Ocean Finance: Financing the Transition to a Sustainable Ocean Economy

Abstract

The ocean covers more than 70% of Earth’s surface and plays a crucial role in providing ecosystem goods and services that sustain life and support the well-being of billions of people worldwide (Teh and Sumaila 2013; FAO 2018; Hoegh-Guldberg et al. 2019; IPBES (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) 2019). The ocean holds many economic opportunities, and many experts are recognising the need for a coordinated and sustainable approach to its use. Ocean finance can play a vital role in supporting sustainable development of the ocean economy by directing investments to sustainable development pathways that minimise ocean risks and maximise social equity, human well-being and environmental health.

Sustainability Covenants as a Financial Measure to Enhance the Efficiency of Companies

“…However, practical examples are scarce in the discovered literature. The Principles for Investment in Sustainable Wild-Caught Fisheries are one example, where nine principles function as a basis for voluntary sustainability-linked covenant usage (Jouffray et al, 2019;Sumalia, 2020).…”

“…The other discovered literature stream regards sustainability covenants as additional agreements to a loan and uses them in the sustainable finance framework as a monitoring and enforcement tool. In this regard, covenants can be a powerful tool and critical mechanism for banks to monitor the sustainability performance of the borrower and incentivize them to take specific sustainability actions (Jouffray et al, 2019;Sumalia et al, 2020). Moreover, they can be used as a steering mechanism to close information asymmetries regarding sustainability reporting and enhance the sustainability performance of the borrower (Sumalia et al, 2020); (see for steering mechanisms of covenants: Zirkler et al, 2020).…”

“…In this regard, covenants can be a powerful tool and critical mechanism for banks to monitor the sustainability performance of the borrower and incentivize them to take specific sustainability actions (Jouffray et al, 2019;Sumalia et al, 2020). Moreover, they can be used as a steering mechanism to close information asymmetries regarding sustainability reporting and enhance the sustainability performance of the borrower (Sumalia et al, 2020); (see for steering mechanisms of covenants: Zirkler et al, 2020). However, specific tailoring is needed for these sustainability covenants to fit specific industry sectors (Sumalia et al, 2020).…”

“…Moreover, they can be used as a steering mechanism to close information asymmetries regarding sustainability reporting and enhance the sustainability performance of the borrower (Sumalia et al, 2020); (see for steering mechanisms of covenants: Zirkler et al, 2020). However, specific tailoring is needed for these sustainability covenants to fit specific industry sectors (Sumalia et al, 2020).…”

“…Moreover, the finance sector is under enormous pressure from politics and its stakeholders to develop effective and efficient sustainable measures, like green bonds, sustainability-linked loans, and Environmental, Social and Governance (ESG) investments. In this context, financial covenants are considered a powerful tool for monitoring and steering the environmental impact of organizations (Jouffray et al, 2019;Sumalia et al, 2020). However, the topic of sustainability indicators used as financial covenants, therefore, additional clauses bound to an indicator in financial contracts, has not yet been covered in the standard literature.…”