Navigating Ocean Risk

Shaping the Transition to a Sustainable Blue Economy

If managed sustainably, a healthy ocean can yield great benefits for people and the economy.

Businesses depend on ecosystem goods and services for their operations; communities depend on the ocean for their livelihoods, their food and their ways of life. In our lifetime, however, the ocean is expected to reach thresholds of abrupt change (“tipping points”) from human impact. These changes will be irreversible and will impact those that depend on the ocean. 

While not all changes can be mitigated after years of over-exploitation of ocean resources, there is still time to turn the tide. We need to ask ourselves: how can we achieve social, economic and financial resilience if we erode the resource base on which we depend? 

This ground breaking research shows that a business-as-usual trajectory entails great risk to our economies, with a cost potentially reaching up to US$8.4 trillion over the next 15 years. 

But the ocean also has a great capacity to regenerate. If we take immediate action, we can reduce this damage to US$3.3 trillion

By repairing damage to the ocean, we revive one of the world’s greatest resources and one of the world’s largest carbon sinks. 

"Getting to a net zero economy is absolutely fundamental to ending the cycle of decline in which the ocean’s health has been caught."
Source: sdgs.un.org
Peter Thomson
UN Special Envoy for the Ocean

But we must act now.

Summary

The ocean is being impacted by human activity, which is fast changing how ocean-dependent businesses operate within it.

Human impacts have been accelerated by the changing global climate, putting both industries and those that invest in them at risk. We need fast action from all businesses, governments and financiers if we are to realise positive change and avoid losing trillions over the next 15 years. 
 
This study, commissioned by WWF, demonstrates what we have to lose if we continue to invest in and incentivise business as usual (BAU). It also shows what we could gain if we choose to invest in more sustainable business models that safeguard ocean resources. 
 
Our method is designed for financial institutions to identify where business is most dependent on a healthy ocean. It helps financiers assess potential future value at risk to portfolios from a changing global ocean.

Who we are

WWF has decades of experience in ocean conservation, with more than 500 practitioners across 60 offices. We work in partnership with communities, businesses and governments to restore ocean health for the benefit of people and nature. 
 
This project is  one of WWF’s contributions to the Ocean Risk and Resilience Action Alliance and part of the WWF Blue Futures Initiative, that aims to redirect mainstream finance toward sustainable development pathways for the restoration, protection and sustainable management of the ocean. 
 
WWF has partnered with Metabolic, the environmental modelling and systems change experts, who use data-driven solutions and systems thinking to tackle global sustainability challenges. 

What we did

We have created an innovative, first of its kind model and dataset to assess how financial risks arise cumulatively in the blue economy. 
 
We modelled the impacts and dependencies of businesses operating in six blue economy sectors – coastal real estate & infrastructure, fisheries, aquaculture, ports & shipping, tourism, and marine renewable wind energy – to physical and transition risks over the next 15 years. 

We applied two future scenarios

Business as usual (BAU)

Where we continue with current climate, environment and business practice

Sustainable development (SD)

Where business, finance and policymakers take efforts to align with international environmental commitments

We then created a methodology for investors to quantify financial risk (“value at risk”) to more than 8,000 listed equities in these sectors and provided an estimate of aggregated potential value at risk at the global level.

What we found

US$8.4

trillion at risk

The cumulative value at risk to these sectors if we continue with business as usual

66%

exposed

The globally listed companies with some dependence on the ocean economy

Many sectors have varying exposure to environmental, climate, physical and transition risks. Our method encourages investors to couple this data with their own company-level data. This is important where data is sparse, as is the case for the ocean. 

What we must do now

The methodology is designed to be used for the global investment portfolios of large asset owners, but the results are relevant to a wider group of stakeholders: insurance, reinsurance, credit providers, asset owners and managers, holders of sovereign debt, governments and financial regulators. 

“We must take action now to restore ocean health while the solutions are still within our grasp.”
Gilly Llewellyn
WWF Global Oceans Lead (interim)

Approach

A systems approach can measure the interdependencies of multiple stakeholders under complex conditions.

In 2019, we conducted a portfolio-level pilot assessment of value at risk in the Baltic Blue Economy with a large insurance and pension company investing in the Baltic region. We have built on this pilot to develop a global model that uses science-backed data on value at risk to the global blue economy in six global blue economy sectors. 

