Impact Bonds: A Scalable Solution to Sustainable Fisheries?

The world’s oceans face unprecedented pressures from over-exploitation, pollution, and the effects of climate change. The pressures on fishing stocks are particularly acute in emerging economies such as the Philippines, where more than 90 million people depend on fish for the bulk of their protein consumption and the fishing industry directly employs 1.4 million people. In Africa, fish compose a startling 40 percent of protein intake across the continent. As populations grow and economies develop, the pressures on already depleted fish stocks will only increase.

While the challenges facing global fisheries are truly daunting, fish stocks have proven surprisingly resilient and sustainable. With proper management practices limiting take, establishing closed seasons, protecting spawning grounds, and enforcing the use of proper gear—nets, traps, and lines—many fisheries can quickly recover. But while there are many sustainable fisheries management solutions that yield proven economic and environmental benefits, most face a common challenge: They require large upfront investments. If we want to achieve scale in sustainable fisheries, we must develop financial tools that allow industry and governments to realistically cover these upfront costs.

Here, the promising new concept of a recent financial innovation, development impact bonds (DIBs), or “pay for performance” contracts where investors assume performance risk for implementing proven programs, may offer a potential solution for scaling sustainable fisheries management. Donor agencies such as the Department for International Development are already piloting DIBs as a means to address a range of development challenges, particularly in the health and education sectors. Goldman Sachs, McKinsey, and other leaders in the investment and finance sectors have issued reports highlighting their potential.

While much of the focus to date has been on applying DIBs to health and educational challenges, the recent SSIR article “Bringing Social Impact Bonds to the Environment” highlighted the potential of impact bonds to address environmental issues. We believe that fisheries could offer an ideal application for an impact bond in developing countries. DIBs require three things: proven causality between the intervention and the outcome, a measurable financial return, and a clear success metric.

One solution, properly managed marine protected areas (MPAs), offer all these things. MPA managers can prohibit access to specific areas, restrict equipment, set fishing quotas, issue licenses, and manage MPA activities by zone and season. These policies have a direct impact on the growth of fish stocks in the MPAs and surrounding areas. They also provide both economic and ecological returns to local populations and governments by protecting endangered fish, wildlife, and marine habitats; renewing and maintaining fish stock; attracting marine tourism; and increasing the tax base. Non-extractive users, such as those involved with ecotourism and diving, benefit from greater habitat complexity and diversity, as well as higher density levels.

Furthermore, in one of the first studies of its kind, the Nature Conservancy, the Australian government, World Wildlife Fund Indonesia, and the World Bank showed that MPAs can alleviate poverty. The study showed a significant increase in average incomes in Navakavu, Fiji, in communities where an MPA were recently implemented.

MPAs are a logical choice for DIBs—they are proven, flexible interventions that provide measureable results. By amortizing the upfront expenditures over time and eliminating performance risk, a DIB can provide a strong incentive for governments and investors alike to finance sustainable fisheries management practices. Importantly, because improved fisheries management increases incomes, and by extension, government tax revenues, it may be possible to structure an MPA-focused DIB in a manner that is essentially self-financing, with payments offset by increases in tax receipts.

DIBs can also be used to address other challenges in fisheries management. For example, in many countries, such as Ghana, the government provides fuel subsidies for fisherfolk. These subsidies make fisheries management extremely problematic, creating an incentive to over-exploit an already depleted resource. A DIB could be used to repurpose the subsidy to support a mechanism for providing payments to fisherfolk during a no-take season.

DIBs present a unique opportunity in tipping the scales towards lasting and scalable reforms in funding sustainable fisheries management. Governments and donors can mobilize private capital to fund upfront investments in proven interventions that deliver both environmental impacts and financial returns. By driving private investment toward sustainable fisheries management, we can create market incentives that will preserve biodiversity and ensure that fisheries can meet food security needs.

Read more stories by Steve Schmida.