24 AUG, 2021
By Constanza Ramos
The Blue Economy is a breakthrough approach to rethinking the way we interact with our oceans. So why investing in the blue economy is so important? Our seas and oceans are chocked in plastics and heavy metals, and the resources are shrinking. By investing in our seas, oceans and companies within this economy, we can make a real change to stop the damages made over the years, and the blue economy is predicted to grow at double the rate of the rest of the economy by 2030.
Fortunately the asset management industry is becoming more involved in the estate of our environment, the resources available, and committing to a change in the investment focus prioritising sustainability and social responsibility.
We have picked two ETFs that are investing in the blue economy, one from BNP Paribas AM, and one from Lyxor, and chatted to Sabrina Principi, Head of Business development ETF & Index solutions at BNP Paribas AM, and Antonio Celeste, Head of ESG Product – ETF & Index Solutions at Lyxor AM, to understand of the importance of these type of ETFs.
Sabrina Principi, Head of Business Development ETF & Index Solutions at BNP Paribas AM
Why investors are looking at Blue economy? In the last few years, ESG investments have been growing rapidly and the momentum is strong in the ETF space as well. This industry is indeed enjoying healthy growth with ESG assets reaching every month new records. Financial markets have a unique opportunity to contribute to sustainable developments across the word and the passive business is doing its part. At BNP Paribas Asset Management, we take very seriously our role and we have been engaged in sustainable strategies for almost 20 years. Several topics can be stressed here but we would like to focus our attention on the opportunity offered by the sustainable use of ocean resources: the blue economy.
The blue economy reflects a growing economic reality. The World Bank defines the blue economy as the “sustainable use of ocean resources for economic growth, improved livelihoods and jobs, and ocean ecosystem health”.
The ecosystem of the ocean has characteristics and resources that are essential to our well-being and to the prosperity of the global economy, although their sustainability is now under significant threat. Whether for tourism employment or offshore wind, the ocean is also a formidable reservoir of biodiversity to be preserved at all costs to maintain our food security and our health, and to protect our coastal areas.
Several key figures demonstrate the importance of the blue economy: oceans and seas cover 70% of the globe, there are 350 million jobs associated with the oceans including fishing, aquaculture and tourism. Over 50% of the oxygen we breathe comes from the oceans, which absorb 30% of carbon emissions and over 90% of traded goods travel by sea. Shipping is thus the keystone of the world economy. Blue economy activities provide a livelihood for over 820 million people.
That is why seas and oceans are a unique natural capital. In a context where health and biodiversity of marine ecosystems are declining, it is urgent that economic players step up their efforts with initiatives to reduce emissions of pollutants and the disposal of dangerous substances. Land-based natural resources are being increasingly depleted. It is now an issue of not exhausting those found in marine and ocean areas.
The blue economy, a real driver of the world economy, is expected to experience strong growth. The yet untouched resources of the oceans, seas and coasts are opening up unlimited employment prospects. The future of the planet depends on them.
Companies involved in the blue economy compose the ECPI Global ESG Blue Economy index tracked by the BNP Paribas Easy ETF. It meets the needs of the United Nations Sustainable Development Goal 14 (SDG) relating to aquatic life and classified in five sectors: coastal livelihood, energy and resources, fish and seafood, pollution reduction and shipping lanes.
Antonio Celeste, Head of ESG Product – ETF & Index Solutions at Lyxor AM
By 2030, water demand is likely to exceed supply by 40% and half of the population is likely to suffer from water stress. 1 This is due to two major factors: the growth of population and climate change. Water is a vital component in our diet but water is also a key component in the production cycle of almost all products: 2,500 litres of water are needed for a kilogramme of rice, 2,700 litres for a cotton t-shirt, 15,000 litres for 1 kilogramme of beef.
We can easily understand how the growth of population, 10.9 billion people by the end of this century, according to projections 2, will strongly impact water consumption.
The other factor is climate change: the global rise of temperatures is disrupting weather patterns, leading to extreme weather events, unpredictable water availability and contamination of water supplies.
Today water scarcity is already an issue in developing nations where poor quality and inadequate sanitation negatively impact food security, livelihood choices and educational opportunities.
Some key figures:
The water scarcity challenge can be alleviated by directing capital towards water sector companies, for this reason, in 2007 Lyxor partnered with Robeco SAM, a pioneer of sustainability investing, to launch the Lyxor World Water (DR) UCITS ETF.
The ETF aims to track the World Water Index CW Net Total Return and invests in the world’s 30 largest companies deriving at least 40% of their revenue from water related activities such as Infrastructure (engineering & construction, building materials & fixtures for residential, commercial and industrial markets, water meters), Utilities (water supplies and wastewater services) or Water Treatment (treatment systems and purification processes, irrigation and water efficiency systems).
The index composition is reviewed semi-annually. The ETF is market cap weighted and stock weights are capped at 15%.
Among the companies selected by the fund we can mention: United Utilities Group PLC which aims to reduce pollution by 20% and water leakages by 15%; Xylem Inc which entered a partnership with Esri, a global leader in location intelligence, to reduce costs related to pipe failures by 80%; Essential Utilities (former Aqua America) with a strong positioning in the desalination segment.
In terms of performances the World Water Index CW Net Total Return continued its strong run in 2021 with a solid performance of +16.3% at mid-year. 4
The size of the ETF doubled during the last three years, reaching € 1,023 million as of end of June 2021. 5
1 UN SDG website, as at June 2019. 2 HYDE, UN and UN Population Division (2019 revision) 3 Source: World Economic Forum, The Global Risks Report 2019, January 2019 4 Source: RobecoSAM, Lyxor International Asset Management. Data as at 30/06/2021 5 Source: Lyxor International Asset Management. Data as at 30/06/2021