Building a systems model

Changes in the environment or climate can impact the ability of business to operate effectively. But mapping such impacts is challenging, especially in the ocean where data is limited and where maritime industries depend on shared resources. 

We created a bottom-up “system dynamics” model to map drivers, pressures and interdependencies in the blue economy – quantifying how businesses impact on the environment, how it impacts on them, and how they impact on each other. The data is now publicly available on request.

Quantifying value at risk

“Value at risk” is a measure of financial risk showing the amount of loss a portfolio could sustain over time. The outcome was a first-of-its-kind value at risk (VaR) model to show the risk to the blue economy under different physical and transition risk scenarios.

Scenario analysis

We used two future scenarios (“business as usual” and “sustainable development”) over a 15-year period.

Business as usual (BAU)

Global business and investment communities continue along the IPCC’s 8.5 RCP scenario, where no efforts are made to manage the negative impact of climate change and environmental exploitation in the blue economy; investment-as-usual continues along the existing growth path.

Sustainable development (SD)

The investment, business and policy community start to ramp up efforts to align with international climate and environmental commitments, following an intermediate IPCC emissions scenario of RCP 4.5, while additionally reducing environmental impacts of exploitation, pollution and habitat change.

Value at risk to globally listed companies

We applied the estimates of value at risk to the MSCI ACWI IMI Index, covering approximately 99% of the global equity investment opportunity set. The MSCI ACWI IMI captures large, small and mid-cap equities in developed and emerging markets. 

Risk exposure was calculated using the global industry classification standard system, known as GICS. An exposure estimate was derived for companies within blue-economy sectors. 

Findings

US$5.1 trillion could be saved if we transition to a more sustainable blue economy.

We found that 66% of global listed companies could be exposed to value at risk of up to US$8.5 trillion over the next 15 years if we do not take action to secure a sustainable ocean economy. 

For almost all sectors the absolute risk to assets and revenues is reduced under a more sustainable scenario, amounting to US$5.1 trillion in savings. This value at risk accounts for about 3% of the total value of the blue economy. 

“A healthy and resilient ocean is vital for long-term economic resilience. At COP26, governments have an opportunity to boost both public and private investment in a sustainable blue economy that underpins a net-zero, nature-positive future. Our new analysis shows that acting now to put sustainable ocean finance at the heart of responsible, low-carbon investment could save US$5 trillion, and set a course for lasting prosperity.”
Margaret Kuhlow
Finance Practice Leader, WWF

Maritime businesses operate in shared waters, where environmental management practices are more difficult to enforce. Sharing unregulated resources can incentivise short-term gains over long-term benefits for communities and the environment.

Our model shows that, if we continue on this path, there is significant value at risk to global businesses even in the medium term, despite most damage from climate change arising from mid-century.

If we align behind the international scientific community’s call to action on climate and the environment, however, we can reduce the potential losses by over US$5 trillion – more than the current GDP of the United Kingdom.

US$8.4

trillion at risk (BAU)

US$3.3

trillion at risk (SD)

Even if we transition to a more sustainable development scenario, currently unavoidable climate change impacts put our economies at risk. This reiterates how important it is to keep global temperature rise below 1.5℃.

Investors should therefore engage companies on their risks and work with them to improve their resilience. Company-level and geographic data can be added.

Potential value lost

Business as usual (BAU)

Sustainable development (SD)

Potential value saved

The total cumulative savings in each blue economy sector if we were to transition to a sustainable global model.

Value saved per sector (SD)

The risks identified in this model are rarely, if ever, priced into the value of assets, even for asset-heavy industries like coastal infrastructure. The results should be read cumulatively rather than sector by sector.

Asset-heavy industries are most vulnerable to the physical risks of climate change and would benefit most from mitigating climate-related impacts by reducing greenhouse gas emissions, but also by ensuring protective natural barriers are restored. 

More sensitive industries like fisheries and aquaculture would additionally benefit from mitigating pollution, and reducing biodiversity loss, disease transfer and erosion of natural habitats. 

Sectors at risk

Human impacts on the blue economy accumulate over time, and can impact business operations.

While the risks to these sectors should be taken cumulatively, we break down the model results below for the business as usual (BAU) scenario and sustainable development (SD) scenario after 15 years. 

