The âblue economyâ is going greenâ¦ and it’s time for investors to realize it.
But first, what is the blue economy?
The World Bank defines it as âthe sustainable use of ocean resources for economic growth, improved livelihoods and jobs while maintaining healthy ocean ecosystemsâ.
The European Commission, on the other hand, defines it as âall economic activities linked to the oceans, seas and coasts. It covers a wide range of interconnected established and emerging industries.
The blue economy supports many sectors, including aquaculture, coastal tourism, fisheries, shipbuilding, port activities and shipping.
One of the most important sectors of the blue economy has been the production of oil and gas. And unfortunately, waste disposal – both intentional and unintentional – is also part of the blue economy (at least as defined by the European Commission). Overfishing too.
But now the blue economy is going green in different ways.
The blue economy is starting to take its environmental impact seriously into account.
For example, areas that once housed oil and gas platforms are increasingly being used as sites for offshore wind farms.
Additionally, excess energy from offshore wind can generate green hydrogen. This will power the newest ships in the world.
Desalination plants, many of which are powered by renewable energy, will provide fresh water to irrigate arid regions. And floating solar panels can now be found in oceans and other waters. The production of tidal and wave energy is also accelerating.
But let me explain what really drives the greening of the blue economy. Investors are increasingly focusing on companies that apply environmental, social and governance (ESG) standards to their operations.
In recent years, the momentum for companies to adopt ESG standards has accelerated. By the end of 2020, 88% of public companies and 67% of private companies had adopted some form of ESG initiative.
Several opportunities to consider
The number of sectors and companies in the blue economy is so vast that the best way for investors to play it is by using one or more exchange-traded funds (ETFs) that are focused there.
Today, no blue economy ETFs are traded on US indices. However, there are a number of European ETFs that investors should have access to.
The first one I like is the ETF BNP Paribas ECPI Global ESG Blue Economy (France: BLUE). This ETF tracks the performance of the Global ESG Blue Economy Index, which is made up of companies involved in the blue economy.
The second is the Lyxor World Water UCITS ETF (London: WATC), an ETF that tracks the World Water CW Total Return Index. It invests in the 30 largest global companies that derive at least 40% of their income from water-related activities. These include companies involved in infrastructure, public services and water treatment.
The size of the ETF has doubled over the past three years. And as of June 2021, it was valued at Â£ 1.02 billion, or roughly $ 1.38 billion.
Some investors may be interested in individual businesses focused on the blue economy. There are three that are worth considering for trading on the US stock exchanges.
the United Utilities Group PLC (OTC: UU.L) aims to reduce water leakage by 15% and water pollution by 20%.
Xylem (NYSE: XYL) uses artificial intelligence to reduce pipeline failure costs by 80%.
And finally, Essential utilities (NYSE: WTRG) is a leader in water desalination.
As the blue economy becomes greener, interest in these companies and others like them will only increase.
Investors may want to position their portfolios to take advantage of developments in the blue economy sooner rather than later.