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World Oceans Day: It's time to take action

Insight
11 June 2024 |
Impact
Protecting and conserving the marine environment is essential for human life and the economy as the oceans play a central role in regulating our climate.

However, following centuries of treating the oceans as an inexhaustible resource, at least a third of fish stocks are depleted.1 Meanwhile microplastic pollution has become endemic, with potentially dangerous consequences for human health.

In recognition of World Oceans Day last Saturday, in this article we explore the key threats to ocean health, the issues most critical to investors, and how Federated Hermes Limited (FHL) is playing its part in mitigating the issues.

The problem

The importance of oceans cannot be understated; they help mitigate some of the most severe effects of climate change and provide key ecosystem services. Not only do they generate 50% of the oxygen we need and capture 90% of greenhouse gas emissions2 ; they also drive economic progress and job creation. The ‘blue economy’3 – which includes activities such as maritime shipping and fishing – is estimated to be worth more than US$1.5tn4 per year globally, supporting almost 3 billion people’s livelihoods.5

Yet these vast resources are dwindling fast. Climate change, pollution, and overfishing are threatening the sustainability of our oceans. Human activity has had severe ecological consequences for marine ecosystems. The oceans are a prime example of a tragedy of the commons, where an open access resource is depleted to the detriment of all.

Compounding this issue is the global shortfall in funding. The Sustainable Development Goal (SDG) related to ‘Clean Water and Sanitation’ (SDG 6) requires an additional US$500bn per year to be met6, while the SDG related to ‘Life Below Water’ (SDG 14), which aims to conserve and sustainably use the oceans, seas, and marine resources for sustainable development, requires an additional US$300bn per year to be met. For this reason, the protection of marine biodiversity has only been achieved in 11% of countries.7

Since this gap is acknowledged as a key barrier to sustainable development, water is increasingly identified as a leading environmental, social and governance theme, representing both risks to those companies negatively impacting ocean health, and investment opportunities for corporates and investors who can meet the increasing demand for solutions that reduce harm or help to regenerate the ocean.

The oceans are a prime example of a tragedy of the commons, where an open access resource is depleted to the detriment of all.

Key issues and how to address them

Water lies at the centre of the climate crisis. The majority of climate change impacts are water-related, including water pollution, sea level rise, and drought. The ocean is by far our largest carbon sink and given the systemic risks posed by climate change, further harm to oceans may pose material risks to investments made by financial institutions. As the scale and severity of the impacts from marine pollution and resource depletion triggers greater regulation, customer concern, and changes in market dynamics, companies will have to better understand how they contribute to the crisis and their consequential exposure to commercial, legal, and reputational risks across their value chains.

Below we highlight the issues we deem some of the most critical to investors and what addressing these issues would look like:

Overfishing:

Overfishing occurs when too many fish in a particular stock are caught and there are not enough adults to breed and sustain a healthy population.8 One-third of the world’s assessed fisheries are currently pushed beyond their biological limits at present, according to the Food and Agriculture Organization of the United Nations.9

Addressing the issue:

To address this issue and mitigate the associated financial and reputational risks to companies, responsible fishing and aquaculture practices need to become the norm and animal protein consumption must be reduced. There are business opportunities for companies linked to more sustainable fishing and aquaculture practices and plant-based or alternative proteins. Investors should expect companies to show to what extent sustainable fishing practices are used, to demonstrate the traceability of their seafood supply chain, and to put in place policies to mitigate any significant negative impact on marine wildlife associated with their operations and supply chain. Priority sectors include aquaculture, wild-catch fisheries, food producers, restaurants, consumer goods, and retailers. There is also a role for policymakers to play to ensure minimum safeguards, for example issuing regulation on catches to reduce overfishing and creating long-term bycatch10 reduction plans.

Pollution:

Pollutants and toxic materials, such as chemicals, industrial waste, oil, and plastics, can cause significant harm to ocean ecosystems. Sewage plants, chemical fertilisers, and pesticides can cause eutrophication11, which is when inorganic nutrients, such as nitrogen and phosphorus, fuel the excessive growth of algae and aquatic phytoplankton. This results in oceanic dead zones devoid of native plants and animals due their low levels of oxygen.

