The urgency to address climate change is intensifying. Extreme weather events are becoming increasingly common, posing significant challenges to our global economies and societies, while rising temperatures and environmental degradation are causing unparalleled harm to our planet, biodiversity, and the lives of our future generations.
As an island nation, this issue hits close to home for the British Virgin Islands (BVI). The Caribbean region is particularly susceptible to tidal patterns, heavy rainfall, and extreme weather events, evident in the widespread devastation of Hurricanes Irma and Maria in 2017, posing not only a threat to both the local tourism industry and the livelihoods it supports, but to every islander who lives here.
In response to this vulnerability, the BVI and other International Financial Centres (IFCs) in the Caribbean region are actively assuming a leadership position in addressing climate change through advancing sustainable finance. Leveraging its renowned financial centre, the BVI possesses world-leading expertise and experience in this field, enabling it to effectively drive meaningful change through sustainable investing and finance.
Financing the Fight Against Climate Change
At the COP28 conference in November, financing climate solutions was the main topic on the agenda, as the global community moves past discussions of commitments and towards the practical strategy of how to achieve them. To generate the sheer amount of capital required to protect vulnerable communities from climate change and build greener infrastructure, sustainable financing will need to be a combination of private capital, concessional finance, and international intervention from governments and NGOs.
This multifaceted approach is one exemplified by the Bridgetown Initiative. Led by Barbados, the initiative calls for the reform of existing institutions to finance climate resilience and the Sustainable Development Goals (SDGs). By focusing on debt restructuring and climate financing, it aims to create a more equitable and effective global financial system, enabling low-income and developing nations to invest in their future and protect themselves from the impacts of climate change, for which they bear disproportionate burden. Key actions being campaigned for include the rechannelling of at least $100 billion of unused Special Drawing Rights through the IMF and multilateral development banks and the mobilisation of more than $1.5 trillion per year of private sector investment in the green transformation, demonstrating the vast range of strategies and parties requires to successfully generate the capital required.
Sustainable Investment
A major part of this financing will be sustainable investment, with the Global Sustainable Investment Alliance reporting sustainable investment worldwide has surpassed US$35 trillion, representing over a third of global assets.
With decades-long experience in global finance, the BVI has the structures in place to emerge as a hub for sustainable finance, with BVI companies providing the necessary vehicles required to facilitate international projects, funds, and initiatives. The BVI is also renowned for its investment products that offer flexibility and align with ESG principles, with numerous ESG funds having been established which leverage the provisions of international agreements within their board constitutions. Furthermore, in 2023, the jurisdiction revived its Climate Change Trust Fund, one of the first in the Caribbean, which enables the receipt of funding for climate-related projects and establishes a framework to maximize the impact of these funds.
Another major opportunity in this area is nature finance. With a focus on investing into nature-related projects including conversation and restoration, nature finance does not yet have the attention bestowed to climate financing, but it equally as vital. With our entire global economy relying on the continuation of the natural world, from the food we eat to the homes we live in, it is estimated that by 2030 nature loss could cause global GDP reductions of $2.6 trillion. To address this, it will be critical to create a financial ecosystem that encourages investment into nature-related ventures, with tools such as sustainability-linked loans and bonds, debt for nature swaps, and nature funds all set to rise in popularity over the coming year.
Blue Bonds
One major priority in 2024 for the BVI will be the blue economy and, specifically, the development of blue bonds. A subset of ‘green finance’, blue bonds are debt instruments issued by governments or development banks to raise the capital to finance marine and ocean-based projects that have positive environmental, economic and climate benefits. Examples include supporting initiatives to prevent the decline of marine fisheries, scale up offshore renewable energy, and decarbonize maritime transport. It is an increasingly popular proposition for nations in Africa and the Caribbean, with the Seychelles issuing the first ‘blue bond’ back in 2018 through the World Bank and Barbados announcing last year that it would contribute $50 million into ocean conservation efforts over the next fifteen years, after replacing debt with a ‘blue bond.’ Last year, Gabon also issues a blue bond ‘debt-for-nature’ swap which resulted in the refinancing of $500m of its public debt and unlocked $163 for marine conservation.
For nations with significant marine assets, blue bonds are one promising way to address the triple crisis of climate change, nature loss, and pollution. By prioritizing sustainable practices and utilizing the potential of the ocean, the financial services industry can create a symbiotic relationship with communities and the environment we live, creating positive vehicles for sustainable investment.
A Shared Mission
The financial services sector and our global financial apparatus have a pivotal role in our shared mission to protect vulnerable nations from the impact of climate change and create long-lasting solutions to tackle the climate crisis. There will be no one clear route to this, but instead it will require an amalgamated effort from banking institutions, governments and NGOs, businesses and investors to align financial flow with climate goals and drive forward change.
Author: Elise Donovan, BVI Finance CEO