Unlocking Blue Finance: A Commonwealth Guide to Blue Bond Issuance

Ocean resources are integral to many Commonwealth people’s lives – 49 of 56 member countries have coastlines, 25 are Small Island Developing States, and members are responsible for over a third of the world's marine areas under national jurisdiction, including a significant proportion of global coral reefs and mangroves. Yet these ecosystems face unprecedented threats while Sustainable Development Goal 14 (Life Below Water) remains one of the least funded global goals. With an annual ocean funding gap of US$175 billion and the regenerative blue economy investment opportunity projected at US$717 billion annually through 2030, innovative finance solutions are urgently needed ¹. 

Blue bonds offer one promising avenue – enabling governments to define eligible ocean expenditures aligned with national priorities, whether marine protected areas, sustainable fisheries transition, coastal resilience infrastructure, or pollution control, provided uses meet recognised framework standards. However, blue bonds represent less than 0.5% of the sustainable debt market. Sovereign issuances remain limited – Seychelles, Belize, and Indonesia are among the few completed to date – reflecting real barriers around preparation time, transaction costs, and scale requirements _{^{2 3}}. 

To help Commonwealth governments navigate this complexity, the Commonwealth Secretariat, Howell Marine Consulting and the UNSW Centre for Sustainable Development Reform have developed the  Commonwealth Guide to Blue Bond Issuance – a practical resource that demystifies the process and helps countries assess whether blue bonds align with their fiscal capacity, institutional capabilities, and conservation objectives. Drawing on experience from Seychelles, Belize, and Indonesia, the Guide demonstrates that these challenges are manageable with appropriate preparation and support. 

What are blue bonds? 

A bond is a fixed-term loan from investors to a borrower (the issuer) – typically a government or corporation – who agrees to repay the principal at maturity and make periodic interest payments over the term. For sovereign issuers, repayments are funded from general government revenues rather than project-specific returns. 

Blue bonds are a subcategory of green bonds under the International Capital Markets Association (ICMA) Green Bond Principles,with proceeds earmarked for marine and ocean-based projects. As "use of proceeds" instruments, issuers define eligible expenditure categories – such as marine protection, sustainable fisheries, or coastal resilience – within a framework verified against recognised standards. This ring-fencing distinguishes them from conventional bonds, where proceeds may fund any government purpose. 

For Commonwealth governments, blue bonds function like conventional sovereign debt – but with additional requirements. Proceeds must be tracked and reported against eligible expenditure categories defined in a Blue Bond Framework, independently verified, with annual reporting on both allocation and environmental impact. 

These requirements add complexity. Beyond standard sovereign debt risks – credit, interest rate, and currency exposure – blue bonds demand robust project pipelines, credible impact measurement systems, and the institutional capacity to deliver on environmental commitments over the bond's term. 

Separating fact from fiction 

Governments considering blue bonds often have questions about what issuance actually requires. Understanding the requirements, and where flexibility exists, supports informed decision-making. 

Sovereign blue bonds are repaid through general government revenues, not project cash flows. While proceeds must fund eligible ocean expenditures, the use of proceeds criteria prioritises environmental outcomes rather than revenue generation. 

This distinction matters: general budget financing provides greater certainty for debt service payments regardless of individual project performance, while accountability is maintained through use of proceeds tracking and impact reporting. 

A second misconception is that small countries cannot attract investor interest. The evidence suggests otherwise: innovative structures, including development bank support, regional collaboration, and private placements, enable market access for smaller issuances. The Seychelles attracted three US-based impact investors despite its modest US$15 million size. That said, transaction costs often remain disproportionately high for smaller issuances, typically representing 2–3% of issue size for smaller sovereigns. 

Blue bonds do not guarantee lower borrowing costs. Evidence from the more established green bond market shows that any pricing advantage is small, typically only a few basis points, and may be offset by certification, reporting, and monitoring costs. For sub-investment grade sovereigns, credit risk concerns typically dominate ESG considerations in investor pricing decisions. As Indonesia's experience demonstrated, explicit pricing benefits from thematic bonds remain limited for emerging market issuers and should be viewed as part of a broader sustainable finance strategy rather than an immediate cost saving. 

Finally, there is a perception that complex new institutions are required. In practice,  blue bonds can build upon existing institutions. Indonesia, for example, extended its climate budget tagging system to include ocean expenditures rather than creating new mechanisms. However, issuers should recognise that blue bonds require substantial capacity enhancements, including specialised expertise, cross-ministerial coordination mechanisms, and ongoing operational commitments that may challenge government resources. 

From guidance to action 

Recognising that Commonwealth countries vary significantly in their market access, institutional capacity, and fiscal positions, the Guide provides multiple pathways for governments to consider. Countries with investment-grade credit ratings and established market relationships can pursue direct sovereign issuance following international standards, which offers maximum flexibility and potentially optimal pricing. Smaller economies or first-time issuers may benefit from supported structures through multilateral development bank intermediation, regional mechanisms, or specialised facilities that provide credit enhancement and technical assistance otherwise unavailable. 

Countries requiring significant capacity building can pursue smaller pilot issuances using blended finance to demonstrate feasibility while developing the capabilities needed for larger transactions. The selection of the appropriate pathway requires careful assessment of debt sustainability, institutional capacity, and strategic objectives—a process the Guide is designed to support. 

The blue bond market has exhibited high growth rates from a small base, with a 92 per cent compound annual growth rate between 2018 and 2022 ⁴, suggesting continued expansion is possible despite its current modest scale. Early movers may benefit from enhanced visibility, preferential access to support mechanisms, and positioning for future market development. This opportunity window, however, has limits: as standards mature and competition increases, first-mover advantages will diminish. The trajectory mirrors the broader evolution of sustainable finance—the initial challenges faced by blue bonds, including regulatory ambiguity, limited market awareness, and reliance on external support, are reminiscent of the early days of green bonds, which eventually scaled to over US$3 trillion in annual issuance. For smaller Commonwealth economies, regional coordination offers particular promise through shared standards, pooled technical assistance, and coordinated market development that could help address scale barriers individual countries cannot overcome alone. 

Blue bonds offer Commonwealth nations a promising but often demanding tool to mobilise capital for ocean conservation while strengthening government systems and international reputation. They are neither a solution to all ocean finance challenges nor an insurmountable technical barrier but they are debt instruments that require operational capacity, sustained political commitment, and careful attention to fiscal sustainability. The Commonwealth's collective experience, from Seychelles' pioneering innovation to Belize's debt restructuring approach and Indonesia's integration with existing systems, demonstrates that countries with diverse economic contexts can navigate blue bond issuance when supported by appropriate technical assistance, realistic planning, and strong inter-ministerial coordination.

The Commonwealth Guide to Blue Bond Issuance addresses the core bottlenecks that have constrained market growth, high transaction costs, lengthy preparation timelines, scale requirements, and capacity gaps, by offering a structured, phased approach that builds on existing government systems. For Commonwealth nations, the question is not simply whether to issue a blue bond, but how to carefully evaluate whether this instrument aligns with their fiscal capacity, institutional capabilities, and genuine conservation objectives.

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1 (Commonwealth Secretariat, 2022)

2 “The Blue Bond Market: A Catalyst for Ocean and Water Financing,” Journal of Risk and Financial Management, 2023, 16, 184. 

3 ‘The blue bond market: A catalyst for ocean and water financing’, Journal of Risk and Financial Management Vol. 16 No. 3, 184. 

4 Pieter Bosmans & Frederic de Mariz, 2023. "The Blue Bond Market: A Catalyst for Ocean and Water Financing," JRFM, MDPI, vol. 16(3), pages 1-48, March.