COASTAL REAL ESTATE AND INFRASTRUCTURE

US$3.98

trillion at risk (BAU)

US$854

billion at risk (SD)

A growing population of nearly 2.4 billion people lives within 100km of the coast. Most are dependent on transport routes, services and functional supply chains for food, basic services and materials. Coastal infrastructure is, however, emissions-heavy and can be destructive to natural storm buffering coastlines, environmental ecosystem services, biodiversity and fisheries productivity.

Climate-related risks cause most damage to coastal real estate and infrastructure. Storm surges and other physical damage from extreme weather events are the greatest risk to these areas. Such events have already cost the European Economic Area over €446 billion since 1980

FISHERIES

US$2.85

trillion at risk (BAU)

US$1.9

trillion at risk (SD)

About 25% of the total value of assets and revenues of wild-catch fisheries may be at risk. Overexploitation is a major driver of falling fishery productivity, which is aggravated by climate change, but also impacts of other industries, like pollution from shipping or habitat conversion from coastal infrastructure. While the model looks at producer-level impacts, this has knock-on effects down the food retail supply chain.

AQUACULTURE

US$31

billion at risk (BAU)

US$28

billion at risk (SD)

Aquaculture is vulnerable to productivity losses from ecosystem services, habitat conversion, genetic biodiversity loss, and pollution. It is also dependent on feed from wild-catch fisheries, or from oil crops like soy that are linked to deforestation of biodiverse rainforests and savannahs. The sector is known to drive the spread of invasive species and diseases. One estimate puts losses from disease alone at about US$6 billion per year. 

While aquaculture is growing faster than commercial fish landings, there are large data gaps. One of the biggest barriers to sector change is the lack of transparent records on how environmental harm leads to revenue loss.

PORTS AND SHIPPING

US$874

billion at risk (BAU)

US$52

billion at risk (SD)

Shipping emits significant greenhouse gases and pollutants in the water and air, emitting 1 billion tonnes of CO2 into the atmosphere each year. It is also heavily destructive to natural ecosystems. 

As major players in the global energy industry, these sectors are sensitive to climate-related policy changes and changing energy markets. As they are infrastructure-heavy, they are also exposed to physical damage from extreme weather events.

COASTAL TOURISM

US$655

billion at risk (BAU)

US$451

billion at risk (SD)

Tourism contributes about 10% to global GDP. A large proportion of tourism is based in coastal areas, where natural ecosystem intactness is a key attraction. However, poorly managed tourism and dependency on fast growing coastal infrastructure can also degrade these systems. 

If we also consider the opportunity costs from loss of recreational fishing opportunities, an additional US$432 billion could be at risk over 15 years.

MARINE RENEWABLE ENERGY

US$8.6

billion at risk (BAU)

US$22.8

billion at risk (SD)

The value of marine renewable wind assets is estimated to be 3-4 times larger under a more sustainable scenario. This means there is more value seemingly at risk. However, the relative value at risk per dollar invested is still less for the sustainable scenario.
 
As per all asset-heavy industries, marine renewable wind energy is particularly exposed to risks from climate-related impacts over 15 years. Although the full benefits of the green transition are not evident in this model due to the short timescale, investing in renewable energy will decrease the risk of climate change to all sectors in the long run.

Favourable policy and market incentives are also making this sector increasingly more viable and safe for investors. 

Risks to biodiversity may occur during the construction phase of wind turbines, but, if left undisturbed, renewable energy poses less of a threat to biodiversity than other sectors like mining, oil & gas.

Recommendations

To transition to a sustainable “blue” future, all stakeholders have a role to play, and financial stakeholders are at the heart of this.

This report demonstrates that, even in the short term, there are trillions at risk if we continue with business as usual. There are also substantial financial benefits to aligning portfolios with the Paris Agreement and managing the impacts of exploitative industries on our ocean. Keeping global temperatures below a rise of 1.5℃ will further help to mitigate these impacts. 

Call to action for financiers and regulators

VALUE AT RISK TO THE GLOBAL BLUE ECONOMY

DOWNLOAD THE REPORT DOWNLOAD THE REPORT

VALUE AT RISK IN THE BALTIC BLUE ECONOMY

Go to 2019 Pilot study

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