Blue Bond Could Solve China’s Over-fishing Risk
Climate change and stricter regulation are pushing tuna and squid fishing vessels into unregulated waters, posing new risks, says Planet Tracker.
In the Pacific Ocean south-east of Indonesia, fishing boats painted with Chinese characters are a common sight as they trawl the tropical waters in search of the world’s most-consumed fish: tuna.
The fisheries between Papua New Guinea and Tokenau – known as the Western Central Pacific – are unusually rich in this popular seafood, providing around half of the world’s supply. Chinese fishing companies are by far the region’s biggest exploiters.
Despite being home to relatively under-developed nations, Western Central Pacific is one of the best-regulated tuna fisheries in the world, thanks to a 40-year-old document known as the Nauru Agreement, which limits vessels’ fishing time and ensures local island nations receive compensation for their natural capital.
It’s thanks to this agreement – and not to the sustainability standards of Chinese fishing companies – that the tuna population has remained relatively stable in the region.
But think tank Planet Tracker warns in a new report that this situation may not last. Climate change is pushing tuna into deeper waters in the high seas and other less well-regulated jurisdictions, and Chinese vessels are likely to follow them, posing new risks to ocean biodiversity.
Meanwhile, a World Trade Organisation agreement to crack down on subsidies, which China has ratified, could further challenge the profitability of China’s huge fleet of distant water fishing vessels, likely encouraging the sector to cut corners on both environmental and labour standards.
The report, entitled ‘Fishful Thinking’, has proposed an answer to these problems: the Chinese government should spend around CN¥5.5 billion (US$760 million) fitting out all of China’s distant-water fishing vessels with monitoring equipment and, in many cases, on-board monitoring officers, to ensure they maintain sustainable practices and labour standards wherever in the world they go.
It proposed raising the money via a “sustainability-linked blue bond”, customers of which would likely include global asset managers running sustainable bond strategies. Planet Tracker called on these investors to communicate demand for such an instrument – which it called a ‘Hai Feng’ of ‘ocean abundance’ bond – to China’s government.
“There has been a lot of noise on the Chinese fishing supply chain, which has not been covered in a friendly way by western media,” Francois Mosnier, Head of Ocean Programme at Planet Tracker, told ESG Investor. “We believe this would be an opportunity to completely change that, for China to show ambition and leadership. They could then say, ‘We are leading on sustainability.’”
China’s distant-water tuna fishing sector relies on the central-western Pacific region for half of its annual profits. However, that area is highly vulnerable to climate change, with models predicting it could lose up to 20% of its tuna population as a result of global warming – further pushing it to the high seas and out of regulated territories.
“This will force the Chinese distant-water fishing fleet to act, as such a drop in catch would result in an estimated 29% decrease in the fleet’s profitability,” the report said.
This trend may also direct vessels to east African waters, which are much more poorly-regulated than the Pacific island nations’ waters.
The subsidies problem
China’s distant-water fishing fleet – that is, vessels that fish in foreign waters – is by far the biggest in the world. In 2022, the Chinese fishing companies caught 2.3 million tonnes of seafood outside its own waters, mostly tuna and squid. That was more than double the number captured by the second largest fish-catching jurisdiction – the European Union, according to its own figures.
But the Asian nation’s distant-water fleet is in poor financial health and heavily dependent on government handouts. According to Planet Tracker, Chinese companies deliver profit margins of just 14% on average, close to half of which come from state subsidies.
This is a problem because in 2022, WTO members signed the Agreement on Fisheries Subsidies – essentially banning subsidies on a range of unsustainable fishing practices including illegal, unreported and unregulated (IUU) fishing; fishing of overfished stocks; and fishing on the unregulated high seas.
While this is ostensibly good for ocean health, it has hit squid-fishing particularly hard, as most of it takes place in high seas and is much less profitable than tuna fishing.
Planet Tracker warned this could lead China to eschew the rules altogether, as well as further squeeze pay and labour conditions. Only increased monitoring could ensure this does not happen, it argued.
Investors’ role
The report suggested that the money raised through the Hai Feng bond should go towards funding an observer programme, and remote electronic monitoring and traceability systems across the entire Chinese distant water-fishing fleet.
It proposed linking the coupon to sustainability outcomes, so that the interest rate would increase when monitoring and traceability targets are not met.
“Achieving a 100% coverage rate would ensure comprehensive monitoring and data collection, strongly reducing IUU fishing risks, labour abuse and other forms of fisheries crimes, while derisking seafood supply chains,” Planet Tracker said.
But a number of obstacles stand in the way of achieving that goal, including lack of enforceable sustainability regulations in China, absence of traceability standards, and a culture in the sector that does not focus on sustainability issues.
The report said investors should press the issue, saying this would “foster a collaborative effort between investors and governments to engage on sustainable practices”.
“This is essential for turning the tide on the environmental and social harms caused by China’s distant-water fishing fleet and would help mitigate risks, support ocean health and secure long-term profits,” it said.
Mosnier added: “If large holders of Chinese debt have discussions with China or representatives of China, [then] the mere fact that they are talking about these issues will signal, in my opinion, that China has to take this seriously.”
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