Leading fund managers weigh in on current approaches and common challenges for blue investments
Blue economy funds have experienced dramatic growth in the past half decade, with nearly 30 new entrants — ten or so in 2022 alone. This is good news, as it signals both growing investor interest and an increasing pipeline of investable opportunities. As the ocean investment ecosystem evolves, the question of how to measure impact in investments has become a frequent topic of discussion.
To explore this impact question further, Investable Oceans and CREO Syndicate conducted interviews and surveyed over a dozen leading sustainable ocean funds from 10 countries. We supplemented these interactions with reviews of available online resources, including websites and impact reports. We selected funds that already had significant capital under management and are currently investing. The funds collectively captured a diversity of ocean verticals — though notably, 13 out of 14 address pollution and waste management.
Source: Investable Oceans and Creo Syndicate
The discussions were candid and the surveys allowed for additional quantitative analysis. One clear takeaway: all of the funds we spoke with are actively developing strategies — often mapped to UN SDG 14 — in order to measure and understand impact in ocean investing. Still, there is a strong consensus that much work lies ahead. In this piece, we present our key learnings as well as insights directly from some of the fund managers.
Common trends
Fund managers agree that impact measurement for sustainable ocean funds is in the early stages of development. Interestingly, half of the survey respondents rate its current state of development at a six or seven out of 10, while the other half rate it at a three, four or five out of 10. While impact measurement — and the blue fund/economy space itself — is relatively new, there is great energy, interest and momentum pushing this work forward.
“In the past few years, with much more investor activity in this space and a focus on carbon reduction it seems to really be taking off. Now we just need more tools to measure biodiversity.” — Amy Novogratz
Source: Investable Oceans and Creo Syndicate
We learned there is a diversity in approaches to developing impact measurement strategies, but many combine and build upon existing frameworks and standards to create a proprietary impact measurement strategy. Despite high variability among the frameworks used, survey responses indicate a majority of the funds are using the Ocean Impact Navigator (OIN) and UNEP FI as core tools. Several also supplement their strategies with tools including IRIS+, GRI and SDG Compass.
Source: Investable Oceans and Creo Syndicate
The OIN serves as a foundation for numerous funds, given its flexible design and specific focus on blue economy challenges. While some managers believe improvements can be made, such as adding biodiversity metrics, they also acknowledge that this is the first time we are seeing a truly collaborative effort.
A majority of managers also work closely with their portfolio companies to identify impact reporting metrics. Several emphasize the importance of constructive conversations with these companies around metric selection in order to gain a clear understanding of the impact that can be achieved. However, there are differing perspectives among fund managers on the appropriate number of impact metrics; some define one to five Key Performance Indicators (KPIs) for each portfolio company, while others reach up to 20 or even 40 KPIs.
As fund managers are working through this process, some are embracing an iterative approach.
To supplement this internal work, some funds engage third-party organizations and impact agencies to help develop frameworks and identify reporting metrics. Among these are consulting firms and NGOs with a deep knowledge of the ocean, such as The Nature Conservancy and the Aquaculture Stewardship Council. A few funds have even created formal advisory groups of internal and external experts across diverse disciplines.
“We see every investment as an opportunity to learn about what works — and what doesn’t — when it comes to pursuing near- and long-term outcomes.” — Joanna Cohen
We also found that the motivations behind developing strategies vary among funds, especially when considering factors such as regulatory compliance, demand from limited partners and ties between carry and impact performance. Even though some funds are mandated by regulations and compliance rules, our conversations indicate that personal belief is what primarily drives efforts to create and maintain strategies. This underscores the unique dedication of fund managers to look for investments where sustainable outcomes generate competitive financial returns.
Shared challenges
The complexity of the ocean biosphere makes measuring impact difficult; desired data may be unavailable or costly to collect. According to our survey, half of the fund managers struggle with developing impact measurement metrics due to the lack of measurable data. With few exceptions, portfolio companies oversee their own data collection. Several funds have expressed the challenge of selecting the appropriate quantitative metrics for each company to effectively showcase progress toward fund-level goals. This issue has led to a gap between the individuals who require data, such as general partners and limited partners, and those who are responsible for collecting it.
Establishing a standard for determining the actual cost of factors, such as a kilogram of plastic in the ocean or fertilizer leakage, could include the expenses of cleaning up or savings generated by preventing such occurrences.
While efforts like the OIN are attempting to standardize metrics for sustainable ocean funds, each individual fund still maintains its own unique set of metrics. This can create confusion for startups receiving investments from multiple ocean funds and raises the question: How would implementing a standardized menu of metrics and conversion rate affect the sector’s ability to assess the dollar value of these investments? Measuring a startup’s output indicators or return on investment is easy but translating the data into a quantifiable “return on impact” is much more challenging. Establishing a standard for determining the actual cost of factors, such as a kilogram of plastic in the ocean or fertilizer leakage, could include the expenses of cleaning up or savings generated by preventing such occurrences.
Although funds recognize the value of standardizing frameworks, impact measurement poses different challenges depending on the specific verticals within the blue economy. Funds have found it easier to measure impact in investments related to ocean-related energy solutions, while it is more difficult in aquaculture, fisheries, and ocean intelligence/data solutions. Ocean-based carbon dioxide removal (CDR) and ecosystem restoration fall somewhere in-between. Some frameworks suggest using qualitative metrics in the more challenging sectors, but there is concern about the credibility of such metrics.
While funds are clearly investing time and effort to develop proprietary strategies, numerous managers expressed a genuine interest in harmonizing approaches. The alignment of funds on impact measurement has the potential to facilitate the flow of much needed capital to accelerate the transition to a sustainable blue economy.
Excerpted from GreenMoney Journal, a strategic partner of Climate & Capital Media. For the full article, click here.
