Futureproofing Blue Economy Investment Horizons: Adapting Ocean Supply Chains to Climate Change Uncertainty. 

From Europe’s Horizon 2020 and the Commonwealth Blue Charter to the Caribbean, Africa’s Integrated Maritime Strategy and South African’s Operation Phakisa, a surge of interest has developed in the transition away from extractive ocean and economic hinterland trade networks towards, social, environmental, and economically sustainable blue economy activities. The Blue Economy is increasingly perceived to be the next future investment horizon among many emergent stakeholders - from the World Ocean Council and Blue Prosperity Coalition to emergent ocean clusters from Canada, New England, Iceland and the Mediterranean Blue Economy Platform. Comparatively few specialised research institutes e.g.  ANCORS in Australia, Middlebury Institute USA and the Seychelles Blue Economy Research Institute and funding resources are directly supporting the blue economy. More are becoming concerned in an opportunity - or framing a more innovative paradigm - which recognizes and strives to maintain or enhance the value and survival of the marine environment; ecosystems, ports; coastal infrastructure, businesses, communities and livelihoods for a sustainable future. These stakeholders have yet to completely and successfully manage a coordinated and prioritised, effective transition towards the blue economy to effectively futureproof against emergent disruption risks such as climate change.

Traditional ocean economy activities include capture fisheries, shipping/ports, shipbuilding; offshore oil/gas, marine construction, transport, business services, research and development, dredging, marine and coastal tourism. Emerging industries include marine aquaculture, biotechnology, seabed mining, high technology marine services, safety and surveillance, offshore wind and ocean renewable energy. Yet over 90% of international trade depends upon ocean supply chains. As globalisation increases; more stakeholders are becoming interdependent and influenced by various disruption risks. From Cyclones Idai and Kenneth in Mozambique, to Pam in the South Pacific, Dorian in the Bahamas/Florida; a surge in European and Arctic heatwaves, Middle Eastern and Cape Town droughts to surges in melting glaciers with sea level rise and an unprecedented number of fires across the Congo and Amazon; people, commodities and revenue generated by oceans and their supply chains are affected by an increasing frequency, duration and intensity of climate and climate change-related natural disasters. Through increasing emissions, sea levels, temperatures, ocean acidification; species migration and extinction, storms, droughts, heatwaves, floods, tsunamis, gales, cyclones, bushfires and other risks, climate change increasingly threatens a business as usual scenario future under the Intergovernmental Panel on Climate Change an a credibly overwhelming majority of scientists and relevant policy makers. Since Paris, it is resolved to try and accelerate Earth’s future transition to a maximum 1.5 degree scenario. UN Sustainable Blue Finance Principles, decisions to divest away from powering coal, a 2020 IMO cap on sulphur fuel emissions of vessels and many other investment compacts of nations, individuals and communities have further reinforced certain stakeholders’ including investors’ awareness and determination to seek some cohesive approach and implement effective solutions.

Many stakeholders from producers, consumers, ports, governments, retailers, wholesalers, NGO’s, religions; businesses, communities, media and significant proportions of the global financial and insurance sector continue to ignore or marginalise increasing risk event frequencies, duration and intensity. Climate change finance remains under-researched, underprioritised and under-committed, jeopardising the overwhelming majority of human achievements, especially for ocean supply chains and international trade and investment. Increasing globalisation has increased greater dependency on the ocean economy, providing livelihoods to over 3 billion people. An increasing percentage reside or depend upon coastal environments, locations, resources and networks, to flourish and exist. In 2015 Earth’s oceans were worth over $24 trillion. Formal economic activities are projected to increase from $1.5 trillion in 2010 to over $4.5 trillion by 2030. In the first PhD and related research output one could locate specifically focused to the private sector and implications of climate change risks, impact costs, constraints and solutions across an entire ocean supply chain, I identified finance; along with psychology and ecosystems as one of the top three constraints to adaptation and subsequent adaptation solutions towards resolving climate change uncertainty.