Addressing the issue:

As plastic pollution is a transboundary issue, an ambitious and effective plastics treaty that provides the right international policy framework and creates the enabling conditions for the much-needed investments in infrastructure, innovation, and skills worldwide is crucial12,13.The fourth round of talks for a Global Plastics Treaty concluded in Canada in April with a disappointing decision to exclude discussions on the production of primary plastic polymers – a key root source of plastic pollution.14 Investors should use their influence to engage with both companies and policymakers and voice their concerns about polluting activities. Depending on the sector, this might mean calling for a reduction in the use of harmful substances that end up in the oceans, such as single-use plastics, and better substance management and processes to address issues such as chemical runoff.

Deep-sea mining:

Deep-sea mining is the process of extracting and often excavating mineral deposits from the deep seabed. The deep seabed is the seabed at ocean depths greater than 200m and covers about two-thirds of the total seafloor.15 Despite research suggesting that deep-sea mining could severely harm marine biodiversity and ecosystems, there is growing interest in the mineral deposits within the seabed due to depleting terrestrial deposits of metals such as copper and nickel which are key to the transition to a net-zero economy.16

Addressing the issue:

Deep-sea mining in international waters could commence as soon as 2026, so regulations, standards and guidelines are urgently required to effectively oversee the issue. As the deep sea remains understudied and poorly understood, there are many gaps in our understanding of its biodiversity and ecosystems. Therefore, governments should ensure that before permitting deep-sea mining, they take time to understand the risks in full and explore alternative methods of obtaining the minerals needed for the transition in a way that will cause less harm to the environment for example through the circular economy, before permitting deep-sea mining to proceed.17 Due to the lack of scientific certainty and the high risk to the ocean environment from deep-sea mining, countries, companies and investors should consider lending their voice to calls for deep-sea mining to be halted until there is greater scientific evidence on the risks and whether there are viable alternatives. Companies should also publicly disclose their exposure to deep-sea mineral extraction companies and mined minerals in their production and supply chains, and ensure they responsibly source raw materials.

Water lies at the centre of the climate crisis; the majority of climate change impacts are water related, including water pollution, sea level rise, and drought.

How FHL is playing its part

Both EOS, our in-house stewardship service, and our advocacy team have a strong track record of engagement with policymakers on themes closely associated with oceans.

We have engaged with policymakers to ensure that the right frameworks and incentives are being established to protect ocean health and account for the externalities that damage oceans. This includes advocating for governments to put plans in place to meet the Global Biodiversity Framework ‘30 by 30’ target. This target is to ensure that ‘by 2030 at least 30% of terrestrial and inland water areas, and of marine and coastal areas, especially areas of particular importance for biodiversity and ecosystem functions and services, are effectively conserved and managed’.18

We have also advocated for action to mitigate the specific activities that are harming the oceans. For example, in 2023 FHL signed a joint statement co-ordinated by Finance for Biodiversity urging governments to not proceed with deep seabed mining until the risks are comprehensively understood, and alternatives to deep-sea minerals have been fully explored. We are members of a number of industry initiatives which are supporting efforts to reduce harmful impacts on oceans. Most recently, EOS joined as a supporter of the Business Coalition for a Global Plastics Treaty; a group of businesses supporting the development of an ambitious and effective global treaty to end plastic pollution.

At the corporate level, EOS has a strong record of engaging with companies on themes closely associated with oceans (i.e. pollution, climate change, biodiversity, and sustainable food systems). However, to inform this engagement as well as our investment decisions, we recognise the need for better data. That is why FHL co-developed a statement alongside several of our peers to mark World Oceans Day to ESG data providers highlighting the urgent need for better ocean-related data to make informed investment and engagement decisions.

Read our 2023 FHL Stewardship Report, to learn more about our continued stewardship work across asset classes last year and the outcomes of these activities.

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