CONTRIBUTORS
David Zahn, CFA, FRM
Head of European Fixed Income,
Franklin Templeton Fixed Income
Justyna Tasic, Ph.D.
Senior Sustainability Manager
Franklin Templeton Fixed Income
Kasper Hanus, Ph.D
Senior Sustainability Manager,
Franklin Templeton Fixed Income
Ania Cwojdzinska, Ph.D.
Impact Analyst
Franklin Templeton Fixed Income
Audrey Ambre Vire
Sustainability Analyst
Franklin Templeton Fixed Income
Introduction
Both marine and inland waters have a tremendous impact on the global economy, as they support a variety of industries, including fishing, tourism, trade and energy. Protecting these vital resources and investing in their sustainable management is crucial for maintaining their economic benefits. Investors can have a significant impact by supporting water-related projects, and an emerging class of water-impact bonds offers a unique opportunity to gain direct exposure to these initiatives. By investing in water-impact bonds, investors can contribute to the conservation and sustainable use of water resources, ensuring their continued economic and environmental value.
Effective water management is crucial for climate resilience, because water resources are increasingly threatened by climate change. By managing water efficiently, communities can better withstand and adapt to extreme weather events, such as droughts and floods, thereby safeguarding their livelihoods and ecosystems.
Both excessive and insufficient amounts of water can have detrimental effects on economic activity. Recent floods in the United States and in central and eastern Europe, such as those in September 2024, caused extensive damage to infrastructure and housing, leading to billions in recovery costs and significant economic disruption. Similarly, droughts have severely impacted electricity production; for instance, the 2024 drought in the Pacific Northwest of the United States reduced hydropower generation by 13% compared with the average over the last 10 years.1 These examples highlight the critical need for effective water management to mitigate the economic risks associated with extreme weather events.
Marine life plays a vital role in the global economy. The fishing industry, for example, supports the livelihoods of approximately 58.5 million people worldwide, with around 600 million people depending on fisheries and aquaculture for their income. In 2019, aquatic foods provided about 3.3 billion people with at least 20% of their average intake of animal protein.2
Additionally, marine ecosystems contribute significantly to tourism. Coastal and marine tourism is valued in the trillions of US dollars, attracting millions of visitors annually and supporting local economies. The ocean also plays a crucial role in global trade, as it facilitates the movement of goods across the world.
In this paper, we believe the immense economic value of marine life is evident and makes the sustainable management and conservation of marine resources crucial for the global economy.
EndNotes:
- Source: “Drought conditions reduce hydropower generation, particularly in the Pacific Northwest.” U.S. Energy Information Administration. November 2024.
- Source: “Blue Economy.” World Bank. April 2024.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt.
The manager may consider environmental, social and governance (ESG) criteria in the research or investment process; however, ESG considerations may not be a determinative factor in security selection. In addition, the manager may not assess every investment for ESG criteria, and not every ESG factor may be identified or evaluated. The managers’ environmental, social and governance (ESG) strategies may limit the types and number of investments available and, as a result, may forgo favorable market opportunities or underperform strategies that are not subject to such criteria. There is no guarantee that the strategy's ESG directives will be successful or will result in better performance.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.