Present funding is supremely inadequate to climateproof our increasingly globalised ocean economy and species; since Stern’s 2006 estimate of requiring 5-20% of global GDP every year until 2050. Less than 1% is currently invested. Governments pledged $30 billion to finance low carbon and climate-resilient adaptation between 2010-2012 (World Bank 2016). They target $100 billion by 2020. Carbon offset markets managed $27 billion. Yet private sector investments in renewable energy were worth over $200 billion; indicating the need to reprioritise private sector research, funding and incentives. Alternatively, climate change sources focus on commercial operations or sector-specific/general economic impacts i.e. agriculture; tourism; health and biodiversity. Many seldom targets the maritime/ocean economy, supply chains or activities specifically. E.g. 16 banks assessing climate change via determining expected probability of default for a credit risk. This influences sector productivity, revenue, loan to value ratios, property values and income level change (Acclimatise 2018). A climate finance review of investors (Global Investor Coalition on Climate Change 2016), further confirmed how few sources exist, with many bureaucratic, data and other barriers to effective access and implementation. It identified future potential sources including pensions, insurance, sovereign wealth, mutual, hedge, private wealth and exchange traded funds. Finance solutions remain incentivised towards promoting mitigation without considering how adaptation can facilitate blue economy opportunities, sustainable in the long run and futureproofed. Examples include offset transaction levies, emissions trading schemes, financial transaction taxes and direct taxes/subsidies/quotas/tariffs. However. these need specific information and methods to protect long term investments, which this paper develops to overcome the existing gap. Whilst not specifically mentioned for the maritime finance sector; climate resilient investments for asset protection have become an increasing concern to 97% of 500 top surveyed companies in 2016, from 77% in 2015 (Ernst and Young 2016). Green bonds increased to $158 billion.

Climate change risks affect ocean supply chains and interdependent economic hinterlands in myriad impact costs. The most significant is the completely unprotected status and long-term survival under climate change of many natural species and resources which other supply chain stages and stakeholders depend upon from plants to animals, fungi, fisheries, minerals, fungi, trees and biodiversity. Many people are insufficiently prepared physically and psychologically along with other organisms. It also threatens inputs, outputs, processes, information, communication and other systems, activities, physical infrastructure, services, cash and other reserves, production, consumption, labour, technology, policies and other profits/costs. My thesis and a related blue economy paper is one of the comparative few to quantify this impact across an entire Pacific supply chain for the Cook Islands. Other findings identified a lack of international and domestic, private business, community and individual stakeholder risk identification and adaptation efforts. Stakeholders require several factors including greater certainty and awareness of how and why climate change will specifically affect them and their ecosystems, home, businesses, investments, ocean supply chains; livelihoods and any interdependent stakeholders. It includes which solutions to favour; how to prioritise and allocate resources, given scarce time, finance and other resources. The prime aim remains to minimise maladaptation and other opportunity costs.

Climateproofing strategies for investors and ocean supply chains/related blue economy activities include mitigation and sustainability; the circular economy -reuse, recycle and renew; relocation; elevation; retreat/surrender; ecological rehabilitation/extension and adaptation. Adaptation includes physical and environmental/natural engineering; enhanced infrastructure and technical standards; technology; improved risk monitoring and evaluation or early warning systems; training; policies and planning; flexibility; indigenous knowledge and experience; information; communication; new assets/equipment; improved coordination, cooperation, information sharing and decisive leadership; finance and fiscal incentives, and income source or other forms of diversification. I propose these are prioritised in adaptation plans and strategies. Any individual solution or overall system strategy should be evaluated by how much it has enhanced resilience, reduced vulnerability, preserved stakeholder requirements, ecological capacity and minimised disruption cost/accelerated recovery times. A risk event monitoring and review stage can assess these against projected existing and accumulated risk.

I provided a model and standardised criterion to ascertain each asset, system, operation and ecosystem’s potential vulnerability to climate change. These include extend of asset resilience/vulnerability and survival; experience; impact costs; changes in financial fundamentals under climateproofing versus its alternative, portfolio exposure; conditional probability of failure, timing and intensity. In conclusion, core recommendations as to where to prioritise and allocate investment resources to protect ocean supply chains under climate change effectively for stakeholders include especially investing in biotechnology; aquaculture -offshore marine renewable energy; blue carbon sinks and the circular economy; ecological rehabilitation, sustainable products climate-resilient coral and rare species including marine biodiversity. Pragmatic and policy implications aim to provide sustainable short and long-term investments through leveraging eco-capital, blue carbon and other opportunities. It includes scaling up successes and encouraging changes in consumer, producer and investor behaviour psychologically Climateproofing investments aims to reduce risk event disruptions, investment cyclicity/volatility and generate sufficient investment returns along with long-term survival of ocean supply chains and economic activity. These are more profitable than emissions-intensive, extractive growth encouraging disruption risks to supply chains. It aims to encourage uncertain stakeholders to become more proactive, recognising opportunities and need to effectively respond to risks and impact costs. Climate change is worth investing against, being more profitable, sustainable and preserving stakeholder requirements more reliably than opportunity inaction costs.

Stakeholders have yet to completely and successfully manage a coordinated and prioritised, effective transition towards the Blue Economy

Climate change finance remains under-researched, underprioritised and under-committed, jeopardising the overwhelming majority of human achievements, especially for ocean supply chains and international trade and investment

Stakeholders require several factors including greater certainty and awareness of how and why climate change will specifically affect them and their ecosystems

Climate change is worth investing against, being more profitable, sustainable and preserving stakeholder requirements more reliably than opportunity inaction costs