Bermuda planning blue bond and new climate fund

IFR 2512 - 02 Dec 2023 - 08 Dec 2023
5 min read
Americas
Tessa Walsh

Bermuda is laying out plans to issue a blue bond and create a new blue and green investment fund to back its ocean conservation and decarbonisation efforts as the island nation bids to become a global centre for the world's climate risk capital and underwriting.

Bermuda looks after some 460,000 square kilometres of ocean – one of the largest marine areas in the world – and is one of a dozen countries responsible for the Sargasso Sea. It is the most significant environmental custodian of the 14 British Overseas Territories, which account for 85% of the UK's biodiversity.

"A blue bond is definitely something that we have in the works," said Walter Roban, Bermuda's deputy premier and minister of home affairs. "We are planning to bring the legislation in the next few months to our legislature and could issue next year."

The blue bond, the size of which has not yet been decided, would support Bermuda's developments in offshore wind, renewable energy and other projects within its blue economy, including efforts to become a leader in wave energy.

News of the proposed new deal coincides with rising investor interest in blue-labelled financing. The International Finance Corp and T Rowe Price launched a global blue bond strategy on November 22 which aims to improve standards and encourage investment in emerging markets through blue bonds.

Bermuda's blue and green investment fund will be structured, managed and operated as a public fund, rather than a government fund, and is already attracting attention from financial institutions.

"We've had interest from a number of banks to support this, including HSBC and Clarien Bank, which is based in Bermuda. Local insurers and reinsurers that are interested in meeting their own ESG requirements have also approached us about how they can support our new blue and green investment facility, so we're getting the attention we need," Roban said.

The country is pushing through the Marine Development Act, which is expected to be passed shortly and will put a legal governance framework in place for the new fund.

In 2018, Bermuda committed to achieve net-zero emissions by 2050 and is on track for an 85% reduction in its carbon footprint by 2035. It also started working with the Waitt Foundation, an NGO which partners with island governments to support the implementation of sustainable ocean plans.

Bermuda has developed a blue prosperity plan, which includes a blue economy strategy to expand its ocean-related industries and attract investment, and a marine spatial plan to create a framework for sustainable ocean development, protection and management.

"We have aggressively moved forward to develop our own blue economy strategy," Roban said.

Bermuda published an environmental white paper on November 29 ahead of this year's UN-convened COP28 climate meeting in Dubai, and is planning to be vocal to ensure substantial action for islands and coastal communities that are at risk.

'Expertise and potential'

Bermuda holds a key position in the global insurance and reinsurance industry, providing one-third of the world's catastrophe underwriting. It has insurance assets that it says total more than US$100bn and is aiming to build capacity to become the world's capital of climate risk expertise.

"Much of the critical infrastructure to support climate risk finance is already here in Bermuda and we have the expertise and potential to build additional capacity. I think Bermuda is uniquely placed to play a leading role in the area of climate finance solutions," Roban said.

However, Bermuda is seeing competition from other Caribbean islands that are seeking to develop similar expertise, including Barbados. Last November AUM Asset Management launched the first insurance-linked securities fund with a Barbados captive insurer rather than a customary Bermuda captive insurer.

Roban said Bermuda's reputation in the insurance and reinsurance market and robust regulatory framework will allow it to move quickly as climate risk finance frameworks evolve and risks become clearer. This could see the creation of hybrid banking and insurance products as well as other financial instruments.

Bermuda is an associate member of the 20-strong Caribbean Community. The group includes Jamaica, which has proposed a regional Caribbean catastrophe bond as an alternative to renewing its maturing catastrophe bond coverage at the end of this year.

Roban said Bermuda will look at financial solutions that support the region, including covering the risks of hurricanes and other significant climate events.

Bermuda is also focusing on reducing absolute emissions rather than relying on carbon credits that try to monetise emissions as offsets.

"We're on the frontline of climate change, so the solutions that are needed for climate change are what we are ... more interested in participating in," Roban said.