Dutch Blue Bond is the latest in a trend in sustainable water investments

20 Oct 2023 by The Water Diplomat

Blue bond

On the 17th of October, the Netherlands announced that it had taken out a ‘blue bond’ worth € 5 billion which will go towards efforts to mitigate flood risks. The government had hoped to raise between €4 and €5 billion, but the Dutch financial magazine Financieel Dagblad reported that € 18,3 billion in potential investment had been registered by investors, and thus the government took out the full loan of € 4,98 billion. The government had announced the auction date for the bond on the 8th of September and had simultaneously published its new Green Bond Framework . This development comes as the Netherlands seeks to adhere to the terms set out in the Paris Agreement on Climate Change which will require a minimum of 55% reduction in emission levels by 2030 relative to 1990.  The Netherlands seeks to create a Climate Fund which can be used to channel investments needed to align the economy and infrastructure to the new realities under climate change scenarios and pledges.

The Blue Bond is a 20-year commitment which is specifically labelled as a ‘blue bond’, meaning that it will be dedicated to water related investments.  Tom Meuwissen from NWB bank, a bank which was established by and for Dutch water authorities, states : “we use proceeds from our Water Bonds to provide loans to the Dutch water authorities responsible for flood protection, water management and water quality. Climate change adaptation has become one of their key tasks”.

In a recent article published in the Journal of Risk and Financial Management, Pieter Bosmans and Frederic de Mariz conducted an extensive review of blue bonds against the background of the broader trends in the sustainable debt market. They note that the blue bond market has emerged as a recent addition in the sustainable debt market, making it a worthy subject for research. The sustainable debt market has grown spectacularly over the  past ten years to reach a total of 1,6 trillion currently, of which 70% is in the form of green bonds. Blue bonds, by contrast, are a newcomer to this field but are nevertheless developing rapidly.

The authors follow a World Bank definition of blue bonds as “debt instruments that finance the protection of critical clean water resources, as well as marine and ocean-based projects with positive environmental and social benefits”.

The authors review 26 blue bond transactions that took place globally with a total value of U.S. $ 5 billion. They assert that blue bonds are a crucial tool to attract investments into ocean financing and can help close the funding gap for a sustainable blue economy. However, contrary to green bonds, which have been clearly defined, blue bonds are not guided by a clear framework, preventing the emergence of practical guidelines for NGO’s and private entities to get involved.  There is some ambiguity around the question whether blue investments can be classified as clearly sustainable investments: there is a risk that investments may be ‘bluewashed’ to give them an appearanceof sustainable investments. All existing blue bonds use their proceeds towards a sustainable blue economy, there is as yet no global standard of what blue bonds entail or what their impact is intended to be. Crucially, this has an impact on their credibility as a potential tool to close the global funding gap in the (sustainable) water sector.