both their returns and impact,” he said.
As with most venture capital investments, it will take several years to confirm whether the Blue Ocean Fund’s strategy is a financial success, but Lim said that, overall, the companies in which it had invested in so far were “performing well overall and in line with our plan to deliver market-based returns to our investors”.
The fund selects companies to invest in on the basis that their products are more sustainable than similar existing products or services by generating fewer carbon emissions or providing other forms of climate mitigation, while matching them on performance and cost.
“Because everything is interconnected with the ocean, it’s possible with investment in one type of technology innovation to address several drivers of pressures on the ocean,” according to Lim.
One illustration of this is the fund’s investment in Norway-based Eco Subsea. The firm uses robots to detect and remove organic matter – so-called biofouling – from the hulls of vessels. This is safer and more efficient than using divers to remove material that damages the hull and creates drag when ships move through water. Less drag means less fuel is required during a voyage, which in turn means fewer emissions. A cleaner hull also helps to reduce the spread of invasive species from one part of the world’s oceans to another, a problem to which the shipping industry is a major contributor.
Another company in which the fund has invested, French-based 900.care, sells personal care products such as shampoo and lotions in a dry format to which water is added at home. That cuts down on or removes the need for plastic packaging that could find its way into the sea, as well as cutting emissions from sea – and land – transport, because the products are smaller and lighter than traditional personal care products.
The Blue Ocean Fund has so far invested in eight companies and plans to invest in 20-25 firms in total, with first investments of up to some €6m, with a limit of around €15m on total investment in any one company.